Troubled homeowners: Can't pay? Just walk away

pioneer

:eek: http://money.cnn.com/2008/02/06/real_estate/walking_away/


Now this is money saving !

PasturesNew

It is also in the US, where they no longer can be chased for the shortfall.

It's different here. You'd still be liable for the amount you borrowed.

Jorgan_2

People still walk away though. Had one this week. I'm sure no one has explained the consequences to the borrower.

clutton_2

its not only your outstanding loan that you will still owe, it will be all the Lenders repo fees (many hundreds of pounds) plus their legal fees, plus compound interest for up to 6 years if they can find you. A mate of mine was repoed and walked away - 5 years later they found him and presented him with a bill for nearly twice what he had borrowed in the first place. He was able to negotiate them down a bit, but was still paying them off 8 years later. He did manage to get the interest capped - but whether lenders will do that now is a different matter - they have tightened up no end.

pinkshoes

The Los Angeles-based writer bought two properties in Hancock Park, west of downtown, using no-down, interest-only mortgages in 2006. He paid just over $1 million for both.

muppet! He risked alot of money, it didn't pay off.

I can't believe they have an option just to walk away! Now I'm beginning to see where their "no blame" culture is coming from!

BobProperty

PasturesNew wrote: »

It is also in the US, where they no longer can be chased for the shortfall.
.....

I don't think it's that simple. Firstly, the foreclosure laws vary state to state. Secondly IIRC it depends on the type of loan deal you have. Thirdly, if/when the loan company writes off the loan, they balance their books by issuing you with a 1099 for the forgiven loan amount which you have to account for as income to the IRS. I don't think the legislation mentioned applies in all cases, I think it's for owner occupiers so the guy with the two props will still be caught, but I'll have to read up on it.
People on US sites I frequent have theorised that in some cases it is better to walk away, but they were also warning that anyone doing this needed to rent somewhere a lot cheaper than their mortgage and put money to one side for the inevitable bills that would turn up in a year or two's time.
Edited to add:
Now I've checked quickly and it applies to the Principal Residence and is a 3 year window in which you won't get a 1099 from a short sale. So my thoughts above were correct.
All it might mean is banks holding off foreclosures for 3 years and if things aren't better by then, you'll get foreclosed. Speculators and "flippers" are still in the same situation as before. Also, I think it may only apply to the original mortgage so HELOCs and similar loans aren't covered either.

beingjdc

I get stick from some fellow believers in a price crash for this, but I believe we should have similar laws in the UK.

If non-commercial borrowing is secured against a specific asset, then giving that asset back should extinguish the loan.

If there is a shortfall, that is the lender's fault for lending too high a proportion of the likely resale value, not the borrower's.

adr0ck

PasturesNew wrote: »

It is also in the US, where they no longer can be chased for the shortfall.

It's different here. You'd still be liable for the amount you borrowed.

this is why they had such a big crash in prices in america and why the crash wont be anywhere near as big over here

(and the massive oversupply of new home in america and undersupply here)

Kez100

Back in the early 90's we bought indemnity policies which paid out the lost money to the mortgage company so they didn't lose...........and then,although we paid the indemnity policy, the insurers could chase us for their loss! A double whammy.

PasturesNew

People seem quite keen for the lenders to suck it up and lose the cash.... but if that were the case they'd stop lending to people who seemed likely to default.

When you borrow money it's supposed to be because you are an adult capable of making your own decisions, etc. So why do people want to them try to blame the banks for wanting their money back ... and it often isn't the lender's money at all, it has come from savers.

Loans are secured on property because they've lent a lot of money and want to have some basic control over getting their money back. Otherwise people would buy a house with the money, sell the house and buy a yacht and go round the world without paying back the loan.

It isn't the bank's fault people over-stretched, or maxed out on cards, or had a relationship breakdown etc. Why hammer the banks.

otter1_2

Why hammer the banks? Well as you've said, it is their savers' money they're dishing out like confetti, not their 'own'.

People need to take responsibility for their finances, but so do the banks. I have no doubt that during the run on Northern Rock, there were a number of high street names sweating and hoping against hope their savers didn't start making wholesale withdrawals.