Can they take your checking and savings accounts if you're in foreclosure?

Answer 1

Generally, no. Foreclosure is the recovery of an asset that has been pledged to secure the mortgage loan so that it can be sold to pay off the loan. It is not a lawsuit for a judgment for the money owed. The reason is that if the property does get sold, the proceeds go to pay off the loan. If there is equity in the house and it is sold for more than the loan amount, the proceeds will be sufficient to pay the loan in full and you will not owe the lender anything. Thus, the lender does not get a money judgment and cannot execute or place a lien on your bank accounts. Sale proceeds over the amount of the loan are given to the debtor. There are two further protections for persons in foreclosure. In general when a mortgage loan is in default, mortgage lenders are precluded from suing for the money owed before they foreclose and sell the property. This ensures that the security is sold first, then if the proceeds of the sale are insufficient to pay the debt, the lender seeks what is called a deficiency judgment. Theoretically, this is the amount of the debt less the proceeds of the foreclosure sale; but it is not that simple, because of the second protection. The second protection is that generally the debtor is given what is called a fair market value credit against the amount of the debt. This means that no matter what the foreclosure sale produces in cash, the debt will be reduced by at least the fair market value of the house. This is very important, because foreclosure sales tend to bring in less than the market value of the house. It would be inequitable to the debtor if a bank or buyer were able to obtain the property on the cheap, then sell it at market value for a quick profit, leaving the debtor with a huge deficiency judgment. Speculators at foreclosure sales would rake in profits when they flip the property all at the expense of the debtor. Sometimes at foreclosure sales no one wants to buy the house no matter what the price. So the bank makes an initial bid of $100.00 and if no one else wants to bid higher, the bank takes it. The bank will not be allowed to sell the house at market value, then sue the debtor for the total debt minus $100.00. Essentially, the bank is not permitted to grab your bank accounts unti it gets a deficiency judgment. The bank cannot get a deficiency judgment until the actual amount of the debt is determined and that can't be determined until after subtracting the fair market value credit from the actual debt. By the way you're probably wondering why wouldn't someone bid $101.00, then keep bidding in small increments hoping to get a steal. This won't happen, because at the start of the sale, the bank attorney will announce to everyone that it is prepared to and will bid up to the amount of the debt. This keeps the speculators from making bids that are so high that it won't be profitable to them when they flip the house later, especially if the loan amount is close to the fair market value amount. The speculators know this is one of the unwritten rules of the foreclosure game and they abide by them. Remember though that legal questions always depend on the laws of the state in which the issue exists, so the answer may vary state to state. You must check your own state's laws to know exactly what will happen.