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What happens years after a foreclosure

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So you’d think that after a foreclosure, your financial slate would be wiped clean. You’ve lost your house. What else can happen? 

Actually, plenty. Lenders and debt collectors can still go after you for what you owe, years after a foreclosure.

That’s what happened to Miranda Cisneros Bell and her husband Ed. They bought their dream home for $535,000, in Emmitsburgh, Maryland, about two hours north of Washington. They put about *12 percent down and got a jumbo loan for the rest. Cisneros Bell says they were nervous – what if they couldn’t sell their old house?  She says the realtor said, don’t worry.

“It was a basic push to get us in the house,” Cisneros Bell says. “It was the trend of the times, to push people into things that probably they couldn’t afford.”

Their old house didn’t sell. In fact, that’s where they live now, with Cisneros Bell’s mother. They moved back in the fall of 2008. They couldn’t make payments on their dream house and lost it to foreclosure in 2009. And then the letters started coming. Not from her bank, but from a debt collector.

She recalls thinking: ‘It’s impossible… I don’t know who you are. You weren’t part of the foreclosure. So basically, who are you?’”

The debt collector, Dyck O’Neal Inc., says it bought her debt. But Cisneros Bell says she’s seen no proof of that and is fighting Dyck O’Neal in court. Dyck O’Neal says it would not comment on an ongoing case.

Cisneros Bell’s story is not unique. Many homeowners don’t realize that lenders or debt collectors can pursue them if their house sold for less than they owe. So, if you borrowed $200,000, and your house sold in foreclosure for only $100,000, the bank can come looking for that $100,000 difference years later.

Some states have been shortening the time banks have to claw back what’s still owed after a foreclosure. And the states hit hardest by the housing crisis are cutting back the most.

“Florida recently changed the law for pursuing a deficiency judgment from five years to one year,” says Avy Mallik, an attorney with the advocacy group, Civil Justice.

Maryland just shortened the time its bankers have to decide to pursue a homeowner to three years from 12. But banks in these states have argued that people took out these loans promising to pay them back.

“We are depository institutions, we’re insured by the FDIC, we’re lending our depositors’ money, and we have to be able to have a reasonable expectation that we’re going to be repaid,” says Kathleen Murphy, head of the Maryland Bankers Association.

*CORRECTION: An earlier version of this story misstated the amount of the down payment Miranda Cisneros Bell and her husband Ed made on their home. It was about 12 percent. The text has been corrected.

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