Yet another question, U.S. mortgages

I was speaking to someone yesterday about people walking away from properties in Florida (he knows someone who has a condo where several owners have done this).

As one of the things we were discussing, he was saying that, in the U.S. (or perhaps just Florida, I’m not sure), it’s the property that is mortgaged, not the person. So, theoretically, a person could walk away from one home and mortgage; go and buy another and have little affect on them personally. That’s why people are just walking away from some properties. The mortgage would stay with the property. That doesn’t seem to make any sense. Or perhaps I just don’t understand it?

Here, the money you owe would follow you anywhere, whether or not you actually lived in the property.

A “mortgage” is a security interest in a piece of real property which lets the creditor take the property if the debtor defaults on the loan.

The loan is still an underlying contractual obligation of the debtor. So, if the debtor walked away from the property and quit paying on the loan, the creditor could have the property sold at the courthouse steps. If the property doesn’t bring more than the debtor owes the creditor, then the debtor still owes the creditor the difference.

I’ve worked in real estate for 25 years, and I have only one word for you: BULLSHIT. The person borrowing the money is responsible for the mortgage. If they sell the property, the loan has to be paid off.

I am not a banker, but if someone stops paying on a mortgage, how are they going to convince a bank to lend them money again immediately after the fact?

I gather that varies by state - some states do not allow the creditor to go after the debtor in that situation, others do. In general though, the creditor could go after you for the balance, but in practice they may not do so all that often.

The debtor could not just go and buy another property: the foreclosure is a huge ding on his credit rating, and they’d have a very hard time convincing another bank to lend them money to purchase the new property. What I’ve heard of is the person purchases another property before walking away from the first one and blowing their credit rating.

Good point. Deficiency judgments are allowed in my state – perhaps not in Florida.

I think the Floridian from the OP has the meaning of the term “walking away from a mortgage” confused. People call it that, but you don’t just walk away from it. You do what everyone else here has said.

They are available:

http://www.naplesnews.com/news/2006/Oct/18/its_law_bank_doesnt_take_back_property_mortgage_fo/

Here is a chart that shows the foreclosure laws of every state: http://www.all-foreclosure.com/procedures.htm

MamaZappa is correct. In many states, including big ones like California, all residential mortgages are what is called “non-recourse,” which means that the lender does not have recourse to any of the borrower’s other assets. If the lender forecloses and price it obtains for the property is less than the outstanding debt, the lender takes a loss; it cannot bring suit against the debtor for the deficiency. Other states, such as New York, require the lender to choose between foreclosing on the property or suing the buyer for the default; if the lender opts to foreclose, it cannot then pursue a deficiency judgment.

And Furious_Marmot is also correct. If a buyer walks away from a non-recourse mortgage and leaves a deficiency behind, that will seriously damage the buyer’s credit rating…