BTW, ignorance (of Canadian law) fought. Thanks
In Western mortgages as I understand, the borrower is on the hook for the full amount… the risk is all upon the buyer. Over here, Islamic mortgages under Sharia place the risk upon both the borrower and the lender, so if the property drops in value, the bank is out of luck. I think one can get Sharia compliant mortgages in the US now too.
TV program a couple days ago said so many foreclosed houses are being trashed by unhappy owners ,that banks are making deals to try and keep them usable. They will deal . Then abandoned homes are being stripped. That is expensive homes in good neighborhoods too.
Sure, but note that this provision is not limited to residential mortgages. It has its origins in depression legislation to protect farmers, and so it’s framed in terms of mortgages and sale of land, not just residential matters. It also applies in commercial settings, where it may be more common for the debtor to have other assets worth going after.
I don’t practise in this area, so I’m not that familiar with the details, but I can say that I’ve seen reported cases from the Saskatchewan courts where the creditor chose to sue on the personal covenant.
You’re welcome, but bear in mind it’s not necessarily the same across Canada, since property and civil rights are a matter of provincial jurisdiction.
I think there are similar provisions in the two other Prairie provinces (Alberta and Manitoba), which were similarly hard hit by the Depression, and my recollection is that the civil law in Quebec is similar on this point, via the analysis of hypothèques which have a clause en dation de paiement. (It’s been a while since I’ve studied this area, so I may have the terminology incorrect.)
As the discussion with whole bean illustrates, it’s not possible to generalise about “Western mortgages.” It depends largely on the law of the jurisdiction where the mortgaged property is located. In my jurisdiction, the risk can fall on the creditor as well as on the debtor.
Here in the US we have the concept of a “no-recourse” loan. Not all states have them, but many do. In that sort of loan, the lender’s only source of value in the event of default is the collateral, period.
Assume you have a $300K no-recourse mortgage on a house now worth $100K. Also assume you have $1 million cash in another bank. You can walk on the mortgage, the lender will seize the house & sell it, and they’re out $200K. They have no right whatsoever to come after your $1 million for the $200K they’re short.
They can put adverse notes in your credit history, and other lenders probably won’t lend to you for a few years, but you and your $1million are 100% safe. Why? because the mortgage contract you signed with the lender said so.
The fact that no-recourse loans or their statutory equivalent were written in large volumes in some of the faster-growing areas of the last 10 years has really fueled the abandoned house problem.
If you are significantly underwater on a fairly fresh no-recourse loan, walking away is the only economically rational thing to do. The only problem comes in when thousands of people each do the the rational thing for them individually, which is utterly irrational in its total effect on everybody.
or back in the 80s when this was happening around here a lot, it was called keying the house.
That is why some banks are offering a keys for cash.
When the home owner is behind and meets with the bank and it is ovious that they are going to default. The some banks are offfering cash a few thousand if the home owner will move out not damaging the house. The bank gets the property in better shape, they do not have to foreclose, and the hit on the home owner credit rating is not as bad (the loan did not go into default.
My son called his bank to find out how they wanted to handle his case, he got a divorce, new job 20K less ayear. He was going to default no boubt. The bank gave him 10 days to move out and he had to leave the house clean, no junk. He has a notge on his credit report that he lost the house but it is not a default. His credit is trash anyway because of all his other credit problems.
From today’s news:
Story doesn’t indicate whether it was literal or metaphorical:
http://www.msnbc.msn.com/id/30311735
They may well have done so. Legally, that accomplishes nothing, and it doesn’t even save the mortgagee money because you can bet they’ll have a locksmith rekey the place as soon as they regain possession. In Michigan, and most other states, the lender would still have to foreclose. Actually, my second sentence isn’t quite true. Mailing the keys would count as evidence of abandonment. The redemption period would be one month instead of six.
From that link:
Yipes!