Employment Law Man

Paulson's Plan is Nothing but Lip Service

"Who in their right mind would not want to jump on that?"

Your assumption here seems to be that mortgage loans are non-recourse to the borrower. Depending on state law, the type of loan, and the loan terms, they may or may not be recourse. In California it depends on whether the loan is for a primary residence, what the loan documents say, whether the loan is purchase money or non-purchase money, and how the lender ultimately chooses to foreclose. In many cases the borrower may be personally liable in the event of foreclosure, particularly when home equity loans are involved. If a borrower has two loans, a first loan and a second home equity loan (common situation), and defaults on both, odds are the first lender will foreclose. This leaves the home equity lender unsecured, so the home equity lender will sue. Borrower will file bankruptcy, but debt may be non-dischargeable if borrower lied on the loan application (fraud). Even if the debt is dischargeable, borrower may spend the next 3-5 years asking his employer to make his paychecks payable to "U.S. Bankruptcy Trustee." Not to mention the credit and tax consequences.