The fight for their home ended long ago with the fall of a foreclosure court gavel — or so they thought.
This summer, hundreds of South Florida residents are facing new foreclosure ramifications as banks pursue the unpaid mortgage debt for homes that were sold at the auction block up to five years before.
In a month-long period beginning June 1, about 110 lawsuits were filed in Palm Beach County against former homeowners by a Texas-based debt collection company named Dyck O’Neal. The same firm filed more than 300 cases in Broward County and nearly 200 in Miami-Dade County.
The lawsuits seek to collect deficiency judgments — the balance left on borrowers’ unpaid mortgages after deducting for what was recouped at a home’s foreclosure sale.
Homeowner attorneys interviewed by The Palm Beach Post were surprised to learn that Dyck O’Neal is filing on behalf of federal mortgage backer Fannie Mae, which has stepped up its efforts to collect back mortgage debt.
Until now, deficiency judgments were so rarely sought that many homeowners gambled the banks would never come after them — walking away from homes they could afford but that were so underwater the investment no longer made sense.
Others had no idea what lurked years down the road, thinking that losing the house was the worst that could happen.
“The whole thing was devastating,” said Palm Beach County resident Rose Weinstein, who had an Orlando condominium foreclosed on in 2010 and a deficiency lawsuit filed against her June 29. “I had lost my job, I lost the condo and now here I am being sued by some bozo company bottom-feeder.”
A change in Florida law that went into effect July 1, 2013 reduced the timeline that banks and mortgage companies have to file for a deficiency judgment from five years to one year after a foreclosure is final, which is when the home is sold at auction. That meant cases that weren’t already timed out had just one more year to file.
The law change, however, did not alter the 20 years that debt collectors are allowed to collect on the debt once the claim has been filed by garnishing wages, placing liens on investment properties or drawing from other assets.
While tens of thousands of South Florida borrowers whose foreclosures were finalized within the five years leading up to July 1 have now escaped the threat of a deficiency judgment, many of those who didn’t have been stunned.
“People are getting served with these deficiency suits and are absolutely shocked,” said Paul Baltrun, director of corporate development for the Law Office of Paul A. Krasker in West Palm Beach. “The size of the judgments — we’re not seeing $30,000 — these are at a minimum of $100,000.”
The suit against Weinstein, which was filed in Orange County, could seek as much as $170,000, her attorney at the Krasker law firm said.
Dyck O’Neal did not return a message seeking comment for this story. Fannie Mae spokesman Andrew Wilson confirmed Dyck O’Neal is filing the lawsuits in Dyck O’Neal’s name but “at the end of the day, they are pursuing the debt for (Fannie Mae’s) benefit.”
Wilson said the government-sponsored entity wanted to preserve its right to collect on the deficiencies, explaining the rush to file before July 1. He said Fannie Mae is strategically pursuing former homeowners who may have walked away from their mortgage even though they had the ability to pay.
In 2011, FICO, the nation’s leading credit-scoring company, announced it had developed a way to identify borrowers who could afford to pay their mortgage but chose foreclosure instead — often as a way to stay in their homes payment-free for years as their foreclosure wended its way through the courts.
Wilson didn’t want to elaborate on how Fannie was identifying former homeowners, but FICO’s tool looked at factors such as spending habits, whether other debts were being paid, and housing depreciation.
“When someone had the ability to pay their mortgage, but chose not to, that caused losses to Fannie Mae that we should not have suffered,” Wilson said. “We have the right to pursue those payments and try to reduce those losses.”
But attorneys said they also believe some former homeowners are being pursued if their financial situation has improved since the recession, such as finding a full-time job.
“These people have started over and thought this was behind them, but it’s like the night of the walking dead. It’s a new nightmare coming after them,” said South Florida real estate attorney Roy Oppenheim.
Not everyone who lost a home during the recession owes a deficiency. Former homeowners who went through a short sale, deed-in-lieu of foreclosure, or defended their foreclosure in court, were often able to get their deficiency judgments waived by the bank, Oppenheim said.
Homeowners facing a deficiency judgment may be able to negotiate the debt down, or could declare bankruptcy if they can prove they don’t have the assets to make payments.
Attorneys who have battled the banks for years in foreclosure court, say the recent uptick in filings is just the tip of the iceberg. The new one-year timeline to file following the final judgment will act as a motivator for banks to file.
“The shorter deadline means they have a shorter time to make a decision, and I think they will err on the side of filing,” said foreclosure defense attorney Michael Wasylik. “In March, no one had ever heard of Dyck O’Neal. It’s definitely a phenomenon.”