Friday, January 8, 2010

Under House Arrest ? To Walk Away Or Not

That is the question for some upside down in their mortgages. Obviously, there is no clear cut answer and it depends on your own particular situation. However, let's discuss the pros and cons of such a decision where people are under "House Arrest".A must read is Dr. Housing Bubble's January 8th article on Moral Hazard and Strategic Defaults. It speaks very frankly about walking away from a mortgage . His take is, it has become more of an ethical decision rather than a financial decision for many homeowners. When in reality, businesses make financial decisions like these daily, without the blink of an eye. Perhaps, the most important factor is whether your state has recourse over your other assets in the event of a foreclosure. I'm no lawyer, but I believe that California is non-recourse state, when it comes to foreclosure of a home with it's original mortgage. Mortgages that have been re-financed however, are a different story. With banks playing more games like "Extend and Pretend", it can take up to 18 months for foreclosure and some are banking their mortgage payments. I have also heard others are buying second homes before letting their first one go.

So, what are the advantages or consequences of walking away from a mortgage?

Regardless, I am not an expert in real estate law, however I think it's time we have a meaningful discussion about walking away from a mortgage. Remember, this blog is for discussion only, and it is imperative that you speak with a professional before making any type of financial decision .

38 comments:

EdwinaHugh said...
This comment has been removed by a blog administrator.
Anonymous said...

california is a nonrecourse state, which means that there can be no personal liability after foreclosure of a first deed of trust loan obtained to purchae the property. refinance loans are recourse, but the deficiency laws are so onerous to lenders that it is effectively impossible for them to obtain a deficiency judgment against a borrower on a first trust deed. a junior loan is more problematic as there is a direct right to sue the borrower if the senior loan forecloses. it often makes sense for a borrower to keep the payments current on a senior loan until the second loan nonjudicially forecloses (which wipes out the risk of an adverse judgement)

dirtesq

Anonymous said...

Anon,

Thanks for the straight information on foreclosure law in California. Some may find it handy.

Anonymous said...

Anyone know what the law is in nevada? Also has anyone heard of banks suing after forclosure?

Anonymous said...

in dec of 2007 we were in a bidding war on a modern remodel in mar vista. (sunnyside ave) that was featured on this blog or the other westside blog. the house would have been perfect for us. 2 years later, i still have not seen a house in my budget that i like as much. we were so bummed not to get it, but this blog predicted it would be underwater in months. and it was! thank you. i now feel bad for the people who bought it. (oh, and the house flippers/developers also went bankrupt, by the way) but bankers and mortgage brokers were throwing money at us, and telling us we could borrow now, with less down! and they're the experts, right? why wouldn't we have believed them? well, thank god we didnt, because i lost my job and although my husband still has his, i can tell you we would we walking away because we'd have a house underwater and a mortgage we couldn't afford even with 2 incomes. the whole banking, realtor, and mortgage system did this to themselves. i can't believe what they were trying to sell us. walk away people!

Latesummer2009 said...

I am glad to see that someone has benefitted from this blog. That has been my intention all along. If I have helped one person than it has been worth the effort. Hopefully some now realize there are other avenues of information, besides the standard real estate industry BS.

Anonymous said...

Can anyone recommend an area in Brentwood where one can get a nice two or three bedroom and two bathroom home in the $950K to $1.1M range?

Thanks

Anonymous said...

The area of Brentwood right next to the 405 freeway has homes in that range. take the 405 to the montana avenue exit - you are looking for a strip of homes on the West side of the 405

Pretty nice area, good people. But the noise and fumes from the freeway irritate some people. Go visit and judge for yourself.

Anonymous said...

Late summer -
can you do a thread that discusses the peculiar lack of inventory in Santa Monica 90402.

Do a search and you will see that inventory is lower than it has been at any point in the past ten years (Admittedly I haven't been following it closely enough to be sure)

It can't be that the banks are holding stuff off the market, it has to mean that home owners in the 90402 Santa Monica are also happy renting their homes out instead of selling

It seems to me that the typical person renting out their home is accepting a moderate monthly cash bleed for now, waiting for a rebound.

Nothing wrong with that, but I'd like more discussion

Anonymous said...

What are the (four?) streets that form the boundary for Brentwood Park?

Anonymous said...

I know that San Vicente is the Southern Border and that 26th street is the Western border - I am not sure what the Northern and the Eastern borders are

Can someone help me out
Also - Some people vastly prefer Brentwood Park to GRS since Brentwood Park has bigger lots

Others love GRS more due to side walks

I am curious where the readers of this blog come out

Anonymous said...

What is "GRS"?

Alex said...

W.C. Varones - on of the oldest and most vehement bubble bloggers has capitulated and bought a home.

http://wcvarones.blogspot.com/2010/01/how-i-learned-to-stop-worrying-and-love.html

And another one bites the dust....

latesummer2009 said...

Anon 8:08

A new thread about 90402 inventory has begun on my sister site:

www.santamonicameltdownthe90402.blogspot.com

You can also click the link to the right in my Favorite RE/Economics Sites.

Anonymous said...

GRS is Gillette's Regent Square, a neighborhood in 90402.

Anonymous said...

Refinance loans are recourse. As one well versed commenter noted "the deficiency laws are so onerous to lenders that it is effectively impossible for them to obtain a deficiency judgment against a borrower on a first trust deed."

I have only seen lenders go after a refinanced borrower when that borrower refinanced to pull money out of the house then defaulted. The lenders are suing defaulters that refinanced to pulled equity out and the lenders are easily winning. Those people using their house as an ATM need to learn the phrase wage garnishment.

The best part is lenders are waiting until close to the statute of limitation on filing against the borrower. The idea is to see if the borrower declares bankruptcy. If he doesn't then he has plenty of money to go after. If does declare they can get the deficiency judgment after the bankruptcy making it hard for the borrower to declare bankruptcy a second time to remove the wage garnishment.

If I were walking away now I'd learn the statute of limitations (4 years in CA) and be looking over my shoulder for the other shoe to drop. Its still a smart financial decision for many people, as long as you get away scott-free.

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