My office represents the banks in about 1,000 new foreclosure files each month here in Fort Lauderdale, Florida, and I conduct foreclosures all over the state.
In a majority of cases, we don’t even get a response to our lawsuit (the logic being, that if you can’t afford to pay a mortgage, then you can’t afford a lawyer*). Of those who respond, many do so “pro se”, or unrepresented, and the vast majority of those letters are poorly worded (if I have to read one more person tell me they don’t want to “loose” a house, I may lose it), handwritten, and often from someone who speaks minimal English (our crass intraoffice joke is to calmly tell the judge, “don’t worry, I’ll translate”, then turn to the defendant and say, “no dinero, no casa!”
So, to answer the OP, I wouldn’t say it’s “deadbeats”; it’s the uneducated.
I also worked for 2 years as a closing agent/title attorney, where I did a number of closings at the end of the real estate bubble. I certainly had my share of sophisticated, wealthy buyers, or speculative investors.
One such speculative investor would give cash to poor people to get then to sign over quit claim deeds, then refinance them as “hard money” loans, which are based on the equity in the property and not the qualifications of the buyer. These were 1 year, interest only, balloon notes, where the total principal was due again at maturation. They also typically had 15% interest.
The reason they worked was because they also had no pre-payment penalty. Since properties were appreciating faster then 15% a year, he could “flip” them for a profit. When the bubble burst, though, he was left with a bunch of balances coming due, and he couldn’t flip his way out of it. That guy died shortly thereafter (I heard they found him in a car).
But I also saw a stream of unsophticated borrowers, who’s hand was being led by a pushy realtor or mortgage broker. The promise was that you’d build good credit by taking this adjustable rate mortgage for a year, then you would have the credit to refinance into a better loan in a year. That sounded good to the borrower, who assumed he or she was on their way toward a higher socioeconomic status (“this is the best investment you’ll ever make”, we all reassuringly told them as they signed the note). And it sounded really good to the broker, who was getting another hefty comission in 12 months.
Interestingly, the problem isn’t really the adjustable rate. Practically all of the loans I see in default were originated in 2005 or later. (I would be astonished to see a loan from the 1990s or earlier). These loans are usually fixed for a few years, so the rate hasn’t begun to adjust. This means that these people weren’t even really qualified to keep up with the introductory rate (usually about 6%).
Or, some big shot was pulling the equity out of his house to finance his nice car, his big house, and his plasma tv. Lots of people fell victim to the sales pitch that, because their house was now worthy more than what it once was, they just had to sign some papers, and the could pay off all of their credit cards and have some money for a nice shopping spree, to boot.
While house values are no longer going up go, what often does go up is insurance rates (at least in Florida, where hurricanes have been all too common), and taxes (although Florida’s homestead laws meant homestead property taxes couldn’t go up more than 3% per year). Also, people lost their jobs (many in real estate, such as roofing or construction), or had an unexpected medical emergency.
The result is that properties aren’t able to sell for what these loans are worth, so these people can’t sell the properties (and are asking the banks to accept sales contracts $50K or $100K less then the amount they owe). So they are being foreclosed, and are forced to move. The good news, for them, is that it takes anywhere from 7 to 14 months for them to be evicted after they stop paying, so they have time to save up some money for moving expenses.
Clearly, blame also has to exist at the highest levels. The mortgage brokers were all doing very well, but they were subsisting at the teat of big banks, who were happy to market these loans, without really caring if they were sustainable, since they were just going to sell them anyway. The plaintiff in a foreclosure is never a bank; it is a bank, acting as a trustee for an asset backed security. They, in turn, hire servicers, who are responsible for collecting the payments and negotiating alterations of the terms.
And that bring me to my final point. These servicers are negotiating the payments, and many people do end up on payment plans. It can be frustrating to work so hard for a judgment of foreclosure, only to have your client cancel the sale, but orders to cancel or postpone foreclosures to work on a payment plan are always crossing my desk, and I always encourage people to be persistent with the bank, providing them all the financial disclosures they request, because I do see compromise happen (certainly, though, these are rare in the grand scheme of all the foreclosures that do go to sale).
Then again, if you’re paying your mortgage, and staying within your means, you might be annoyed that these people never pay their bill and never have to leave their house. One judge told me, “nobody from the bank calls me to ask how my mortgage payment is doing.” I recently handled a case with a guy who made 3 mortgage payments before defaulting, but is still living in the property 16 months later.
For the record, I rent.
I’m working 60+ hours a week, and my office is half-full on Saturday and Sundays, even among our support staff. We are still knee-deep in foreclosing these bad loans.
*faulty wisdom, since there is low cost or free legal advice available, something I often tell people on the phone