The following text was taken directly from Bob Herzogs blog.
"Folks, this is scary stuff. Yesterday, I received a call from one of my clients, telling me that her bank recently withdrew money out of her account to pay part of her missed mortgage payments. We are in the middle of the short sale process, and she happens to bank at the same institution that holds her 1st Mortgage.Banks have what is called a "right of offset", which allows them to take money out of your account, without your prior approval or knowledge. The Comptroller of the Currency Administrator of National Banks says the following:
Generally, a bank may take money from your deposit account to make a payment on a separate debt that you owe to the bank, such as a car loan, if you are not paying that loan on time. This is called the right of offset.
In some situations, the bank can exercise the right of offset without letting a customer know in advance that it is going to do it.
However, federal law limits what a bank can do in some cases. For example, federal law won’t allow a bank to offset your deposit account to pay off your consumer credit card account.
As soon as I'm finished writing this post, I'm going to start calling my clients, advising them of this "right of offset". Time to move your money!
I am also going to start sharing this information with all of my clients and fellow real estate agents.
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