http://www.nytimes.com/2010/02/03/business/03walk.html This is the thing. We need to make it illegal or next to impossible to simply hand the keys back to bank, IF the owner has the means to pay. Why? That's the only way to keep perverse price escalation from happening again.
Let them walk away if they want, the entire industry is already broken and so difficult to piece back together that it doesn't matter at this point if they stay or go. So the bank gets a few more million houses.
As long as they don't have a second mortage on the house I don't see why that should be illegal. The bank technically owns the house until you finish payments anyways, it was always the deal that if you couldn't pay they kept the house and whatever you have already paid them. Its a sweet deal for them.
Any borrower that owes more than what his house is worth should simply stop paying, pocket the cash and stall out the foreclosure proceeding as long as possible... . than walk away. Not for any illegal purpose but strictly to mitigate losses on the bad investment. Borrowers can recoup a substantial portion of their investment in the form of cash saved by not making any payments... No Mortgage, taxes, insurance, association fees. ie. A borrower's monthly nut is $3000 on a $300,000 note. Property purchased for $360K with $60K down. Property can't even be liquidated today for $250,000. If he can stall out the proceedings for two years He would take out $72K in saved cash while living rent free. It costs the bank approximately $50K in fees per foreclosure. The bank would also need to pay back taxes and insurance.
In many states a borrower who walks away from a mortgage can be sued for a deficiency judgment. So the guy whose house is worth $100K with a mortgage of $250K might potentially be sued for $150K depending on the state. Even in a state where the house is the only security, like California, I think once the borrower has refi'd he can be sued for a deficiency judgment. I think before anyone walks from a mortgage they should get legal advice. It may not be as problem-free as you think. Insurance rates are quoted on the basis of credit scores. Employers check credit. Car loans. Funny enough, the rent was cheaper when they bought the house to begin with in most parts of the country....this didn't just occur today. LOL. It's just a convenient excuse for walking away from an obligation. What will likely happen is that once the everyone has walked away, houses will start to rise again, and all the deadbeats will be locked out of buying a house for a number of years, until they've gone back up. Appropriate? You be the judge. OldTrader
CA has two main anti deficiency laws they usually work to allow sold out junior lenders of recourse loans to collect. senior loans can rarely collect on the deficiency. lenders of junior purchase money loans on primary residences are also blocked from seeking a deficiency. The banks are the ones who facilitated if not cause price changes by loosening and then tightening lending requirements. If you do not believe me note this. The loan end of the market is on fire with little inventory. Why - cheap no down payment loans. (fha and buyer tax credit) The high end in places like rancho santa fe is collapsing with radical price drops. An acre in RSF with a 3500 sq foot home recently went under contract for 1.25 million. I know houses that were about 7 mil four years ago that can't get half that now. why - buyers cant qualify and very few loans can be had.