I am not in the US, but for the law I grew up under, the bank could absolutely chase you for the unpaid portion. Under the theory that you agreed to pay that amount. Whether the house went up or down in value is irrelevant. The house is collateral, but it is YOU who agreed to repay the loan, no the house.
If its ok to walk away from a loan when the house drops in value, then why cant the bank ask for more when the house goes up in value?
Because nothing in the mortgage or the relevant civil law provide any legal remedies to do so. If they could, they would.
Does patriotism count for much? Most US mortgages are now owned/guaranteed directly by the federal government, so if you stop paying you’ve also let down your duty to the fatherland. :o
But it fundamentally wasn’t a bilateral sale, was it? No, there were other parties that had a thumb on the scale in those negotiations.
You see, I do have the first fucking clue about the basics of a market. Which is to be able to distinguish between a genuinely free market with open competition, and something that kinda sorta looks like “the free market” that conservatarians keep going on about, but is in actuality no such thing.
You either don’t have that first fucking clue, or are merely pretending for sake of argument that the distinction is immaterial. I can’t say I care which is true; it boils down to the same thing as far as debate in this thread is concerned.
My point exactly. Thank you.
Well duh! thanks Mr. Obvious.
The general point is that you should behave how you expect to be treated…but if that’s too complex of a concept for you then never mind.
Actually, in seriousness, I think the bankruptcy laws are too lax if they are allowing such a situation. You shouldn’t be allowed to walk away from a commitment for something as simple as “I don’t want it anymore” if the basic affordability hasn’t changed (and if your income hasn’t changed, the affordability hasn’t)
It is not the bankruptcy laws that allow this, it is the mortgage that the bank drew up and signed. Strategic default only exists because the banks made it possible when they wrote the mortgage. The only thing the borrower is guilty of is abiding by the terms of the mortgage. Just because the banks convinced themselves no one would actually take advantage of the exact wording in the mortgage hardly makes the borrower unethical.
Apparently the banks are good at writing the fine print, but not so good at reading it.
There are two halves to “affordability”: Money coming in and money going out.
But the bigger point is this: You don’t get to decide what I can or want to afford. And trust me, most of the people in this country do not want to try to run their expenses past me. Y’all will not be happy with your two-bedroom houses and your subcompact cars.
Bingo.
If you’re dealing with a big, impersonal corporation, you should expect that you will be treated in a way that maximizes their profits, regardless of the repercussions to your life. So you should behave in a manner that maximizes the benefits to yourself, regardless of the repercussions to their bottom line.
No, not at all. Seems pretty simple.
What does this mean?
I was really talking about your generalisation rather than this case specifically. On the other hand I don’t see why anybody should have moral qualms about screwing over a corporation, which is by it’s very nature a sociopathic organisation interested only in profit. A publically owned corporation will screw anybody they can if they’ll get away with it, in fact they are leaglly obliged to.
So why should one side of the contract be held to higher moral standard than the other?
Exactly. I am surprised at the number of people who feel that home buyers have some moral compulsion to treat the banks as if they were a needy child on their last dime and, at the same time, the banks should do whatever they please because, you know, they are a business. There is, and should be, one standard here: the contract they both signed.
I don’t see it anywhere in here and maybe they don’t do this anymore, it’s been 20 years since I bought a house. Back then I was required to buy mortgage insurance. That means that I made monthly payments, in addition to my mortgage, to an insurance company to cover the difference if I should default on my loan. Is this still required? The bank was not at risk of losing anything, it was the mortgage insurance company that wouldn’t like me defaulting.
I remember that when we refinanced our house, back in 2003, we no longer needed mortgage insurance because our equity in the house was sufficiently large - I think 20% was the cutoff. We’d been paying mortgage insurance up to that point.
I think the logic runs like this: first, since I’ve got a nontrivial equity stake, I’ve got a healthy motivation to preserve that stake by making the payments. And second, if that doesn’t suffice and the bank has to foreclose on me, there’s more than enough equity in the house above what I owe them to cover all of their costs, and that’s really all the insurance they need.
It’s not that she’s a bad person. It’s that she’s retarded.
Right, same for me. When I finally got the 20% equity it took some doing to get them to stop taking the mortgage insurance payments out but they did. I was (and you were too) basically required to take out insurance covering the bank in case they made a mistake in loaning to me. If that is still done then the banks should have no issue with people walking away from mortgages. The insurance companies probably don’t like it though but I have no sympathy since their business is to run the numbers.
What should have happened when the banks got out of hand was that the mortgage insurers should have start refusing to issue policies. Anybody know if that ever happened?
jsgoddess seems to be saying that if everyone had to run all financial decisions past her everyone would be living in two bedroom homes and driving economy cars.
In a non-bubble market there is little chance that the house value will fall enough that the bank will not be able to recoup its cost as long as you have at least an 80% loan to value ration at purchase. Standard practice is that PMI is required on loans with less equity. You can usually get rid of the PMI as soon as you have paid down your loan or if you get it appraised at a higher value.
The problem is that today we are in an unusual situation because of the bubble. First, banks relaxed their requirements because they assumed the prices would continue to go up for ever; and second, prices did go down by more than 20% almost everywhere in the country.
What Strassia said. If Americans had to run their spending past me, many or most wouldn’t be very happy with what I’d limit them to.
No-one’s denying that.
But the problem is that the banks shouldn’t have assumed that prices would keep rising forever at the rate during the bubble. The fact that they did assume this is their own responsibility. They were so enamoured of the continuous dramatic appreciation in home values that they seemed never to stop and ask whether the situation might not be permanent. as a result, they ended up with a whole lot of loans where their exposure was greater than the value of the house. This situation was exacerbated not only by their optimism, but by their willingness to offer 100% mortgages, guaranteeing that any drop in the housing market would leave them exposed because the mortgage holders had virtually no equity in the property.
Oh, I agree with you completely. There were a lot of wacky things going on to add to the problem. The appraisals based only on price/square foot of nearby houses with the assumption that the average price was the minimum value. The assumption that any improvement to a house increased its value by 2x the cost of the improvement. The fact that the all new construction was large houses. It all added up to drive the market higher than it should have been. As I tried to tell my wife, home prices cannot go up significantly faster than wages for too long before the whole thing crashes down.
Which is why we are now in a situation where a) banks are not going to be able to recoup the loan completely via foreclosure, and more to the OP b) strategic foreclosure becomes economically rational for a much larger segment of homeowners.
This. Whatever happened to “my word is my bond, even if it is to my detriment”?
Look, if it’s OK because it’s just business, then it is equally OK for the credit card company to tack on 22% interest and a $50 late fee if when you make one payment late.
I’ve been on the other side of this - the company screwed me out of thousands of dollars, because there was nothing I could do about it. Nothing personal - it was just business.
There was another Doper who talked about how she (I think it was a female-type Doper) worked for a company that sold repair contracts on electronic equipment to customers. Then they contracted out the repairs to a company that went out of business. So the original company refused to abide by the contract. Nothing personal, just business.
Perhaps my perspective is skewed, as the son of a small businessman who had a lot of people who received the services, and then simply decided ‘I’m not going to pay you, and there’s nothing you can do about it.’
Regards,
Shodan