Main > Everything Else

how is the economy effecting you?

<< < (16/24) > >>

javeryh:
+1 to shmokes.  I can't believe people actually think otherwise.

AtomSmasher:

--- Quote from: shmokes on August 13, 2010, 01:00:53 pm ---You're wrong.  If you borrow $400,000 from the bank you owe them $400,000 plus interest.  Your loan is secured by your house (or any other security you give them), but that is just to reduce the bank's risk so they'll give you the loan.  You owe them $400,000 period, because that's the amount of money they gave you.  If the Bank forecloses and only gets $200k for the house (so long as they weren't negligent in conducting the sale) you still owe the bank the difference between what the house brought and what you owe them.  Think about it . . . of course this is the way it works.  People get mortgages all the time for way more than the house is worth so they can buy furniture and appliances or put in a swimming pool or renovate.  What would stop you from just walking away with the extra couple hundred thousand and say, "Sorry bank . . . sell the house."

Now . . . banks may frequently ignore the deficiency since it will cost them more money to pursue and since you've already shown that you can't pay for the mortgage they'd likely not get anything, but that doesn't mean that taking your house settles the loan.  It doesn't.  You owe the deficiency and if the house sells for more than your mortgage the bank owes you any surplus.

--- End quote ---
Strange, I guess it must be very frequent that they ignore the debt because I know a few people who have foreclosed (one foreclosed on three houses within one year (he was renting them before, not buying then foreclosing)) and all they had to worry about was the taxes.

MonMotha:
Terms on mortgages vary.  There exist both "recourse" and "non-recourse" loans.  This applies to loans other than mortgages, but it seems rare to see anything but a mortgage of the "non-recourse" type.  Note that these types are general descriptions, and these terms are not always used in the loan documentation.  The loan documentation will spell out specific terms that people then lump into one of these categories based upon the practical implications of the terms.

Older first mortgages were often of the "non-recourse" type.  In this case, the bank's sole remedy for you failing to pay is that they can either hassle you until you do or take the collateral (the property backing the loan).  The "non-recourse" part says that once they've exhausted that option of taking the property, they have no further recourse.  They get the property, but they're done.

"Recourse" loans allow further recourse beyond seizing the collateral that backed the loan.  2nd (and 3rd, etc.) mortgages, auto/boat/aircraft loans, and personal loans are generally of this type.  These types of terms allow the lender to take further action above and beyond that specified in the loan to satisfy the debt.  These actions could include seizing additional property, garnishment of wages, etc.  A court would have to approve such actions, but it's not too hard to get a wage garnishment order if you can demonstrate an outstanding debt whose terms permit such actions.  Lots of newer 1st mortgages these days, especially "work out" mortgages that are issued when people call behind on an existing one, are also of the "recourse" type.  Most "subprime" and "non-traditional" (e.g. ARM, interest only, balloon payment etc.) 1st mortgages issued in the past were also of this type.

I don't have the figure to say which are more common.  I'd suspect that most of the defaults and resulting foreclosures these days are from newer loans as well as non-traditional loans, so they're likely to permit recourse beyond seizing the collateral.  I think that some states also place regulations that are inconsistent with other states upon mortgages.  For example, in some states, 1st mortgages with recourse terms may be prohibited while, in other states, non-recourse terms may not be allowed.


On a semi-related subject, if you ever settle a debt for less than the amount owed, make sure you pay it by some means where you have a duplicate of the payment (e.g. carbon copy of a cashier's check), and write the words "PAID IN FULL WITHOUT FURTHER RECOURSE" on the payment.  Once that payment is accepted, the lender can no longer come after you.  If you just have some side agreement, they can easily accept your payment then deny the agreement exists (leaving you to attempt to prove it does - good luck) leaving you on the hook for the rest of the debt.  I also recommend using USPS registered mail with restricted delivery and return receipt.  That makes it REALLY hard for them to deny they got the payment, and it can also bring "mail fraud" up if they do something really dumb like cash the check but not credit you.  It'll cost you like $20 to mail it, but it's worth it for the protection.  You can save a few bucks with certified and get almost the same protection against denial of receipt, but registered offers greater protection against loss of the check.

shmokes:
I've never bought a house, but I'm under the impression that a non-recourse loan is typically way overcollateralized where the property securing the debt is worth like twice as much as the loan.  There doesn't seem to be much business sense in handing out a non-recourse loan secured by property that is or likely will be worth significantly less than the amount owed.  I'm just going on gut here, but I'd be surprised to see many typical mortgages that were of the non-recourse variety.

saint:

--- Quote from: shmokes on August 13, 2010, 02:09:42 pm ---I've never bought a house, but I'm under the impression that a non-recourse loan is typically way overcollateralized where the property securing the debt is worth like twice as much as the loan.  There doesn't seem to be much business sense in handing out a non-recourse loan secured by property that is or likely will be worth significantly less than the amount owed.  I'm just going on gut here, but I'd be surprised to see many typical mortgages that were of the non-recourse variety.

--- End quote ---

You did notice the little economic blip we had recently, right?

Navigation

[0] Message Index

[#] Next page

[*] Previous page

Go to full version