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I have been doing intenstive study of foreclosures lately, and in the process I discovered yet another threat to homeowners on the horizon.   The trend is silently picking up speed, and has, so far, escaped the attention of mainstream media.

It’s my sincere hope, that some cosmic rationale will echo this blog and get the word out.  Hell, it worked for my interest-rate rant on the earlier “Mortgage Meltdown” post.  Yes, you can thank me personally for the fact the Federal Reserve lowered the Prime Rate and that the DJIA is over 14,000 points at the moment.  Heh.

Anyway, on to some serious shit.

It’s no mystery that people end up in foreclosure due to increasing interest rates on adjustable-rate mortgages, or due to life events like divorce, or job loss.  By now we’ve heard about the sub-prime mortgage crisis to the umpteeth degree, which has tightened lending policies across the board.

Meaning that home-equity lines of credit are also harder to get.  Hang on to that thought, it’s important later on in this post.

Now, just imagine you’re a homeowner who is actually doing ok with the mortgage, and your property taxes are paid on time, and your utilities are up to date.  But maybe because your wages have been stagnant and you’ve had some big-ticket expenses, you are behind on a credit card or two.  And maybe you have an old medical bill that went to a court judgment because your insurance only paid half of it.  

So, there you are, taking care of the most important things, doing what you can with what you have, because after all, the credit card bills and the medical bills can’t take away anything, right?

Wrong, thanks to a company called “Velocity Investments” and a score of others just like them.  Velocity Investments gets to be the black wolf in my fairy-less tale, because they turned up most frequently in my research of non-mortgage foreclosures.  They have a presence ( an evil presence ) in several states.  

Velocity Investiments is a huge debt collection company with an army of laywers.  What they do is buy charged-off debts, usually unsecured loans and credit cards, and also financial judgments.  They buy them from the original lender/creditor for pennies on the dollar. These debts can be anywhere from few months old to several years old, and the amounts are anywhere from couple thousand dollars, on up. 

Once they buy a debt, they send a fresh collection notice out.  Odds are it’s ignored because the debt wasn’t originally with them, and the confused homeowner may assume it’s a scam.  Or they just don’t have the cash to pay it, and shrug the whole thing off. After all, it’s just a credit card or whatever, right?

Not anymore. Velocity Investiments sends collection notices out and then, at the first legal opportunity, files a suit for judgment against the homeowner.  The judgment lists V.I. as the “assignee” of whoever the original lender was. Whether they bought the debt for pennies on the dollar is immaterial; they pursue the judgment for the full, original debt, plus add their own fees, interests, and legal costs.

If the homeowner doesn’t show up to fight the judgment - or doesn’t show up with a sharp lawyer of their own - Velocity Investments wins the judgment, which gives them the right to garnish wages and/or seize assets.  Including property.  Like, your house.

Wait…you can lose your house over an old credit card balance of three grand or so?

Sure can!  Velocity Investments merrily induces foreclosure on homeowners in this situation.  They sue, push the house into foreclosure, force it into auction at a Sheriff’s Sale, then collect the judgment balance from the sale proceeds.  Which includes their own interest, legal fees, and everything imaginable they can stick on to a debt they purchased for pennies on the dollar.  It is now collected in full, and the difference lines their pockets.

Any money left after the mortgage is paid, and V.I. is paid, and any other liens against the property are paid, goes to the former homeowner…but so what.  Their credit is now trashed, they lost their home, and odds are they won’t get another mortgage approved very easily.

Could anything stop this ugly situation?  Well, if the homeowner has enough equity in their house, they might try a home equity line of credit, to get enough cash to pay off these bloodsuckers.  But remember that it’s harder to get any mortgage credit approved these days. If the homeowner has items in collection, forget it.  Banks are slamming doors in the face of applicants right and left.

We’ve heard a lot about “predatory lending” in the media.  It’s time “predatory collection” was brought to light.   This is the worst possible time for collection companies to get tough with the homeowners who still have their heads somewhat above water, and have a little equity to show for it.   So why is it happening?  Why the nut-busting tactics?

Because in an effort to keep their homes in the face of flat wages, rising interest rates, and rising energy costs, and rising property taxes, many homeowners have let the credit cards and “little debts” go to hell.  Two years ago, when property values were going nowhere but up, it was easy to get home equity loans to payoff other debts, or get extra spending power.   That’s no longer a sure bet.  Even if one were to voluntarily put their house up for sale, today’s market is slow and and buyers are scarce.

Since my earlier posts on the mortgage mess, the Fed has lowered the prime rate, but banks and mortgage lenders are still waiting for a bigger bailout by the government before they loosen the lending standards to anything attainable by ordinary people.  This may come in the form of federally-insured holding companies taking on the mortgage servicing ( and risks) of subprime loans, non-comforming loans, and jumbo mortgages. 

Sadly, the endless pass-the-buck mentality between the Feds and the banking industry has put homeowners in the path of ruin.  While they remain stranded, the most aggressive players in the collection industry are sending in the wolves.  By the time a financial rescue, if any, is organized, it will be too late for many hard-working homeowners who lost the American dream.