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For many, losing a home is the definition of hitting bottom. But there are former homeowners finding themselves in an even tighter spot than they thought was possible. They've lost their homes and wrecked their credit ratings. Now lenders are pursuing them for the debt that remains.
StateImpact Idaho's Molly Messick has this story.
MOLLY MESSICK, BYLINE: The day that Ben Jensen found out that he and his wife, Lori, were being sued for more than $140,000 is fixed in his mind like the slow-motion moments before a car crash. It was a weekday afternoon and he'd just come home from work.
BEN JENSEN: My wife and I were standing in the kitchen talking and there was a knock at the door, she went to get it. And then as she was walking back she had a really perplexed look on her face and I was immediately concerned.
MESSICK: Lori was holding a hand-delivered envelope. Ben says they both knew something serious was happening.
JENSEN: Basically we start going through the paperwork. It's all, you know, it's all in legalese. There's no simple explanation on the front saying: Bank of America is suing you. We're going through the documents, we see the lawsuit amount and my heart is just sinking,
MESSICK: Ben and Lori had already been through a hard couple of years. They lost their home to foreclosure in a long process that began when the engineering firm where Ben works cut his hours. By the time Ben and Lori had moved themselves and their two young children into a rental in the next town, they thought they'd seen the worst of it.
Then they learned the bank was suing them for the money it lost on their loan. It's what's called a deficiency judgment. Lawyers who represent Idaho homeowners say more of them are being filed.
BRIAN WEBB: My practice definitely has seen an increase from 2010 to 2011.
MESSICK: That's attorney Brian Webb. Ben and Lori Jensen called him within hours of learning that they were on the hook for tens of thousands of dollars that they simply didn't have.
WEBB: I only probably handled five or six in 2010; versus 2011, it's been – you know, off the top of my head – between 15 and 25 deficiency cases.
MESSICK: The National Consumer Law Center, a nonprofit consumer advocacy group, confirms deficiency judgments appear to be going up across the country. How that plays out depends on state law.
Geoff Walsh is a staff attorney with the organization. He says approximately 40 states, including Idaho, allow lenders to sue former homeowners for the amount of the mortgage that remains after a foreclosure.
GEOFF WALSH: In many other states around the country, homeowners find themselves subject to deficiency actions one, two, three, four or five years after they've been foreclosed.
MESSICK: In other words, former homeowners can think they've moved on but the debt is still there, lurking.
WALSH: They've definitely been under the impression that they walked away from a situation, or it's over. And then this deficiency claim in court just comes back and hits them.
TERRI PICKENS: Most people don't know and that's a problem.
MESSICK: Terri Pickens is a private practice attorney in Boise. She says that with such a complex set of statutes, it's a small wonder that people don't have any clue what they could be in for. And she says there's one more unnerving trend that former homeowners should consider: lenders are selling deficiency claims.
PICKENS: I do know some private investors who are coming in and purchasing up bank loan packages and have been paying literally pennies on the dollar; just sitting on the paper, waiting for the right time to collect on it.
MESSICK: The National Consumer Law Center's Geoff Walsh and others say it is an emerging investment strategy. Terri Pickens says she's watched it happen in her own work with clients. Suddenly, a loan changes hands. Often the new owner is a recently-formed limited liability company. Clearly, collection is the aim.
WEBB: I wish somebody had come to us, you know, in the months before all of this happened and said, look, you really, really should look at a short sale or taking any other option other than foreclosure.
MESSICK: When Ben and Lori Jensen were served with the deficiency judgment, there was no way they could pay. They had $5,000 to their name. One hundred and forty thousand was an impossible amount.
WEBB: I felt like if we had to pay that amount there was absolutely no way we had any kind of a financial future. We were going to be bankrupt.
MESSICK: In the Jensens' case, their attorney was able to work out a settlement. They turned over their savings and agreed to pay $75 each month for three years. They say it doesn't make sense to them that the bank went through so much effort to recover a total of about $8,000, prolonging the nightmare of their foreclosure. But at least they know that it will be behind them. For NPR News, I'm Molly Messick, in Boise. Transcript provided by NPR, Copyright National Public Radio.