# What do you think of lenders pursuing deficiency judgments against defaulting homeowners? **URL:** \ **Category:** Great Debates\ **Created:** [October 3, 2011, 7:22pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467 "2011-10-03T19:22:37Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![MOIDALIZE](https://avatars.discourse-cdn.com/v4/letter/m/e274bd/32.png) [@MOIDALIZE](https://boards.straightdope.com/u/MOIDALIZE)\ **Post date:** [October 4, 2011, 1:47pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/41 "2011-10-04T13:47:39Z")
> [@Saint\_Cad](#): > > Ever since this real estate bubble popped, I have been on the side of the banks and yes, my girlfriend and mother both lost their homes. AKA Stockholm Syndrome. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [October 4, 2011, 2:00pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/42 "2011-10-04T14:00:32Z")
If the bank forgives the debt, they can file a 1099 with the IRS, making you liable for taxes on the forgiven amount. Good luck avoiding the IRS. ---
**Author:** ![Cheesesteak](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cheesesteak/32/3694_2.png) [@Cheesesteak](https://boards.straightdope.com/u/Cheesesteak)\ **Post date:** [October 4, 2011, 2:05pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/43 "2011-10-04T14:05:32Z")
> [@Saint\_Cad](#): > > Ever since this real estate bubble popped, I have been on the side of the banks and yes, my girlfriend and mother both lost their homes. > > 1. Go online to any mortgage calculator. Type in the principal and interest rate of the house you are interested in. Assume a 30 year (360 month term). Hit “calculate”. There is your monthly payment. The least amount of research tells you that this number should not be more than 34% of your net income. Divide your paycheck by 3. If this number is less than the number the mortgage calculator came up with, YOU CANNOT AFFORD THE HOUSE!!! Sorry, that last bit seems to have a typo, I think you meant YOUR BORROWER CANNOT AFFORD THE LOAN!!! > [@](#): > > 1. Most of the people I know who lost their home kept refinancing to pull out equity. So here is my question to them, why do you buy a home? Goodness, another typo, I think you meant to ask “So here is my question to them, why do you keep loaning them more money?” > [@](#): > > 1. Very few people were defrauded by the mortgage companies. That line is to satisfy most Americans who refuse to accept responsibility for their own actions. I had mortgage brokers begging me to buy homes in Los Angeles at the height of the bubble but $72000/yr cannot afford a $2000/mo mortgage payment. You have a typo here in the beginning of the paragraph. I’m sure you meant “Very few mortgage companies were defrauded by consumers” As evidenced by the fact mortgage companies were begging people to take on loans they obviously couldn’t afford. > [@](#): > > When some guy tells you that you can afford a McMansion on $40K a year, it’s your job to implement caveat emptor protocol. You’re still having keyboard trouble. Clearly what you meant here was "When some guy tells you that HE can afford a McMansion on $40K a year, it’s your job to NOT GIVE HIM THE FUCKING LOAN!!! ---
**Author:** ![Happy\_Fun\_Ball](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/happy_fun_ball/32/17664_2.png) [@Happy\_Fun\_Ball](https://boards.straightdope.com/u/Happy_Fun_Ball)\ **Post date:** [October 4, 2011, 2:17pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/44 "2011-10-04T14:17:32Z")
> [@Mtgman](#): > > I oppose deficiency judgments for two reasons. Firstly because they encourage sloppy lending by pushing all of the risk onto the least financially sophisticated party in the contract. Secondly because in most cases they will simply turn a defaulted mortgage into a defaulted judgment and not actually recover much of anything, while tying up court resources. > > The fact of the matter is that both parties agreed to the value of the loan and the value of the asset offered as collateral. Banks insist on mortgage insurance, title searches, surveys, and independent appraisals before they’ll issue a secured loan on a property. Why do we allow the lender to have no skin in the game? They set the rules, but their losses are triple guaranteed by the collateral, mortgage insurance, and a possible deficiency judgment? They get to stack the deck by setting the conditions a loan will be offered, enforce credit rating standards, check for title problems, inspect, survey and assess the house(usually up front and on the borrower’s dime), AND require the borrower to pay for their mortgage insurance, which should cover this loss, but still come after the borrower if they take a loss? How many different ways does the bank expect to be able to shield itself from risk? And what does that say about the incentives in this system? Well said. ---
**Author:** ![magellan01](https://avatars.discourse-cdn.com/v4/letter/m/45deac/32.png) [@magellan01](https://boards.straightdope.com/u/magellan01)\ **Post date:** [October 4, 2011, 2:24pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/45 "2011-10-04T14:24:24Z")
> [@Frylock](#): > > I don’t claim this is what **Tripolar** was talking about and I don’t know what to do about the situation I’m about to describe, but I do want to describe what I’ve found over the last couple of years of teaching critical thinking and logic to mostly low income minority students. > > It turns out that many, many generally competent adults are simply _incapable_ of reading and understanding a legal document, much less one that goes on for pages and pages and spells out everything in detail. > > (I use “incapable” in a loose sense–in my experience almost all these adults can learn the skills involved. But that requires having a good teacher and knowing one needs to learn–both of which are hard to come by.) > > They don’t know the formalities that help one organize one’s reading of the document, and they don’t know how to read things for their strict literal meaning, and they don’t understand how to read off implication relations between sentences and longer passages. > > And moreover, they have no idea that they don’t know how to do these things. They think they’ve read and understood documents which they have completely failed to comprehend. > > This leads to a larger discussion about education, (and let’s not even bring up basic math abilities) but nevertheless, the fact remains–many, many people are signing documents every day which they not only don’t understand, but _can’t_ understand, and can’t see that they _don’t_ understand. > > Having seen this for myself semester after semester, I find myself having a lot more sympathy for prospective homebuyers who are in over their heads. Getting in over your head is sometimes blameworthy, but sometimes you genuinely have no way of knowing the waters are rising til they’re already over the top. Anyone who doesn’t budget to have a lawyer take them through a legal document with so much at stake is a fool. ---
**Author:** ![pbbth](https://avatars.discourse-cdn.com/v4/letter/p/f9ae1b/32.png) [@pbbth](https://boards.straightdope.com/u/pbbth)\ **Post date:** [October 4, 2011, 2:29pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/46 "2011-10-04T14:29:55Z")
I worked for Countrywide at their HQ for a short time during the housing bubble and it was a horrifying experience. They were absolutely predatory lenders with the specific goal to put everyone in a house with a mortgage no matter what their income. They had displays around the building about how you should specifically seek out non-english speakers and other minorities when pitching a loan and they designed loans to start you out with a low monthly cost to entice people into taking loans they could not afford. They actually had a whole sales pitch around their interest-only loan where they would approach recent college grads and pump their egos about how much money they were guaranteed to make in the future because of their degrees so they should obviously sign up for a loan now and pay only the interest for a while and when they got that big job or promotion they would then just refinance into a standard 30 year mortgage. Personally I am of the opinion that in any deal the person with the most power has the most responsibility. It is unreasonable to expect someone who barely graduated high school 10 years ago to be able to understand the legalese of a mortgage as they are currently written. It is unreasonable to expect a 21 year old to know how much money they will be earning in 10 years and base a mortgage on that information. As much as the buyer does need to be responsible for their decision (and they do, I am certainly not saying that there should be no down side for buying more house than you can afford) the mortgage company absolutely must hold the bulk of the responsibility because they designed the mortgages, wrote the contracts, and solicited the business. They have the most power so they have the most responsibility. As an insurance agent I must carry liability coverage because in the event that someone I’ve assisted finds that they were misled/under-informed/otherwise not properly told of the impact of their financial decisions they can take me to court and the law is very clear that because I have so much more knowledge about the industry than my customers that I am then to be held accountable for things I should have logically forseen. If I sell you an emergency only health insurance policy and you have diabetes and chronic asthma I better damn well have proof that I advised you in easy to understand language that this would not cover most of your needs and that you would need to expect to pay the bulk of your medical bills out of pocket. If I sell you a homeowner’s policy for your house on the beach and I don’t explicitly spell out that your coverage does NOT include flood insurance I am held responsible. I don’t see why a bank or a mortgage company shouldn’t be held to the same standards. ---
**Author:** ![Cheesesteak](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cheesesteak/32/3694_2.png) [@Cheesesteak](https://boards.straightdope.com/u/Cheesesteak)\ **Post date:** [October 4, 2011, 2:42pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/47 "2011-10-04T14:42:54Z")
> [@magellan01](#): > > Anyone who doesn’t budget to have a lawyer take them through a legal document with so much at stake is a fool. Who is the bigger fool, a person who has no understanding of legal documents, no lawyer, and a crappy job, or the person who loans him $300,000? ---
**Author:** ![Frylock](https://avatars.discourse-cdn.com/v4/letter/f/ce7236/32.png) [@Frylock](https://boards.straightdope.com/u/Frylock)\ **Post date:** [October 4, 2011, 2:49pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/48 "2011-10-04T14:49:16Z")
> [@magellan01](#): > > Anyone who doesn’t budget to have a lawyer take them through a legal document with so much at stake is a fool. What is the relevance of this? Why does it matter to you who is a fool and who is not, relative to this discussion? ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [October 4, 2011, 2:57pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/49 "2011-10-04T14:57:36Z")
> [@Frylock](#): > > What is the relevance of this? Why does it matter to you who is a fool and who is not, relative to this discussion? Because conservatism requires someone to feel superior to. ---
**Author:** ![Smitty](https://avatars.discourse-cdn.com/v4/letter/s/e274bd/32.png) [@Smitty](https://boards.straightdope.com/u/Smitty)\ **Post date:** [October 4, 2011, 2:58pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/50 "2011-10-04T14:58:11Z")
> [@Cheesesteak](#): > > Who is the bigger fool, a person who has no understanding of legal documents, no lawyer, and a crappy job, or the person who loans him $300,000? When the person making the loan knows he can sell that loan tomorrow and not have to worry about ever actually collecting the 300K? Then “the person with the crappy job” is the correct answer to your question. Those of you arguing that the banks made bad loans are missing the point entirely. If the banks were the ones who were going to hold the note, then you’d be right. More importantly, they never would have made those loans. With Freddie and Fannie guaranteeing the loans, and the banks able to package and sell the loans after they were made, the banks had EVERY incentive to make as many loans as possible to anyone who would sign the papers. You want to blame someone? Blame the people who failed to regulate Freddie and Fannie (which would be Barney Frank, et al.) ---
**Author:** ![magellan01](https://avatars.discourse-cdn.com/v4/letter/m/45deac/32.png) [@magellan01](https://boards.straightdope.com/u/magellan01)\ **Post date:** [October 4, 2011, 3:00pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/51 "2011-10-04T15:00:53Z")
> [@Frylock](#): > > What is the relevance of this? Why does it matter to you who is a fool and who is not, relative to this discussion? The relevance is that most people are not lawyers. Most people do not understand legal documents. Yet, you seem to want to give some people cover because…why? Oh, they don’t—or can’t—understand legal documents. What the heck is so hard about the idea: “Hey, this is the biggest financial deal of my life. There’s this big contract with all this mumbo jumbo that explains the deal legally, I better get a lawyer to read it for me.” This is the thing that millions and millions have done. How the heck is my point _not_ relevant? A toaster is a useful thing. If you insist on using it in a bathtub, you may not like the way things come out. Darwin at work. Same for any person who signs a legal document with so much money at stake without budgeting for a lawyer to explain the document to him. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [October 4, 2011, 3:02pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/52 "2011-10-04T15:02:47Z")
> [@Smitty](#): > > You want to blame someone? Blame the people who failed to regulate Freddie and Fannie (which would be Barney Frank, et al.) You spelled [Gramm-Leach](http://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act) wrong. ---
**Author:** ![Frylock](https://avatars.discourse-cdn.com/v4/letter/f/ce7236/32.png) [@Frylock](https://boards.straightdope.com/u/Frylock)\ **Post date:** [October 4, 2011, 3:24pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/53 "2011-10-04T15:24:07Z")
> [@magellan01](#): > > The relevance is that most people are not lawyers. Most people do not understand legal documents. Yet, you seem to want to give some people cover because…why? Oh, they don’t—or can’t—understand legal documents. What the heck is so hard about the idea: “Hey, this is the biggest financial deal of my life. There’s this big contract with all this mumbo jumbo that explains the deal legally, I better get a lawyer to read it for me.” This is the thing that millions and millions have done. > > How the heck is my point _not_ relevant? A toaster is a useful thing. If you insist on using it in a bathtub, you may not like the way things come out. Darwin at work. Same for any person who signs a legal document with so much money at stake without budgeting for a lawyer to explain the document to him. I’m not being facetious here–I honestly don’t understand your answer. Can you simplify it for me by filling in the following blank? The one who took out the loan without a lawyer is a fool, therefore \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_. ---
**Author:** ![Cheesesteak](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cheesesteak/32/3694_2.png) [@Cheesesteak](https://boards.straightdope.com/u/Cheesesteak)\ **Post date:** [October 4, 2011, 3:40pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/54 "2011-10-04T15:40:11Z")
> [@Smitty](#): > > When the person making the loan knows he can sell that loan tomorrow and not have to worry about ever actually collecting the 300K? Then “the person with the crappy job” is the correct answer to your question. Fair point. I guess we can add “loan guarantee and securitization processes” to the list of things that borrowers should study up on before agreeing to a loan. That way, when a banking professional assures them that they are on solid ground, they’ll know why he’s full of shit. ---
**Author:** ![Evil\_Captor](https://avatars.discourse-cdn.com/v4/letter/e/f17d59/32.png) [@Evil\_Captor](https://boards.straightdope.com/u/Evil_Captor)\ **Post date:** [October 4, 2011, 3:43pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/55 "2011-10-04T15:43:08Z")
> [@Terr](#): > > Who can be idiotic enough to sign blank checks? Do you read the TOS on every piece of software you install on your computer, from top to bottom? ---
**Author:** ![magellan01](https://avatars.discourse-cdn.com/v4/letter/m/45deac/32.png) [@magellan01](https://boards.straightdope.com/u/magellan01)\ **Post date:** [October 4, 2011, 3:50pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/56 "2011-10-04T15:50:30Z")
> [@Frylock](#): > > I’m not being facetious here–I honestly don’t understand your answer. > > Can you simplify it for me by filling in the following blank? > > The one who took out the loan without a lawyer is a fool, therefore \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_. I don’t see what is so difficult to understand, but: …therefore, the blame lies with them. Granted, that the blame may be mitigated or shared in those specific instances where there was malfeasance or fraud on the part of the broker. And in those instances, the offending party should be prosecuted to the fullest extent of the law. ---
**Author:** ![mhendo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mhendo/32/3159_2.png) [@mhendo](https://boards.straightdope.com/u/mhendo)\ **Post date:** [October 4, 2011, 3:53pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/57 "2011-10-04T15:53:02Z")
> [@Evil\_Captor](#): > > Do you read the TOS on every piece of software you install on your computer, from top to bottom? Well, despite the fact that i have a lot of sympathy for people who have lost their houses, and i believe that irresponsibility by lenders and realtors contributed greatly to the problem, i’m not sure this is a reasonable question. Firstly, when i purchase a piece of software, i’ve already paid for it before i even read the click-through license, so failing to read the ToS doesn’t cost me any more money that i’ve already forked over. But most importantly, we also need to recognize issue of scale, and understand that not all contracts have the same significance to the parties involved. I’ve never paid $350,000 for a piece of software. I’ve never paid $350,000 for anything. But if and when i do pay $350,000 for something, locking myself into an agreement that will have me making payments every month for 30 years, you can be damn sure that i will read every single word of it as closely and as carefully as i can. Now, none of this the point made by **Frylock** earlier in the thread, when he pointed out that some people won’t be able to understand what te contract says no matter how closely they read it. That is a problem, and i’m sure it was a factor in plenty of cases. But i really think it’s rather disingenuous to suggest that, because i don’t read every word of the license when i install a copy of Microsoft Word or Adobe Photoshop, it is also unreasonable to expect people to read every word of their mortgage contract before signing it. While they might both be contracts, in the real world those two things are not the same. ---
**Author:** ![magellan01](https://avatars.discourse-cdn.com/v4/letter/m/45deac/32.png) [@magellan01](https://boards.straightdope.com/u/magellan01)\ **Post date:** [October 4, 2011, 3:56pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/58 "2011-10-04T15:56:38Z")
> [@Evil\_Captor](#): > > Do you read the TOS on every piece of software you install on your computer, from top to bottom? Don’t you think that the desire or necessity one might have to read all the legalese syncs up with the potential downside of not reading it. Certainly, a document that is entering you into a deal where hundreds of thousands of dollars are at stake, something so big that you’re making it part of your life for thirty years, would be at the top of the list, would it not? ---
**Author:** ![Frylock](https://avatars.discourse-cdn.com/v4/letter/f/ce7236/32.png) [@Frylock](https://boards.straightdope.com/u/Frylock)\ **Post date:** [October 4, 2011, 4:03pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/59 "2011-10-04T16:03:15Z")
> [@magellan01](#): > > I don’t see what is so difficult to understand, but: > > …therefore, the blame lies with them. I’m glad you answered the question because that’s not what I thought you were going to say. I don’t see how your inference here is supposed to work though. The most plausible reading is that you’re assuming something like this: F: “When a fool is involved in a transaction, and there are negative consequences of that transaction, the fool is the one who is to be held responsible for those consequences.” Do you really believe that? It seems like there are some pretty clear counterexamples. Very often–if not even typically!–I’d think that the participant in the transaction who is _less_ foolish is the one who has _more_ responsibility for the consequences. They’re in a better position to foresee and prevent those consequences, after all. But am I wrong to think you are assuming F? If not F, then what is it you’re assuming in order to make your inference go through? How do you get from “X is a fool” to “X deserves the blame?” > [@](#): > > Granted, that the blame may be mitigated or shared in those specific instances where there was malfeasance or fraud on the part of the broker. And in those instances, the offending party should be prosecuted to the fullest extent of the law. Are you talking about moral issues or legal issues here? Blame is a general moral concept, not just a legal one (and foolishness is certainly not a legal concept–though for many it has moral connotations) but here you use legal-sounding phrases like “malfeasance or fraud” and talk about “the fullest extent of the law.” So am I to understand you as speaking purely about legal matters here? Or by “blame” above did you mean moral blame? ---
**Author:** ![Shodan](https://avatars.discourse-cdn.com/v4/letter/s/9f8e36/32.png) [@Shodan](https://boards.straightdope.com/u/Shodan)\ **Post date:** [October 4, 2011, 4:06pm UTC](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467/60 "2011-10-04T16:06:14Z")
> [@Fear\_Itself](#): > > Because conservatism requires someone to feel superior to. And it’s liberalism’s duty to supply those people. [QUOTE=Frylock] Can you simplify it for me by filling in the following blank? The one who took out the loan without a lawyer is a fool, therefore\_\_\_\_\_ [/QUOTE] Therefore [ul] [li]it probably isn’t the fault of the lender when that person gets into trouble, and[/li][li]Laws based on the presumption of normal or near-normal intelligence aren’t going to help[/li][/ul] Regards, Shodan [Previous page](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467.md?page=2) [Next page](https://boards.straightdope.com/t/what-do-you-think-of-lenders-pursuing-deficiency-judgments-against-defaulting-homeowners/598467.md?page=4)