Can a Foreclosure Affect Your Bank Accounts?

While a foreclosure is a financially and emotionally draining event to go through, having a foreclosure affect your deposit bank accounts, such as checking or savings accounts, can cause more stress. While you may think that your housing woes are completely separate from your bank accounts, you can never be sure. Take action to make sure that your accounts, and your money, stay safe.

Set-Off

When you borrow from a bank, the bank may maintain a right of set-off against any deposit accounts that you keep with it. This means that the bank may take the amount of past due payments from these accounts without providing you with any notice. The right of set-off is more common with credit unions than with federally chartered banks, and does not happen often with mortgage loans. Still, if you have a deposit account at the same bank where you have a mortgage in foreclosure, you may want to close this account to avoid any surprises.

Cross Collateralizing

Cross collateralizing is a practice where a lending institution determines that any collateral that you have for one loan will serve as collateral for all of the loans that you have with the lender, including unsecured loans such as credit cards. As an example, say you owe $2,000 on a credit card with your credit union, and $10,000 on a vehicle loan. You default on the credit card, while keeping the vehicle loan current. The $2,000 will be added to the vehicle loan to take advantage of the collateral, in this case the vehicle. This may not affect bank accounts but shows how the lines between accounts can get blurred at a single financial institution.

Opening New Accounts

Many banks pull a copy of a person's credit report as part of opening a new savings or checking account. The justification for this is that many bank services, such as overdraft protection and debit cards, take on the characteristics of lending and credit, and can set up a situation where an account holder must pay the bank back. Some banks may also pull these reports on an ongoing basis to make sure that the account holder's credit remains positive. In these cases, the foreclosure could hurt your credit score enough so that you cannot open a new account, or may have an existing account closed.

Automatic Drafts

If you have given your mortgage company permission to automatically draft payments from your account, going into default on the loan could lead to the bank attempting to withdraw the payments that are due. The bank could look for the funds in the account daily, and when it finds them, it could initiate a bank draft, cleaning out the account. If you are in default on a mortgage and have given the mortgage company electronic access to a deposit account, you may want to close that account, even if it is with another bank.