Banks Not Letting Owners of Foreclosed Homes Walk Away 25 comments
July 13, 2009
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This truly is amazing: Properties that are so far underwater that banks are starting the foreclosure process, but are not actually completing the takeover. Instead, they’re leaving the homeowner stuck with the upkeep and the taxes.
Want to walk away from a bad purchase decision by giving the bank the keys? Too bad!! The bank doesn’t want it either. Homeowners who bought a house but didn’t pay their loan and hoped to just walk away are finding that banks aren’t taking possession. So guess whose house it is? The homeowner who bought something they couldn’t afford!
Never thought I’d see anything like this.
[HT: Calculated Risk]
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This article has 25 comments:
Borrowers already have established mechanisms for being...unwise...in their borrowing: They lose the house, the wreck their credit, etc. Even today, in the midst of the fipocalypse, this seems fair.
The banks also have established mechanisms for their unwise lending: they have to take the house back and deal with it.
Now the banks are crying "Not it!" on their end of the deal, and /again/ leaving borrowers with the decrepit remains of the housing bubble that the banks created.
I feel the worst for responsible borrowers living next door to the shambles that the banks should have cleaned up. Instead of a few houses, whole neighborhoods are now losing even more value.
Nice job, banksters. Keep up the lousy work...
They have the courts to try and make them pay but other than that the property is in limbo. The vacancies posed a vandalism and other deterioration problems so leaving the defaulted owner in the house as a free caretaker to the bank and keeping the loss off of their books is all that achieved.
To think that the banks have any power over these people is silly.
Now the IRS is a different story.
Until a forclosure is completed , transferring ownership to the bank or successful auction bidder , the homeowner still owns the property legally and retains the right of possession -
So yes , they have to pay the taxes -
What a bargain!
Pay the taxes and continue to live in the home not paying the mortgage!
Are you sure that you dont want to reconsider the point of this article?
They dont have to pay the taxes either because the lien is against the property , not the homeowner.
Why would someone with so little knowledge about this process post an article on it?
This only serves to dilute the informational quality of this website.
Post on what you know about, not what you dont.
Your line "Never thought I’d see anything like this." was spot on and my guess is that our legal system isn't prepared for people owning homes for years and possibly even decades without making the payments.
Thanks again.
As to je's statement that the banks are powerless to force the homeowner to keep possession of the house he or she bought, that's what's silly. If you have collateral against a loan you've made, you don't HAVE to take possession of the collateral. You can easily sit back and bide your time.
As to me reconsidering the point of the article, here is my point. I never thought I'd see something like this: banks starting the foreclosure process, then realizing that foreclosing on some properties would actually be a such a bad business decision that they let the homebuyer keep the property. That's how bad things have gotten.
That was a few weeks ago. I suspect now banks are trying to get homeowners to stay and pay the full price. I just read also that banks would rather foreclose than modify the loan because it would make the banks as giving in to the homeowner. Banks are doing the dumbest things because the government is letting them. So it looks to me as the government is being the idiot here. I say let the banks fail and the chips fall way they may. I live in Arizona one of the hardest hit states, and there are bargains to be had. If the banks and government weren't such idiots
NeoAtriedes
On Jul 13 10:07 AM Don Fishback wrote:
> Hey folks, seems I struck a nerve with a couple of you. I'm not
> saying anything about this being right/wrong, smart/dumb. I'm just
> saying it's actually happening, and I linked to the article where
> it has happened. Think about it this way, the recourse the banks
> have for non-payment of the mortgage is to take possession of the
> property. And while they may start the repo/foreclosure process,
> some banks are not completing it, leaving the homeowner -- the person
> that actually has possession of the property -- stuck with the property,
> and all the obligations that come with it.
>
> As to je's statement that the banks are powerless to force the homeowner
> to keep possession of the house he or she bought, that's what's silly.
> If you have collateral against a loan you've made, you don't HAVE
> to take possession of the collateral. You can easily sit back and
> bide your time.
>
> As to me reconsidering the point of the article, here is my point.
> I never thought I'd see something like this: banks starting the foreclosure
> process, then realizing that foreclosing on some properties would
> actually be a such a bad business decision that they let the homebuyer
> keep the property. That's how bad things have gotten.
What a country!
"Case in point: the vacant, boarded-up two-story house at 2721 N. 26th St., which for years had been owned and rented out by Rosella Chambers.
"In 2006, Chambers refinanced the 100-year-old frame house for the second time in four years. She received a $68,800 adjustable-rate mortgage through BWM Mortgage, a now-defunct Wauwatosa mortgage banker. The loan was for nearly $30,000 more than the property's assessed value.
"On May 20, 2008, Minneapolis-based U.S. Bank sued her for foreclosure. The bank had no interest in the mortgage - it was merely the trustee for an investor group that owned the mortgage. U.S. Bank had been instructed to sue by Pennsylvania-based GMAC Financial Services, which serviced the mortgage for the investor group. GMAC services about 2.7 million mortgages with a balance of $386.3 billion.
"A foreclosure judgment was issued in Milwaukee County Circuit Court in August but vacated, at the lender's request, on Oct. 22 - less than two weeks after Chambers died following a long illness.
"Chambers' daughter, Dianna Myles, said she was offered the property but did not want it. Myles said the house needed work even while her mother was alive, and since her death it had been stripped of all valuables and vandalized.
"The city boarded up the house this year and began its own foreclosure proceedings for back taxes."
...
"Loan-servicing companies argue they have a fiduciary duty to the investors who bought the mortgage, not to the neighborhood where the home is located."
"We do the cost-benefit analysis (for) the investor," said Jeannine Bruin, GMAC's executive director of mortgage communication. "Is he going to recoup any money for us to go through the whole process of foreclosing, fixing the property up, marketing it, selling it? Is anything coming back to that investor? If not, it's best to just let the borrower keep ownership of the home."
Got that SoCalGal? The lender does not take possession of the collateral. GMAC is not finalizing the foreclosure, thus letting the borrower keep ownership.
Now, is this story true? Is this the final chapter of the story? Is the city going to go after the bank anyway? I have no idea. I just know this, things have gotten so bad in certain areas that if the borrower thought they walked away, they actally may have not, at least as far as the city and the lender are concerned. In fact it's the lender that walks away, leaving the ownership of record as the person who actually bought the house.
Should be an interesting legal battle as to who eventually ends up getting stuck with the bill. As Gregman2 states, the banks may have no choice. But in this situation, these lenders think that the house, and all of the obligations that come with it, are the responsibility of the homeowner/borrower.
On Jul 13 11:16 AM SoCalGal wrote:
> I think that Don Fishback isn't using all the brains God gave him.
> If the homeowner stops making the mortgage payment, and the bank
> won't take the property back, the bank would have to put a gun to
> the homeowner's head to enforce payment of property taxes. As far
> as upkeep, if I was the homeowner, I'd pay upkeep all day long to
> be able to live in the property payment- and property tax-free.
> The bank gets a property that is properly maintained by the homeowner
> while the bank deals with its collateral and the homeowner has a
> relatively cheap place to live.
>
> What a country!
will someone who knows (especially the author of this article) provide a serious answer please
market-ticker.denninge...
The banks have been carrying loans that have gone delinquent but which have not been foreclosed or modified at or near their full principal balance.
This is an outright scam, but it is what has been happening, both in the residential and commercial real estate marketplace.
The reason these loans are not being modified and people are literally living for a year or more in their homes after they stop paying their mortgage without having a foreclosure processed against them is that if the bank modifies the loan or forecloses it must recognize the actual loss, as there has now been an event that makes the possibility of "self-cure" go away and you can't claim that a loan "might perform" once it has been extinguished through modification or foreclosure!
Many states (California , for example) are non-recourse states. That means the mortgage holder takes the loss, and cannot go after the borrower financially on a foreclosure. But the borrower's credit rating will take a hit.
It is one reason why California has been experiencing so many "walk-aways". The debtor is willing to take the credit rating damage, but will owe nothing more to the bank.
On Jul 13 07:37 PM Chkrazer wrote:
> when the banks foreclose, dont they get a deficiency judgment against
> the borrowers? which then enables them to freeze your bank account,
> garnish your wages, etc. ??
> will someone who knows (especially the author of this article) provide
> a serious answer please
I had a house foreclose years ago (9) that was a second property of mine, all the regular foreclosure methods went through. The bank will not get a deficiency judgement or freeze your bank account or garnish your wages, only the failure to pay taxes will. I had a good job at the time and got sick of making payments that were greater than the rental receipts. The renters kept paying me until the day they were told to move out by the bank (1 year later) and the house was sold in auction and just barely covered the bank loan. I got more out of the house this way (rental receipts) than I would have by selling it outright. Hurt my credit, but refinanced my primary residence 3 years later for an excellent rate. You'll need to pay cash and not use credit cards for a few years as those CC co's will stick it to you 29.9% for 7 -8 years.
www.foreclosurelawfirm...
On Jul 13 06:42 PM WAKEUP wrote:
> If I understand all this information, correctly (which may or may
> not be the case, since it's pretty tangled), it seems to me that
> the thing to do if you are underwater with the house mortgage, and
> you're "sick of the whole damned thing," is this: STOP making mortgage
> payments; STOP paying taxes on the old shack; WAIT, payment/rent-free,
> until the sheriff's deputy arrives at the front door, with the eviction
> order (in most places, you'll STILL have 30 days, to get out.) Sure,
> you may be (or may NOT be, depending on what state you live in) saddled
> with a bunch of judgements, etc., after (read, IF) you are evicted
> (which is simply NOT happening, in many cases where the guy just
> won't pay, and won't leave, without a court order), but WHAT THE
> HELL DO YOU CARE? If the judgements are coming, they'll be coming,
> either way. Your credit is SHOT (which would have happened, anyway,
> if you had left the house); you are forced to find another place
> to live (which would have been the case, anyway, if you had left
> the house); it will take you about seven years to make some improvement
> in your creditworthiness (same-oh); you are now on a "cash-only"
> basis, in your life (same-oh); but YOU HAVE MORE MONEY IN YOUR POCKET
> than you would have had if you had continued making payments (suggestion:
> DON'T put that money into a bank account; it could be seized.) Why
> make it easy on everybody else (read, the banks), by making it tough
> on yourself? MAKE 'EM PUT UP, OR SHUT UP. Either way, you'll buy
> more time for yourself, and walk away with more dollars.
course with Andromeda. Obma needs just a little more time@#$%^
I'm not calling you names, but you really need to get your information straight as this is widely available. Again ALL purchase money residential real estate loans in CA are by LAW non-recourse meaning the banks can do nothing but foreclose the property and ruin your credit. The tax implications are also very favorable for people with a non-recourse loan because the amount you gain in the foreclosure is considered a sale and as long as this is a primary residence you are allowed $250,000 for a single and $500,000 for a couple. Its a bit moot though with the law they passed in 2007 that lasts until 2012 making all mortgage debt forgiven non-taxable.
And yes walk-aways are very common in CA(I know at least 10 including myself personally) and not nearly as frowned up on. I'd give up an appendage to not have bought a house in 2006 myself. People can buy a place now with no down payment due to $18,000 in tax credits (state and federal) finance $130,000 on a place that was costing $400,000 2 years ago. This means someone who bought in 2006 is paying $3000 a month and someone buying the same place now pays $1000. How can you possibly expect people to just suck it up if you bought in 2006. If I paid for my house I'd pay over a million dollars after financing while the guy across the street would pay $300k for the same exact house. Yah I'm the one who signed up, but we all make mistakes... The law in CA is giving us a chance to fix the huge mistake so many people made in believing that housing was worth 70% of your income every month. I don't want my whole life miserable just because I bought a house at the worst(and dumbest) time in human history.
Banks, our CA governor and Obama should just let happen what happens naturally in any business situation. The moratoriums don't help. Let's get the neighborhood cleaned up by getting new owners in the homes. Long term it's going to happen anyway.
My son-in-law lived free, walked away and still owns his home and he doesn't want it. The Bank has NO recourse.
Others I know are upside dowm $200K. How do you make that up??