If I Get Foreclosed on, Can the Bank Go After My Retirement Benefits?

by Richard Morgan ; Updated July 27, 2017
Depending on circumstances, lenders can pursue payment after foreclosing.

When a property is foreclosed on, the lender regains control of the property. Depending upon the circumstances, the property can either be put back on the market at a reduced price or it can be sold at auction. If the bank does not receive the amount of the outstanding loan, it can come after the borrower for the difference.

Loan Difference

When a bank forecloses on a property, it targets the property that it legally owns. The homeowner can be forced to move out of the house during and after the foreclosure process. However, if the bank does not get the full amount of the mortgage and what the bank options when selling the house at auction, the bank can come after a homeowner to have the difference made up. Depending on which state a person lives in, banks can go through the court system and have wages garnished.

Foreclosure Process

The foreclosure process is a lengthy one and prior to foreclosure, several steps are taken. For the entire process to begin, there needs to be missed payments. Keep in mind that missed payments do not automatically start the foreclosure process. Some lenders have repayment options that can be explored. These options are designed to help the homeowners get the mortgage back on schedule.

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Requesting Release

To prevent a bank from pursuing the matter, the homeowner needs to go to the bank and request for a release from any further financial obligations. Some homeowners do not realize this. They are caught off-guard when the bank comes after them in the future for the difference between what the bank received at auction and the original loan amount.

Time Frame

The time frame for collecting on judgments varies from state to state. The judgments aren’t necessarily granted immediately. In Florida, for example, the bank can actually wait up to five years before filing with the court. If the judge grants a judgment against the homeowner, the bank has up to 20 years to collect on that judgment — with accrued interest.

Strategic Default

Banks will sometimes go after someone after checking the person’s credit report. If the bank sees that the person is walking away from a mortgage but is current on his other finances, the bank views this as a strategic default. This means the homeowner might decide that he’d rather just have a foreclosure on his record rather than continuing to pay a mortgage. Banks will pursue strategic defaults because they believe there are other assets which can be sought.

Retirement Funds

Under federal law, a borrower’s 401k cannot be sought by the bank after a foreclosure, but an individual retirement account, IRA, might be able to be targeted. Since it varies with each state, having an attorney for that state investigate the law is a good idea.

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