If you have a checking, savings, or other account at the bank to which you make your mortgage payments, you should be aware of the risk.
Consider the following… A man had experienced financial difficulty, and so applied to both his first mortgage company and second mortgage company for loan modifications.
The first mortgage company approved his application and started him on a Making Home Affordable, aka HAMP, trial modification.
The second mortgage company, we’ll call it the Bank of H, would not approve a modification for the second mortgage. Instead, a representative called the borrower and wanted to know when the bank would receive the overdue payments. The borrower explained again he was having financial difficulties, but said things were looking up, as his first mortgage lender had just approved his loan modification request. He said he couldn’t pay the Bank of H right now, but he hoped to get caught up soon and come current with all of his bills.
The next day, the borrower learned that his Bank of H checking account had been emptied. The Bank of H had emptied his checking account and applied all of his funds to amounts due on his second mortgage. This caused many of the borrower’s checks to be dishonored, including his first Trial Period Loan Modification check to his first mortgage lender. That bad check and his inability to replace it on a timely basis caused him to fail the Trial Modification, and therefore become permanently ineligible for a HAMP modification.
If you are behind on your mortgage, the bank may take any money you have on deposit with that bank and apply those funds to the amounts due for your mortgage. This may result in checks you’ve already written being returned for non-sufficient funds in your account. That would likely result in penalties and fees, in addition to the personal embarrassment and the difficulty of trying to come up with the unexpected shortage of funds at a time when you’re already embroiled in severe financial problems.
Is it legal for banks to do this? That is debatable. However, it is important for you to recognize that it is not uncommon for a bank to do this. This is not the only time we’ve seen this happen to someone who is late with mortgage payments.
Be warned, and act accordingly, before your bank acts for you.
