[mattduke]

Ok, dumb question time.

Will somebody please explain the concept of "walking away" from a mortgaged home to me? Is there a standard clause in home loans that allows you to choose not to repay your obligation and forfeit the house? How is it possible that after borrowing money, you are not obligated to repay it? The entire internet seems to take "walking away" as an option for upside down borrowers. I guess I always thought that the purpose of collateral was that, in the event you were slow in your payments, the bank could recover some property. But how does that let you off the hook for owing the money in the case where the collateral is not worth the debt? Is there a law that says you are not obligated to repay the money you have borrowed?

[Twilight]

It is a good question, I would like some clarification too. I read different kinds of stories, in some places people are chased for the full loan amount, in other places the banks are stuck with the property and apparently cannot take it further. But I do not know how true this is. It is not true of the UK; in the event of a sale or default with negative equity you are "encouraged" to work it out with the bank, which depending on your circumstances may or may not be understanding. They have to take individual circumstances into account rather than applying a blanket policy though, otherwise the regulators get angry. The bank may be prepared to write off the difference, but it can chase you too. It is at their discretion really, and comes down to whether it is worth it or not. If you are capable of making the payments with ease, they could try to go for the lot, which could end in bankruptcy unless you have a lot of stuff to seize.

[mos6507]

$this->bbcode_second_pass_quote('mattduke', '
')Will somebody please explain the concept of "walking away" from a mortgaged home to me?

[jlw61]

$this->bbcode_second_pass_quote('Twilight', '.').. in some places people are chased for the full loan amount, in other places the banks are stuck with the property and apparently cannot take it further.

[joeltrout]

Walking away is fine if you don't have any equity in the house. If you do have equity in the house then you are basically flushing all that money down the drain and ruining your credit at the same time. Trying to sell the house is your best option but in some places, California & Florida, that might not be an option because the market is flooded with vacant houses.

Banks only have to sell the house to cover the rest of your mortgage. Right now they are not looking to make a profit. They want to get rid of houses so they can clear their books. I have seen houses that are worth over $750,000 here in Los Angeles go to auction with beginning bids starting at $100,000 because that is all the bank needed to cover the remaining mortgage the previous homeowner left. Obviously they get bid up by investors but usually are far cheaper than buying the house from a homeowner. I bought my house for $120,000 less than what the previous owner bought it for then foreclosed.

joeltrout

[joeltrout]

$this->bbcode_second_pass_quote('jlw61', 'D')ead-beats.... sorry, that word is too harsh for the foolish borowers sucked into this debt trap. IMHO any bank that participated in the sub-prime mess has no business being in business and the people who put those loans out there deserve whatever pain we can heap upon them.

[Twilight]

$this->bbcode_second_pass_quote('joeltrout', 'W')alking away is fine if you don't have any equity in the house. If you do have equity in the house then you are basically flushing all that money down the drain and ruining your credit at the same time.

[NWMossBack]

Another interesting wrinkle is that the IRS will come after you for any difference in what the house sells for in foreclosure, and what you paid for it.

So if you bought a house at the peak of the market for $500k, then walk away when the market value drops to $400k, and the loan is foreclosed and the house sells at auction for $350k, the federal government will consider the $150k to be a "gift" from your mortgage company, and you will owe taxes on it!

I have also read that you may be liable for some legal fees incurred by the mortgage company. You have to read ALL the fine print in your mortgage agreement.

[joeltrout]

$this->bbcode_second_pass_quote('NWMossBack', 'I') have also read that you may be liable for some legal fees incurred by the mortgage company. You have to read ALL the fine print in your mortgage agreement.

[jlw61]

$this->bbcode_second_pass_quote('NWMossBack', 'S')o if you bought a house at the peak of the market for $500k, then walk away when the market value drops to $400k, and the loan is foreclosed and the house sells at auction for $350k, the federal government will consider the $150k to be a "gift" from your mortgage company, and you will owe taxes on it!

[seahorse2]

As was said earlier, "walking away" is not a legal term, its not in the mortgage documents, its a practical solution. It just means the debtor decided to call it quits, quit making payments, and leave. People do that all the time with all kinds of debts like cars, credit cards etc., what has all the bankers dumbfounded is they never thought it would happen to them. The home used to be the castle, and bc of this long held belief, bankers started allowing people to buy houses with "liar loans." Well, surprise surprise that liars don't have any qualms about walking away from a bad investment, and as the banks are finding out in the foreclosure process, those "liars" don't have any personal credit to begin with, no assets, and thus, its not worth pursuing a personal judgment against them.

Many of these banks are only pursuing judgments "in rem" instead of "in personam" meaning, only pursuing a judgment against the property and not against the person and the property. They are doing this bc its simply not worth the extra legal expense to pursue liars that have nothing to begin with. Everything hinged upon this age old American belief that the home is the castle, but that was only true with Americans willing to document their income and put 20% down on a home, putting a stake down so to speak. The banks have no one to blame but themselves.

[seahorse2]

$this->bbcode_second_pass_quote('', 'A')nother interesting wrinkle is that the IRS will come after you for any difference in what the house sells for in foreclosure, and what you paid for it.

[Tyler_JC]

$this->bbcode_second_pass_quote('seahorse2', 'A')s was said earlier, "walking away" is not a legal term, its not in the mortgage documents, its a practical solution. It just means the debtor decided to call it quits, quit making payments, and leave. People do that all the time with all kinds of debts like cars, credit cards etc., what has all the bankers dumbfounded is they never thought it would happen to them. The home used to be the castle, and bc of this long held belief, bankers started allowing people to buy houses with "liar loans." Well, surprise surprise that liars don't have any qualms about walking away from a bad investment, and as the banks are finding out in the foreclosure process, those "liars" don't have any personal credit to begin with, no assets, and thus, its not worth pursuing a personal judgment against them.

Many of these banks are only pursuing judgments "in rem" instead of "in personam" meaning, only pursuing a judgment against the property and not against the person and the property. They are doing this bc its simply not worth the extra legal expense to pursue liars that have nothing to begin with. Everything hinged upon this age old American belief that the home is the castle, but that was only true with Americans willing to document their income and put 20% down on a home, putting a stake down so to speak. The banks have no one to blame but themselves.

[joeltrout]

$this->bbcode_second_pass_quote('Tyler_JC', 'D')o you really want to be homeless and tens of thousands of dollars in debt?

Talking to your creditors is better than defaulting and running away.

[korosten]

Unfortunately I know the law very well - because I am part of this mess. No, I do not have an ARM, in fact I have a great mortgage.

But, we are moving away and we haven't been able to sell the house for almost a year! Renting is not an option (too expensive and we are moving out of the country), so what should someone like us do?

I talked to a lawyer, and he said there are many people like us. People who can pay, but want to move, and can't sell their home.

In California, you can walk away without a deficiency if you didn't refinance. Unfortunately we did, and nobody told us that we would lose this protection! So in our case, the house price has tanked well below what we owe the bank. We are still trying to sell, but it looks grim.

So chances are that we will either have to continue to pay our second mortgage for 30 years(!) while not owning this home anymore (what a loss!), or else risk a deficiency judgement.

So of course I wonder if they would track us down abroad as well if we stopped paying. Does anyone know ?

Chantal

[Twilight]

$this->bbcode_second_pass_quote('korosten', 'S')o of course I wonder if they would track us down abroad as well if we stopped paying. Does anyone know ?

[mattduke]

$this->bbcode_second_pass_quote('', 'I')n most jurisdictions, a lender may foreclose the mortgaged property if certain conditions - principally, non-payment of the mortgage loan - obtain. Subject to local legal requirements, the property may then be sold. Any amounts received from the sale (net of costs) are applied to the original debt. In some jurisdictions, mortgage loans are non-recourse loans: if the funds recouped from sale of the mortgaged property are insufficient to cover the outstanding debt, the lender may not have recourse to the borrower after foreclosure. In other jurisdictions, the borrower remains responsible for any remaining debt.

[Cloud9]

The bank will file a 1099 on the part of the note they forgive. It gives them a tax write off. IRS can go after you. The only thing that stops the process is to file bankruptcy.

[seahorse]

$this->bbcode_second_pass_quote('', 'W')alk away if you want, but if the home sells for less in foreclosure than the mortgage...

You owe the difference and it could be huge.

Do you really want to be homeless and tens of thousands of dollars in debt?

Talking to your creditors is better than defaulting and running away.

[cube]

$this->bbcode_second_pass_quote('korosten', '.')...
So of course I wonder if they would track us down abroad as well if we stopped paying. Does anyone know ?

Chantal