I have a checking account and mortgage with the same financial institution. I was 32 days late in mortgage payment, and the bank withdrew monies from my checking account without any pre-authorization or notification, claiming authority under "offset." Now, I have a negative balance in checking account. Can the bank do this? Doesn't the bank have to provide some notification? I am in d.c.

Check to see if you didn't provide a right of offset among the mortgage documents you signed at closing or when you opened your checking account.

Ask your bank to point you to where they have the right of offset in your relationship with it. Notification may be a matter of bank policy and not law.

thank you. The bank said, regardless of any mortgage agreement, the setoff right is by virtue of the status of my checking account as a "deposit" account. What does not make sense though is that this setoff right is in addition to the additional penalty banks charge when a payment is late.

Well first you were late, then they had to setoff the payment. So yes, you had the chance to pay and the fee accrued. Then they took the funds. It is common and likely your deposit agreement does allow for this. Loan contracts do as well, though not always a mortgage. But since it was in the deposit agreement, they were within their rights. They won't tell you in advance. If they did, many folks would opt to withdraw the money and the bank wouldn't have a payment to take. This can cause some customers to close and move their deposit account. But from the bankers perspective, it is easiest to say, don't be late, or if you must be, call and make arrangements. With pending arrangements setoff wouldn't be needed.

right of offset on exempt funds in an account. If it is a joint account & only one of the owner on the account owes for loan & the other does not but receives only social security direct deposits and no other transactions can they freeze the account & take the social security funds?

This is questionable and could be up to a court. There have been several cases where when Social Security Income was the ONLY source of funds on deposit it was not available for setoff. Refer to 42 USC §407(a) and 42 USC §1383(d)(1) if you want to research it.

This became clouded somewhat when one case was reversed, Lopez. In that case a California court said SSI income couldn't be used to pay an overdrawn balance when it was deposited. That decision was reversed, so SSI could be used in that case.

Some Colorado cases have held to the prohibition of setoff for a loan, as questioned here.

The bottom line is, your mileage may vary but your bank will be faster to take funds for a past due loan than they will be to research the sources of deposited funds. If your deposits are solely SSI, call your bank and tell them this and refer them to the USC citations above. You may get your funds returned. In any case you should be communicating with your bank and making payment arrangements.