Short Sellers, Foreclosed Borrowers May Be In For Big Surprise As Collection Firms Scramble To Buy Up Unpaid Loan Deficiencies

In Palm Beach County, Florida, The Palm Beach Post reports:

• Joshua Rand is the muscle. Not in a busting-skulls, Tony Soprano kind of way. But he does seek to collect, and sometimes even buys, the debt left by delinquent homeowners who walk away from their mortgages - the same borrowers who often assume that a foreclosure or short sale wipes out their loan balance, ending their liability.

• A principal in the New York-based Deficiency Judgment Recovery Network, Rand said he has "hundreds, maybe thousands" of home loans gone sour in Florida that his company, formed in late 2009, is working to collect balances from. Rand either is hired by lenders to collect the deficiencies for them or his company buys the debt in pools for pennies on the dollar, profiting on the back end by making a borrower pay up.

• "People are under the assumption that the banks are so busy modifying home loans that they don't have the bandwidth or stomach to go after those who are walking away. That's a bad assumption," said Rand, whose company motto is "We turn shortfalls into windfalls."

• A deficiency judgment, or claim, is basically the remainder owed on a home loan when a borrower goes into foreclosure or completes a short sale. [...] "These lawyer firms are salivating. They can't wait because they see huge opportunities to collect money," said Mark Greene, owner and president of Short Sale Operations LLC in North Palm Beach. "It's going to be a blood bath."

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• In Florida, a claim must be filed within five years, but the lender has up to 20 years to collect. So even if a borrower has no money today, he or she may rebound within the collection time frame. "People are broke right now, but they won't be broke forever," Greene said.

For the story, see Borrowers beware: Firms profit off defaults.