Behind On Your Mortgage? Your Bank Accounts Could Be Tapped For Back Payments!
Let's talk about banks, and more importantly, what you need to do to protect yourself against some of the current policies and actions that many banks are taking to reduce their risk against default. It's best summed up in the following little story:
We have a client who fell behind in their house payments. He was a homebuilder who simply lost his source of income due to the economic downturn. Although his wife was able to keep her job, the single paycheck was not enough to pay all the bills. They listed their home with us, but based on the amount of the mortgage, they were upside down, owing about two hundred thousand dollars more than the home was worth in today's market.
Our client made repeated attempts to contact the first and second mortgage holders, asking for their assistance in evaluating the home for a short sale. While the first mortgage holder was receptive to considering a short sale option, the second mortgage holder, Wells Fargo, was not. We also tried to contact Wells Fargo in our client's behalf, but the appointed bank representative would not take or return our calls.
Here is where things go from bad to worse: About a month ago, our clients mother, a 73 year old widow whose main income is social security, received a notice from her bank (yep, you guessed it, Wells Fargo) that her checking account was overdrawn and several checks had bounced. At first, the local bank employees would not tell her what had happened to the approximately $2000 that had been mysteriously withdrawn from her account. But after she threatened the branch manager with arrest for theft, he reluctantly admitted that Wells Fargo had , without permission and without prior notice, withdrawn the money and applied it to her son's delinquent account.
How could they do it? Because several years prior, she had added her son's name to her account as part of her estate planning to give her son access to the account at the time of her death. Even after repeated explanations by her son - citing that the money in this account belonged to his mother and he had never deposited any of his funds into the account – the bank refused to return the money, saying that because his name had been added to the account, the money was equally his - and subject to confiscation by the bank.
The process is called "offsetting", and it allows the bank holding a delinquent mortgage to search for assets under their management or in some cases, the management of financial partners, and simply take the money owned to them without notice.
Is it legal? I don't know. I'm not a lawyer. Is it ethical? Not in my opinion. The withdrawal of funds from the mother's account created financial hardship. It also affected her health, requiring a doctor's visit and medication for stress and insomnia. Even though the son's name had been added to the account years prior, the money it contained was not his, and accordingly, should not have been subject to confiscation for his debts.
So have banks become this ruthless? Obviously, some have. The lesson? If you anticipate falling behind in any of your financial obligations, make sure you remove any money you have in banks and other financial institutions under the same name or financial family umbrella. The loss of a job and income is difficult enough without the added stress of having your remaining cash stripped away without notice. Preserve your right to manage your money, especially during times of hardship, by reviewing loan documents, moving and/or closing bank accounts if necessary to eliminate unauthorized access to your funds by creditors, and finally, spend the money to have an attorney make a review of your situation, it can save you thousands in the long run. (Obviously, set a time/cost limit on any lawyer's services, making sure he/she can accomplish what you need within an affordable limit.)
There's more about the banking situation and how it is affecting the real estate market in the current issue of our newsletter, scheduled to be mailed on Friday the 10th. If you're not currently receiving our newsletter and would like to, drop us an e-mail at jillreid@jillreid.com and tell us where to send it.
Posted at 02:16PM Jul 08, 2009 by Jill Reid in Real Estate |
