HousingStorm.com

Thursday, February 4, 2010

Well this is interesting. Although we’ve been hearing over the last couple of years that lenders are too swamped with defaults to consider pursuing borrowers who can’t re-pay the mortgages, that is now changing. In those states in which loans are recourse — meaning they can come after you personally even after the mortgage lien has been released — borrowers who walk away or complete a short sale are finding out that banks aren’t happy until the entire amount borrowed has been paid.

And for those who think walking away through a strategic default is about the same as using a coupon in a store? Banks are combing through payment histories to make sure that if you walk away that it’s because you can’t pay any of your bills and not just your mortgage.

Of course in recourse states such as California, lenders can only take back the property used as collateral for the loan. But if you’ve refinanced or placed other debt on that property, watch out! From a CNN.com story:

Former homeowners may still be on the hook if there’s a difference between what they owed on their mortgage and what the bank could sell it for at auction. And these “deficiency judgments” are ticking time bombs that can explode years after borrowers lose their homes.

It can even happen to people who got their bank to approve them selling their home for less than it is worth…

Whether banks can and will pursue deficiency judgments depends on many factors, including what state the borrower lives in and whether there’s a second mortgage or other liens. But if borrowers ignore the possibility of deficiencies, it could haunt them…

In the case of foreclosure, lenders can pursue deficiencies in more than 30 states, including Florida, New York and Texas, according to the U.S. Foreclosure Network, an organization of mortgage law firms.

Some states, such as California, are “non-recourse” and don’t allow deficiency judgments. But, even there, if the original loan was refinanced, some or all of it may be subject to claims…

Releasing title does not necessarily end the debt. It’s complicated because of variations in state law, but, generally, a mortgage has two parts: a pledge of collateral, represented by the home, and a promise to pay off the loan.

Lenders may release property liens in order to facilitate short sales without releasing borrowers from their obligations to pay under the promissory notes. The secured debt can convert to an unsecured one after the sale..

Sometimes lenders go after borrowers walking away from their homes if they have other assets, according to Florida real estate attorney Larry Tolchinsky…

“Banks are pulling credit reports to see if it’s a strategic default,” he said. “If you’re behind on all your other payments, you’re okay. But if you’re not, they’ll come after you.”

Related posts:

1. Strategic Default Consequences When deciding to make the decision to do a strategic default, it is important to weigh the pros and cons....
2. Banks finally seeing short sales as cheaper than foreclosures For a few months now I’ve been hearing rumblings that many of the non-foreclosure sales out there are actually short...
3. The Coming Tax Nightmare Over Forgiven Mortgage Debt in California Do you think homedebtors are ready for their California tax bill on forgiven debt? That HELOC will get them. ...
4. Obama’s standardized short-sale plan for short sales The U.S. Dept. of the Treasury recently announced the Home Affordable Foreclosure Alternatives Program (HAFA), which provides instructions for lenders...
5. Expounding on short sale fraud…… fraud,short sale, recourse, loan,nonrecourse,california, single action,attorney,real estate tax...