When a home buyer takes out a mortgage from a lender, he agrees to pay back the money according to the terms of the mortgage contract. However, many mortgages end in foreclosure -- the seizure of the property after the borrower has failed to pay back the home loan as required. In some cases, a lender may attempt to withdraw money from the borrower's bank account but only after the property has been foreclosed on.
A home loan is considered a secured loan, meaning that loan is secured by collateral. In the event that a secured loan is defaulted upon, the lender has the right to seize the collateral as compensation for its loss. When a home loan is defaulted upon, most mortgage companies retain the right to seize the home. They will not typically attempt to collect on a late mortgage payment through collection actions in the way the lender of an unsecured loan would do.
When a house is seized in a foreclosure, the lender will usually be required to put the house up for auction. The lender will then be compensated by the proceeds from the auction. In some states, the money from this auction is the only compensation that the lender is entitled to. However, in other cases, the lender can attempt to collect from the defaulted borrower the difference between the amount he owed on the home loan and the amount collected at auction. When a borrower is ordered to pay this money in court, it is called a "deficiency judgment."
Bank Account Seizure
If a lender brings a lawsuit for the deficiency against the borrower and is awarded a deficiency judgment, the lender has a number of ways to pursue collection of the judgment. In some cases, the borrower will simply pay the money owed him. However, if the borrower refuses, the lender can file a motion with a judge seeking permission to seize money from the borrower's bank account. If the judge grants the money, the mortgage company can take money out of the borrower's personal bank account to pay the debt.
It is patently illegal for a mortgage company to take money out a person's bank account unless one of two conditions has been satisfied. First, if the bank has received a seizure order from a judge, the lender can legally extract money from the account. Second, if the borrower has signed a contract that allows the mortgage company to extract money from the bank account under certain conditions, then the company can do so if these conditions have been met.