Do you know someone who purposely defaulted on his mortgage
even though he had the ability to pay it? Perhaps this person did not want to
waste his hard-earned income on mortgage payments but instead saved up for a
cruise to the Bahamas. Or maybe this person owed more than he originally paid
for the home and did not want to continue paying it any longer. Whatever the
reason, this person is not alone. There are thousands of these “strategic
defaulters” in the United States, many of whom get away with not paying
deficiencies because Fannie
Mae and Freddie Mac have been lax
in pursuing them.
Fannie
Mae and Freddie Mac are supposed to
evaluate every defaulter’s ability to repay the past due amount on their
mortgages. Even after foreclosure, these two government-sponsored enterprises
and many other lenders can still go after borrowers with deficiency judgments.
However, according to the recent report from
the Office of the Inspector General at the Federal Housing Finance Agency (FHFA), Freddie Mac did not evaluate nearly
58,000 foreclosures for deficiency collectability. That is $4.6 billion that
went unchecked and could have at least partially been recovered by Freddie Mac. Thousands of strategic
defaulters were set free of the past due amounts that they owed on their
mortgages.
The Office of the Inspector
General is rightfully horrified by these numbers and is fiercely recommending
the FHFA to oversee Freddie Mac’s deficiency recovery
strategies to ensure that these strategies become efficient and effective in
the near future. The fact that so many have gotten away with this practice in
the past few years only encourages more to do so.
No longer should strategic defaulters get away with robbery.
In a separate recent report, the Office of the Inspector General recommends the FHFA to closely oversee Fannie Mae’s deficiency
recovery strategies as well. From January 2010 to June 2012, Fannie Mae did not pursue
deficiencies in 29,692 foreclosures because the states’ statutes of limitation
for pursuing these deficiencies had expired or were about to expire. Fannie Mae is in a better
position than Freddie Mac in terms of
collecting on deficient judgments, but it can still drastically improve its
methods so that it can obtain deficiencies even in states with short deadlines
for filing claims.
If you have a loan insured by Fannie Mae or Freddie Mac and you strategically
defaulted on your mortgage, watch out. The two enterprises will not be lax any
longer.
Thank you to Lieb at Law's Assistant Case Manager, Jessica Vogele, for sharing this valuable information.
