I hope your friend has been in touch with an attorney somehow. I know he can't afford to pay a lawyer at this point, but from doing a Google search I can see that there are at least a few services available, like Indiana Legal Services - http://www.indianajustice.org/Data/D...pic_id=1621200

But I think you have the answer to your basic question: No, they can't just seize the money in his account because they're foreclosing on his mortgage.