COMMENTARY | Deficiency judgments are probably the last thing any homeowner under threat of foreclosure wants to think about.
For the uninitiated, a deficiency is when the proceeds from a foreclosure sale, or a short sale, don't cover the balance of the mortgage loan. In a recourse state, such as Florida or 39 other states, it is legal for the lender to go after the homeowner for that deficiency when a deficiency judgement is awarded.
My experience has been that if a bank actually does bother to seek a deficiency judgement, there is a good chance it can either be severely reduced or negotiated, especially if you have an attorney.
But it looks like the pendulum is starting to swing in the other direction, if you have a loan backed by Fannie Mae or Freddie Mac.
A report just released by the inspector general for the Federal Housing Finance Agency (FHFA), which oversees both of the government-sponsored enterprises, suggests Fannie and Freddie should be much more aggressive in recovering deficiency judgments, in order to mitigate their losses.
The FHFA stresses their report is not an "encouragement to aggressively pursue borrowers who do not have the ability to pay their mortgages." (Of course you can't squeeze blood from a turnip.) Instead it centers on an old and familiar target: the strategic defaulter.
Now the inspector general's office is just doing their job. They were asked to perform an audit, and they did. But there is a just a whiff of hypocrisy that is both arrogant and outrageous.
The FHFA acknowledges that they lost $187 billion, and had no problem being bailed out by the U.S. Treasury Department. The government bailing out its own, that's OK in their book.
But heaven forbid the government bails out the homeowner. The shareholders at Fannie Mae and Freddie Mac were making a fortune; the bondholders were making a fortune; the executives of these enterprises have been making absolute fortunes. They played the system so that losses would be socialized and profits would be privatized. Karl Marx must be laughing in his grave. They've bastardized our capitalist system and somehow made the homeowner the enemy.
It is absolutely offensive. If the government wants to target strategic defaulters, then they have to go after ALL of them. Because banks, businesses, and governments have proven time and time again that they are the biggest strategic defaulters of all.
If we are going to be subjected to the notion of moral obligation when it comes to the American homeowner, then I implore housing officials to apply that standard equally.
Don't just saddle homeowners with the bill, when they are not the ones who caused this mess. The housing crisis still lies at the foot of Wall Street.
If there is a morality adjustment that the FHFA needs to make, it starts there.
Real estate attorney Roy Oppenheim is the co-founder of Oppenheim Law in Fort Lauderdale, Florida, and Weston Title. He is also creator of the South Florida Law Blog, where he frequently provides "From the Trenches" commentaries.