Can a Debt Collector Take Your House?

Debt collectors have the right to do a plethora of unpleasant things such as call you, track you down by calling your friends, family members, and place of employment, and even file a lawsuit against you. A successful lawsuit can grant debt collectors even more legal collection rights such as the ability to garnish your wages, levy your bank account and place a property lien against your home.

If a debt collector has threatened to take your home, breathe easy. Although it is technically possible for a collection agency to initiate a debt foreclosure in some states, it is rarely in the best financial interests of a debt collection agency to do so. 

Before a collection agency can even begin to start thinking about taking an individual’s home, it must sue the individual and win. Any time a debt collector files a lawsuit against a debtor, it does so in the hope that the debtor will not respond to the summons and a default judgment will be issued. Default judgments have become so common that many collection agencies don’t even bother to send representation to court when they sue. Rather, they just count on the debtor not showing up.

If you respond to the summons and make it clear that you have every intention of fighting the lawsuit, the collection agency is likely to drop the case altogether - especially if the cost of paying an attorney is more than the amount you supposedly owe. Debt collectors don’t have the best track record for winning lawsuits if the debtor responds. If the debtor shows up with a qualified attorney, its rare that the debt collector can secure a successful judgment.

If it does, however, it has the right to place a properly lien on your house in 41 states. A property lien merely gives a debt collector the right to be paid if you happen to sell your home before the property lien expires (typically in 10 years). A handful of states, such as Florida, allow private creditors such as debt collectors to push a property into debt foreclosure if they hold a property lien against the home.

Even if a debt collector could place a property lien and force you into debt foreclosure in your state, that does not mean that it will. A home and debt would have to meet certain criteria before it was in the best financial interests of the collection agency to even attempt a debt foreclosure.

The debt would have to be high. A collection agency has to pay for representatives to take care of every step of the process. Even if that cost can be passed on to the debtor later, that is always iffy.

The home would have to have plenty of equity. Otherwise, the home would be foreclosed on and the mortgage lender would get paid but the collection agency would get nothing - even if it were the one to initiate the foreclosure over unpaid debt.

The state of the economy has caused home values to plummet. Less people are also paying collection agencies. This makes pursuing you and your home a greater financial risk with less chance of a return.

Unfortunately, a debt collector threatening to take your house is nothing new. Although threats by debt collectors are strictly prohibited by the FDCPA, that does not stop them from occurring. The next time a debt collector threatens to place a property lien on your home and pursue a debt foreclosure, tell him you’ll see him in court and hang up the phone.

Disclaimer: I am not an attorney and this is not to be taken as legal advice. See a licensed attorney in your state for guidance specific to your situation.