Can a Bank Pull a Mortgage Payment Without Authorization?

Mortgage payments are arguably a debtor's most important responsibility. People may skip other payments such as credit cards or car loans to make sure they pay their mortgage on time. That's because mortgage companies technically can declare foreclosure on a mortgage after a single missed payment, although that usually does not happen. The risk of foreclosure increases significantly after a second missed payment. Some banks try to prevent that by pulling a mortgage payment from the debtor's bank account -- which is a legal tactic in certain situations.

Right of Offset

A special provision in federal banking laws called "right of offset" allows banks to deduct money from a customer's bank account to cover missed payments on certain types of loans, including mortgages and auto loans. The rules are simple: The mortgage must be with the same bank as the debtor's bank account, and the mortgage must be one or more payments behind.

Process

When a mortgage and deposit account are held by the same bank, it's easy for the bank to view the debtor's accounts to determine whether there is enough money available to cover a mortgage payment. If there is money available, the bank can use the right of offset to simply transfer money from the deposit account to the mortgage. The bank does not have to ask the customer's permission to make the transfer.

Considerations

Federal law gives the bank the right to take money from any type of deposit account, including checking accounts, savings accounts and retirement accounts. Before doing so, banks typically make repeated attempts to contact the customer by telephone and mail. The bank may also inform the customer that the delinquent mortgage qualifies for a "pre-foreclosure" status, indicating stepped-up collection attempts.

Solutions

People seeking to avoid forced mortgage payments should pay their mortgage on time or call the bank to report when they will make a payment. Remaining silent as the mortgage falls further behind may force the bank to exercise its right of offset. The bank's position in that situation is that the mortgage is nearing foreclosure status, yet the customer has money on hand in deposit accounts to make the payment.

Effects

Money pulled from a bank account through right of offset can create problems, such as checking account overdrafts if the customer has other outstanding checks. Debtors who incur bounced check fees because of a right of offset transaction should ask the bank to reverse the charges as a courtesy. The surest way for the debtor to avoid future right of offset deductions is to move all deposit accounts to another bank.