One of the most enduring consequences of foreclosure tends to be the existence of a second mortgage/HELOC. Even though they may not be collecting, these accounts can remain open on a borrower’s credit reports for years depending on their state’s statute of limitations. Until that statute of limitations expires, lenders can choose one of three options: write off any remaining debt as a loss, sell it to a third party debt collector, or pursue a deficiency judgment. Historically, deficiency judgments are very rare. However, there is no way to predict how a lender will proceed in any particular situation. The deficiency judgments pursued have been against borrowers in a wide variety of financial situations.
To avoid the possibility of a deficiency judgment, some borrowers wish to negotiate a settlement of the account. This can be done by the borrower personally or through a third party debt settlement entity. We have seen nothing to suggest that attorneys or third parties have the ability to obtain settlements any lower than the borrowers themselves. In any case, it is important for borrowers to be aware of their rights during the settlement process. You should be aware that although debt collectors make many claims and threats, they cannot garnish or levy any of your assets without first:
• Filing a lawsuit against you
• Providing you with notice of the court action
• Giving you due process to appear before a court of competent jurisdiction
• Trial on the merits of the case and
• Final judgment or decision of the court.
The IRS and the State are the only entities that can legally seize your assets or levy your bank account without due process (i.e. filing a lawsuit).
Prior to the initiation of settlement negotiations, it is important to determine the true amount of the debt and verify its validity. If requested, collectors must provide you with actual proof of your debt. Within 5 days after first communicating with you, the collector must mail you a disclosure containing a statement that you are entitled to dispute the debt. Oftentimes, the first communication with you will be this letter. Regardless, within 30 days of receiving this disclosure, you are entitled to dispute the debt which requires the collector to forward to you verification of the debt.
Before you pay anything, talk to anyone or give out personal information, look at your credit report and make sure the account in question is listed.
Once an agreement is reached, demand the terms in writing. Get a letter faxed or mailed with the settlement agreement. If they say they can’t hold the settlement – they are lying. Never postdate a check as some agencies will run it early. Never write a check if the funds are not in the bank as they may process the check anyway. And ALWAYS be sure to get a “paid in full” letter when the transaction is completed.Tweet