Homeowners defaulting on mortgages today may be surprised to learn years from now that they still owe thousands of dollars — and a collection agency is coming after them to get it.
That's because lenders have been quietly selling second mortgages and home equity lines left unpaid after foreclosures and short sales. The buyers: collection agencies, which in California have up to four years to make a claim.
If they win court judgments, these collectors could have years to pursue borrowers with repayment plans, and even garnish their wages, said Scott CoBen, a Sacramento bankruptcy attorney.
"The only relief a consumer will have is entering into a debt negotiating plan or filing for bankruptcy," said Sylvia Alayon, a vice president with the New York-based Consumer Mortgage Audit Center. The firm provides mortgage analysis to lenders, advocacy groups and attorneys.
The phenomenon suggests an ominous, looming echo of today's real estate meltdown. As debt collectors surely seek at least partial repayment of millions of dollars in unpaid Sacramento home loans, some say renewed financial stresses on tens of thousands of local consumers could dampen economic recovery.
"I think there will be a lot of unhappy people when it hits," said CoBen. "We saw this in the '90s. This is not really new. Just when you think you're back on your feet, you're making money and the economy's good, they hit you with this."
Alayon said most people are so stressed out and exhausted by trying to save their homes today that they are unaware they could face another hit later. And many who are losing homes don't get the advice necessary to prevent future fallout, say nonprofit loan counselors.
"You've got tens of thousands of people in California who have this hanging over their heads who don't even know it," said Scott Thompson, principal at for-profit Carmichael-based Mortgage Resolution Services. He fears a new wave of bankruptcies might flatten people just starting to recover from losing their homes.
"So many of these are people with 750 or 800 credit scores who made a bad decision," said Thompson. "Or they're people who suffered income cuts. These are people, in terms of the economy, whom we need to participate."
But an entire industry is gearing up to buy their debt at deep discounts and collect what they can, Alayon said.
"It's a big business and investors are coming out of the woodwork. It's a very lucrative business," she said. Real estate insiders and financial players know it as "scratch and dent."
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