Why Aren’t More Banks Pursuing Deficiencies?
It’s the housing market equivalent of “the dog that didn’t bark”: with hundreds of thousands of homeowners nationally on the hook for mortgage deficiencies in the wake of short sales and foreclosures, why aren’t more banks trying to collect?
Anecdotally, there appear to relatively few such actions, leaving lawyers, Realtors, and others befuddled — and legions of debtors no doubt relieved (at least for now).
“Blood From a Stone?”
In no particular order, here are the leading theories I’ve heard (none of which are mutually exclusive):
â€¢What at first blush appears to be bank forbearance is in fact just cold, business logic: the vast majority of such debtors are what lawyers call “judgment-proof”, i.e., they don’t have any assets the banks can recover.
â€¢The banks are too overwhelmed/understaffed to pursue such judgments.
â€¢The banks don’t own the debt anymore — they’ve sold it off, along with any rights to deficiencies, to third parties (something akin to this phenomenon is supposed to be muddying efforts to contain the potential fallout from any Greek default).
â€¢For humanitarian reasons, the banks have decided — at least temporarily — not to pursue people who’ve lost their homes due to job loss, serious illness, etc.
OK, so that last one’s probably just wishful thinking; some combination of the first three theories is more likely responsible.