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Banks May Not Garnish Social Security to Pay Mortgage Deficiency

Homeowners often believe that the beginning of a foreclosure action is the end of their story. The bank has my home, that homeowner may think. What more can they do to me now? Unfortunately, lenders still hold power in the form of mortgage debt, and they have been proven to use any measures possible to make up that debt, garnishing bank accounts and claiming other assets. However, banks do not have the right to go after federal payments from programs such as Social Security, and recipients often have to fight to maintain those payments.

After lenders foreclose on and repossess a home, they will then sell it, seeking to make up for the outstanding mortgage balance left by the homeowner who could no longer make mortgage payments. Often, a foreclosure sale will not fully meet the debt, forcing the bank to take a loss. In these situations, the bank will go to court and seek a deficiency judgment in order to collect the remainder of the money that is owed on a mortgage after a foreclosure sale has gone through.

Although the terms of such a judgment vary by state, a lender can typically take action such as garnishing a homeowner's bank account or freezing their wages in order to make up for the loss. In addition, a bank may be able to file a lien on a motor vehicle or a boat, although a different lender who is owed payment on a vehicle will have a higher priority.

One asset that is decidedly off-limits is Social Security, Supplemental Security Income, and similar federal payment programs, like unemployment. Although creditors may not legally take these payments, they often do so accidentally, by garnishing a bank account after a SSI payment has been placed in it.

In these situations, homeowners may reverse the garnishment in what can be a long and difficult process, according to James Clare. After the disabled homeowner was foreclosed upon, he found himself unable to access his disability payment. Clare eventually received his payment, but only after he agreed to bring some payments to the lender up to date. "I had no choice. It would have cost me more to go to court," he said. "By the time I'd pay all the fees and all the bills over a year or two, the money's gone."

Source: Orlando Sentinel, "Bank can go after other assets in Florida if you default on mortgage", Doreen Hemlock, 10 January 2011

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