Delinquent Mortgage

• A bank cannot simply seize account funds at any time in order to pay a mortgage debt. Either the bank must make an arrangement with the borrower to withdraw funds itself each month in a combined mortgage and checking account, or the mortgage must be delinquent. Delinquency in a mortgage means that the borrower has stopped making payments and is now incurring late penalties. The mortgage has not usually been moved to default status yet, but it is in danger of going into foreclosure.
  
  

Bank Contracts

• Even with a delinquent mortgage banks cannot seize funds in customer accounts. First, the mortgage contract needs to clearly state that the bank has the ability to access funds in case the mortgage is not paid, known as "set-off." Banks can only use a set-off with accounts that the customer has with that particular lender, but then the bank can seize funds with consent, notification or right to a hearing. This is an important part of the mortgage contract that borrowers should pay close attention to.
  
  

Lawsuits

• Banks may be able to seize accounts through a more complicated process involving a lawsuit. If the bank forecloses on a house but the house equity does not cover the full amount of the mortgage, the bank still has the option to sue the borrower for the remaining debt. In this case the court can make a deficiency judgment, which allows the creditor to collect funds from other borrower assets. Cash is the first asset garnished for the debt, which means that bank accounts are often frozen and depleted to cover the debt.
  
  

Exemptions

• Some bank accounts are exempt from seizure, either through a set-off or through a lawsuit. These accounts are generally connected with the government: Both Social Security and Veteran accounts are exempt from seizure no matter the circumstances. Other retirement and trust accounts may be exempt, depending on the qualities of the account and specific state laws regarding them.