As Americans slowly rebuild their finances in the aftermath of the financial crisis, debt collectors are lurking around asking for the money that borrowers unknowingly still owe by freezing their bank accounts, garnishing their wages and seizing their assets. Per Reuters:
While banks have usually sold the houses by now, the article noted that the proceeds of those sales were often not enough to cover the amount of the loans, plus penalties, legal bills and fees.
Using a legal tool known as a "deficiency judgment," lenders can ensure that borrowers are haunted by these zombie-like debts for years, and sometimes decades, to come. Before the housing bubble, banks often refrained from seeking deficiency judgments, which were seen as costly and an invitation for bad publicity. Some of the biggest banks still feel that way.
But as the article noted, times have changed and lenders were saddled with more than $1 trillion of foreclosed loans, leading to unprecedented losses.
Now, at least some large lenders want their money back, and they figure it’s the perfect time to pursue borrowers: many of those who went through foreclosure have gotten new jobs, paid off old debts and even, in some cases, bought new homes.