August 2009 Newsletter

1. I’ve been robbed (by my bank and it is legal!) Garnishments and Set-offs

The other day a client literally ran into my law firm visibly shaken. He asks to see me immediately. My secretary whisks him into my office and before he even takes a seat, he exclaims that $6,000 disappeared from his checking account. I asked him to show me the bank statement, and a debit was reflected as going directly to the same bank. I asked him whether he was delinquent on any loans owed to the same bank. He said that he was six months late on an equity line of credit on his home which was owed to the same bank where he had his checking account.

This debit which looks and feels like a reverse bank heist, is actually legal, and it is called a set-off. A bank has a right to remove funds on deposit in an account at the same bank as a set-off against delinquent obligations owed by the depositor to the bank. This set-off right is supported by statute, common law and case law precedent. There are certain exceptions to a set-off but these exceptions are generally limited in scope to escrow accounts, also called special-purpose accounts.

Moral of the story: if you are delinquent on a car loan, mortgage loan or even a credit card to a bank where you also have a checking account, move the money in your checking account to another bank immediately!

The set-off right does not extend to deposit accounts at other banking institutions. Generally, for a bank to collect monies from a debtor who has funds in another bank’s deposit account, the bank must obtain a civil court judgment and subsequent to that, the bank must obtain an order for writ of garnishment.

In many states the civil court system is log jammed with foreclosure cases and obtaining judgment can take months. Getting the subsequent writ of garnishment to enforce the judgment can take even longer. Meanwhile, there are many limitations to the right of garnishment. For example, income benefits from insurance contracts, unemployment benefits, workers compensation benefits and retirement accounts are not garnishable. In Florida, garnishment cannot be executed against a head of household if the head of household earns less than $500 per week. Also in Florida, personal property valued up to $1,000 that is also part of the debtor’s wages is not garnishable.

So what do you do if you are facing an order for writ of garnishment: go see your friendly neighborhood consumer bankruptcy attorney immediately! Garnishments are a reality in this recession, and they will only become more prevalent because of the sheer number of deficiency judgments that are outstanding after millions of foreclosures have run their course.

A deficiency judgment can result when a bank obtains a foreclosure judgment and then auctions the real estate asset for less than what the debtor owed. Once the amount of the loss is identified, the bank can seek an order for deficiency judgment, and thereafter the bank can get an order for writ of garnishment to enforce the deficiency judgment.

The best defense against a writ of garnishment to enforce a deficiency judgment is to never let a deficiency judgment be entered. A short sale will result in the dismissal of a foreclosure action and thereby terminate the threat of a deficiency judgment. A deed-in-lieu of foreclosure will generally do the same thing. Finally, a savvy foreclosure defense attorney can negotiate away a deficiency judgment in a foreclosure action by agreeing to an order to foreclosure judgment with a waiver of deficiency in exchange for a speedy foreclosure sale.

If you were not successful with a short sale or did not hire a foreclosure defense attorney, review the docket of your foreclosure action and see a bankruptcy attorney immediately. The banks are enforcing deficiency judgments, and they are getting writs of garnishments. Also, banks are obtaining writs of garnishments on delinquent credit card judgments, car loan deficiency judgments and boat loan deficiency judgments.

In conclusion, be careful because the banks are playing hard ball.

By Erik Wesoloski
Attorney
Wesoloski Carlson P.A.

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