By Jerry Kronenberg, Boston Herald
Nov. 2--Hank Lane figured that when he lost his Groton home to foreclosure in 2008, at least his long-running financial nightmare had come to an end.
He was wrong.
The $550,000 that Lane's home fetched at auction covered most of his $650,000 first mortgage, but none of his $200,000 second mortgage -- and the second lender wants its money.
"I thought this was finally over, but it's one of these things where there's no end in sight," said Lane, a 65-year-old biotech executive who fell on hard times after losing his job and coming down with cancer.
Massachusetts homeowners who've lost properties to the state's foreclosure crisis are finding that their troubles don't necessarily end when the auctioneer's gavel falls.
That's because foreclosure auctions in today's weak housing market rarely net enough to pay off properties' first mortgages, let alone any second liens.
Bay State consumers are often technically on the hook for any remaining balances under laws lenders haven't traditionally enforced, but are beginning to employ more and more.
For instance, Bank of America keeps billing Lane for the $200,000 he owes on his second mortgage, plus some $10,000 in penalties and interest. The ex-homeowner also recently began getting a second set of bills from Dyck O'Neal, a Texas firm that buys bad debts on the cheap and tries to collect them.
"They want a quarter-of-a-million dollars from me, but I don't have it and I don't know how to get it unless I rob one of their banks," Lane said.
Bank of America told the Herald in a statement that while it "always regards foreclosure as a last resort, (we) may ask third-party firms to try to collect unpaid balances in certain instances involving second mortgages."
Most lenders have historically let such debts slide, figuring that people who've lost homes to foreclosure are broke.
But Andover bankruptcy lawyer Michael Feinman said post-foreclosure collections shot up when housing's last bust ended in the mid-1990s, and he expects they'll soon do so again.
"Once things settle down a bit, these debts will get sold off and there will be companies like Dyck O'Neal picking them up and chasing borrowers for them," Feinman said.
Unfortunately for consumers, state law allows second-lien holders to go after some post-foreclosure debts for as long as 20 years. Firms can also go to court and get "deficiency judgments" good for a second 20 years.
With such judgments in hand, collectors can place liens against any future properties foreclosed homeowners buy, or even seek court orders garnishing debtors' wages.
Typically, collection activities begin months or years after people have lost homes to foreclosure and moved on.
"It's really upsetting to clients," said Nadine Cohen of Greater Boston Legal Services, which provides free lawyers for the poor and has seen a handful of post-foreclosure cases so far. "People got outrageous subprime loans that they never could have afforded, lost their homes to foreclosure and then the second-mortgage companies come after them."
Experts say consumers faced with such collections often end up declaring bankruptcy, sullying credit scores that had just begun recovering from the underlying foreclosures.
Even when lenders don't try to collect unpaid second liens, merely having one on your credit report can disqualify you from future loans.
Just ask Annette White-Cole, who lost her Hyde Park house to foreclosure in 2006 after getting a subprime loan from a firm the state later sued for running a scam.
White-Cole has lived with relatives for three years, but patched up her credit, took a city-run home buyer's class and now wants to buy a place again.
However, the 49-year-old can't get financing because her credit file still lists her former home's unpaid $80,000 second mortgage.
Unless loan servicer Green Tree -- which didn't respond to a request for comment -- forgives White-Cole's debt, the woman won't qualify for a mortgage for years.
"These people have destroyed my life," White-Cole said. "It's like a nightmare that doesn't end."
jkronenberg@bostonherald.com
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