Nonrecourse debt in the States

[ismaele00]

Hey guys,

We're having here in Spain now a huge debate about the convenience or not to compell by law the nonrecourse debt as the common way of formalize a mortgage (only for the first home, meaning the residence, not "holidays" home or beach apartment... you know).

That means than when you are not able to pay your mortgage (like now is happening here) you give your dwelling to the bank and you don't need to comply the law principle of universal liability of the debtor (you respond with all your goods to your debts).

I know how the thing works in the State of New York where I've been living, but have no idea of the rest of the States, so if someone could give me a hand I'd thank it.

 

[billfred]

Home mortgage is non-recourse unless you personally guarantee it (not common).

 

[WoodyO]

What language are you speaking?

 

[Headholio]

If you are upside down and then default on your mortgage, the bank can come after you for the balance due after the house is liquidated, right?

 

[ismaele00]

What language are you speaking?

U Mexican?

 

[ismaele00]

If you are upside down and then default on your mortgage, the bank can come after you for the balance due after the house is liquidated, right?

Here, you have to ask for this sort of mortgage (clause, legal article... I don't know how you call it) and the bank can or not accept it.

If they don't accept it and you stop paying the mortgage for three months (you can't be expulsed before this time), a judge will get public auction of the home. The main problem is that the bank that gave you the credit is responsible for the housing rate (appraisal, assessment, rating), so, as a private company for profit they will value it for a lower price.

This new price will be subtracted of the total amount of the debt, but if noone else's presented to the acution, the bank can get the home for less than the 50% of the rating (remember that the rating has been done for the same bank).
And the remaining debt has to be satisfied with ALL your goods, so people lost their home and still having a debt. It's an absolutly social exclusion.

eg,

I have a debt with the BANK A for US 240,000.
I lost my job, so I can not pay. I've paid US 20,000 (we are not considering interests).

The home is rated (by the bank) in auction in US 100,000. But nobody goes to it, so the bank gets the home for US 49,000.
Then, 49,000 + 20,000 (I've paid already) = 69,000 --> 240,000 - 69,000 = 171,000.

I lost my home and I have a debt of US 171,000.

In the rest of Europe, things work more or less the same way, but they have what they call "second chance policies", I don't know exactly how it works.

 

[billfred]

If you are upside down and then default on your mortgage, the bank can come after you for the balance due after the house is liquidated, right?

I don't think so unless your personally guarantee the loan. It is like he said, is it with recourse or without. Without recourse, they can only go after the secured property.

 

[ismaele00]

I don't think so unless your personally guarantee the loan. It is like he said, is it with recourse or without. Without recourse, they can only go after the secured property.

I'm not sure if I've understood what you said but if you have a "common" mortgage (without the nonrecourse option here) they (the bank) can go against EVERYTHING you have (well, not all, but almost).

If you have it, when you give the home the debt's paid off.

 

[PICK3]

so if someone could give me a hand I'd thank it.

earthrider

 

[Headholio]

I'm not sure if I've understood what you said but if you have a "common" mortgage (without the nonrecourse option here) they (the bank) can go against EVERYTHING you have (well, not all, but almost).

If you have it, when you give the home the debt's paid off.

A short sale is when the bank forgives you of the unpaid balance after a sale that is less than the mortgage amount. Unless you have that agreement, I think you are still on the hook for the balance.

http://en.wikipedia.org/wiki/Short_sale_(real_estate)

 

[ismaele00]

A short sale is when the bank forgives you of the unpaid balance after a sale that is less than the mortgage amount. Unless you have that agreement, I think you are still on the hook for the balance.

http://en.wikipedia.org/wiki/Short_sale_(real_estate)

So, is there any difference between a short sale and the nonrecourse clause? Or is it the consequence of that sort of clause?

 

[stevesmi]

If you are upside down and then default on your mortgage, the bank can come after you for the balance due after the house is liquidated, right?

they have 1 year and they rarely do.. they don't give a shit anymore, they just want the bad debt off their books

it will fuck up your credit though for a few years but i have never seen the bank come after someone. i know a dude who hasn't paid his mortgage for 5 years and the bank still hasn't come after him. he got lost in the system but more likely what happened is the bank lost his docs and cannot do a thing to get the house back from him

 

[stevesmi]

So, is there any difference between a short sale and the nonrecourse clause? Or is it the consequence of that sort of clause?

short sales you make a deal with the bank, you need a very experienced realtor who will pester the bank to get it through and you need the realtor to be working with a good real estate attorney too that will negotiate for you.. the buyers bank must also approve it. they bank will sometimes want you to bring some money to closing and even with a short sale they can still come after you but like i said earlier post they rarely do.

short sales will show up on your credit but don't do much damage like a foreclosure or not paying your credit card etc.

if you are underwater go with a short sale... all you have to do is show you are paying more than you are bringing in, go through a divorce, or show some sort of hardship... banks are approving them like crazy right now.. they just want the loans off their books

the bank will request your tax returns but thats okay as long as you can show them you spend more than take in. I know a freakin doctor who did a short sale cause she showed he was spending more than making

 

[Headholio]

So, is there any difference between a short sale and the nonrecourse clause? Or is it the consequence of that sort of clause?

A short sale option, as far as I know, is not part of a normal mortgage contract. It is something you negotiate with a bank if you can not pay. There is some incentive for the bank to accept a short sale instead of going through the process of foreclosure.

 

[ismaele00]

Ok, more or less is what some people is defending here.
But I still seeing a problem. A bank who has the 60% of its financial assets in subprimes if accept the 100% of its mortgages with nonrecourse clauses, is accepting become bankrupt knowing that nowadays those assets are 0.

I mean, I got a credit for US 300,000 I bought my home in NYC. Now that home is valued in US 100,000. In the States, the bank has to face this devaluation?

Thanks guys!

 

[Headholio]

Ok, more or less is what some people is defending here.
But I still seeing a problem. A bank who has the 60% of its financial assets in subprimes if accept the 100% of its mortgages with nonrecourse clauses, is accepting become bankrupt knowing that nowadays those assets are 0.

I mean, I got a credit for US 300,000 I bought my home in NYC. Now that home is valued in US 100,000. In the States, the bank has to face this devaluation?

Thanks guys!

I don't think any bank would have 60% of its assets in sub primes, but regardless, when banks loan they cover their risks.
Typically, a bank wants 80% loan to value. So there is a 20% equity buffer in there in the case they have to recover their money through foreclosure. When the market was booming, it was easier to get 100% loan to value, since banks assumed that if there was a foreclosure, the house value would have appreciated by then, so they took that chance and accepted that risk.

If you don't have a 20% down payment, the bank requires PMI, (Private mortgage insurance), which gives them extra security in the case the buyer defaults.

So, overall the banks are taking very little risk and the system usually works. In the 2006-2008 time period, however, there was such a drastic deflation of prices, too many "zero down" crappy loans based on the assumption of rapid appreciation, and so many foreclosures, the banks did lose money on mortgages.

 

[stevesmi]

Ok, more or less is what some people is defending here.
But I still seeing a problem. A bank who has the 60% of its financial assets in subprimes if accept the 100% of its mortgages with nonrecourse clauses, is accepting become bankrupt knowing that nowadays those assets are 0.

I mean, I got a credit for US 300,000 I bought my home in NYC. Now that home is valued in US 100,000. In the States, the bank has to face this devaluation?

Thanks guys!

dude the major banks are all profitable.. the thrift banks are having record earnings.

not sure where you are getting your info from but the banks are doing just fine. there isn't a single money center American bank that isn't profitable right now. your theory is years behind... we already went through the banking crisis in late 2008, early 2009.. we are behind that now. banks are strong today.

so yeah they are fine with you short selling and would much rather unload the mortgage that way rather than you going the foreclosure route and risking a judge throw out the case awarding you the home free and clear (this has happened many times because the banks were sloppy)

hire a realtor and short sale that sucker... you may have to pay taxes on the difference as the bill in congress sunsetted last year... thats the only sucky thing about going that route

 

[stevesmi]

I don't think any bank would have 60% of its assets in sub primes, but regardless, when banks loan they cover their risks.
Typically, a bank wants 80% loan to value. So there is a 20% equity buffer in there in the case they have to recover their money through foreclosure. When the market was booming, it was easier to get 100% loan to value, since banks assumed that if there was a foreclosure, the house value would have appreciated by then, so they took that chance and accepted that risk.

If you don't have a 20% down payment, the bank requires PMI, (Private mortgage insurance), which gives them extra security in the case the buyer defaults.

So, overall the banks are taking very little risk and the system usually works. In the 2006-2008 time period, however, there was such a drastic deflation of prices, too many "zero down" crappy loans based on the assumption of rapid appreciation, and so many foreclosures, the banks did lose money on mortgages.

people don't get when they have a mortage through say BOA, its not BOA that is the investor. many of those loans are through fannie.. BOA is merely the middle man.

 

[ceo]

All I know is there are all kinds of debt forgiveness and loan restructuring programs and social handouts to people who bought too much house on ARMs and can no longer make payments when the rate adjusts. But if you were responsible and made all your payments on time, you can pretty much fuck off.

 

[ceo]

I'd have so much more money if I wouldn't have paid my mortgage for the last 4 years! Probably still be in the house and have 20% of the mortgage forgiven too. Fucking freeloaders.

 

[Headholio]

I'd have so much more money if I wouldn't have paid my mortgage for the last 4 years! Probably still be in the house and have 20% of the mortgage forgiven too. Fucking freeloaders.

Try not paying your mortgage for 4 years and let us know how it goes.

 

[ismaele00]

dude the major banks are all profitable.. the thrift banks are having record earnings.

not sure where you are getting your info from but the banks are doing just fine. there isn't a single money center American bank that isn't profitable right now. your theory is years behind... we already went through the banking crisis in late 2008, early 2009.. we are behind that now. banks are strong today.

so yeah they are fine with you short selling and would much rather unload the mortgage that way rather than you going the foreclosure route and risking a judge throw out the case awarding you the home free and clear (this has happened many times because the banks were sloppy)

hire a realtor and short sale that sucker... you may have to pay taxes on the difference as the bill in congress sunsetted last year... thats the only sucky thing about going that route

No, no. I'm getting information from nowhere friend.

I just want to know how things work there, because as I said we are having here a debat we should had years ago.
I do know banks are profitable. I don't defend banks, why should I? But I think you must be responsible for the loans you ask for, don't you?

 

[ismaele00]

All I know is there are all kinds of debt forgiveness and loan restructuring programs and social handouts to people who bought too much house on ARMs and can no longer make payments when the rate adjusts. But if you were responsible and made all your payments on time, you can pretty much fuck off.

That's one of the things make me think that this kind of nonerecourse debt is not a good idea (or at least, not the best).
Why a family who pays every single month their mortgage, have to face high interests because banks have to protect their loans?

If you lend me money, can I pay you back in potatoes? What are the banks supposed to do with a house right now?
And, some of you know me, I'm light years away of libertarianism.

If you don't have a 20% down payment, the bank requires PMI, (Private mortgage insurance), which gives them extra security in the case the buyer defaults

Then, if the price falls more than this 20% (or the % you've pay down or the % your insurance covers), the bank has to face it, doesn't it?
That's what I don't see clear.

 

[ismaele00]

...

 

[Headholio]

Then, if the price falls more than this 20% (or the % you've pay down or the % your insurance covers), the bank has to face it, doesn't it?
That's what I don't see clear.

Prices dropping more than 20% is a pretty rare occurrance. Yes it happened a few years ago, but that sure isn't normal.
Of course, if prices drop that much, everybody loses. Homeowners lose value on their biggest asset, banks lose collateral value etc.

I'm not a banker or any kind of financial expert, but as far as I know, in the US, mortgage loans are not "non-recourse". If you lose money on your house, you are still responsible for the entire mortgage amount.

Of course there are bankruptcy laws, and there have been special accomodations made for people recently due to the huge size of the problem in the last few years, but that's all a different story. You are responsible for your total loan amount.

 

[stevesmi]

eh I just bought a house cash here in FL. it was a short sale.. i would of never gotten that price if the seller wasn't underwater. plus i made the bank write me a check for a few G's at closing to cover painting and new carpet.

I don't see why i should have to apologize to anyone for getting a deal. the bank wins cause they don't have to deal with foreclosure, the seller wins for unloading the house for less than what they owe, and I win for getting a good deal and now I can spend money on the home, the neighborhood wins for having 1 less house for sale, so who loses again?

life isn't fair and the system doesn't work like what you are saying.

short sales have been happening for years and years.. you are only hearing about them now cause people are underwater

 

[ismaele00]

Well, it looks much more complicated that I thought.
I was talking with my father, and well, he sees the "human" part of this problem, a family that loses their home and still having a debt that probably will never pay, and I see the "objective" debt towards the bank... made me think.

Well, anyway, thanks for the interest guys.

 

[stevesmi]

I'd have so much more money if I wouldn't have paid my mortgage for the last 4 years! Probably still be in the house and have 20% of the mortgage forgiven too. Fucking freeloaders.

then you probably shouldn't read the 3 stories that my X neighbors did when i lived in central FL.

story #1. neighbor next door paid 420K for his house during bubble. now its worth 185K.. he goes and buys a larger house on the next street for 230K in his wifes name (a short sale).. then he short sales the other house for 185K and is forgiven the debt. and the funny thing is the person who bought his house was his tenant who also did a short sale previously!!

story #2.. this one is a doozy.. neighbor across the street.. nice lady. buys her house for 370K.. gets a LOC during the bubble. takes the 250K check and puts it away.. then lets the house go foreclosure.. bank tries to come after her but can't do a thing about it and gives up on the line of credit. she hasn't paid her mortgage in 3 years.. as soon as she finally gets kicked out she plans on buying a house cash with that 250K

story #3... neighbor is 200K underwater.. short sells the house to his mom using her maiden name for 175K through a short sale, then 3 months later buys it back from her for 185K... his mortgage is less than half what it was and he goes from being 200K underwater to having 50K equity in it

 

[Headholio]

eh I just bought a house cash here in FL. it was a short sale.. i would of never gotten that price if the seller wasn't underwater.

I don't see why i should have to apologize to anyone for getting a deal. the bank wins cause they don't have to deal with foreclosure, the seller wins for unloading the house for less than what they owe, and I win for getting a good deal and now I can spend money on the home, the neighborhood wins for having 1 less house for sale, so who loses again?

life isn't fair and the system doesn't work like what you are saying.

short sales have been happening for years and years.. you are only hearing about them now cause people are underwater

Well the bank holding the mortgage loses in some cases, although it could be that they collected enough interest before the short sale that they still came out ahead.

For banks its just a business expense. They know when they make a loan or issue a credit card, a certain small percentage of those will be losses. But they make so much dough on the rest that it doesn't matter. The same with insurance companies. They could issue you a million dollar life insurance policy and you could die the next day. But overall they are raking it in.

Ismael, You seem to worry too much about banks. they are making a killing. Are you asking about protections from banking system collapse if there were another recession/depression? Because that is a different story than home mortgages.

 

[stevesmi]

Well the bank holding the mortgage loses in some cases, although it could be that they collected enough interest before the short sale that they still came out ahead.

For banks its just a business expense. They know when they make a loan or issue a credit card, a certain small percentage of those will be losses. But they make so much dough on the rest that it doesn't matter. The same with insurance companies. They could issue you a million dollar life insurance policy and you could die the next day. But overall they are raking it in.

Ismael, You seem to worry too much about banks. they are making a killing. Are you asking about protections from banking system collapse if there were another recession/depression? Because that is a different story than home mortgages.

yes but they would of lost a lot more had the home gone into foreclosure. so even they win in my eyes

 

[stevesmi]

Well, it looks much more complicated that I thought.
I was talking with my father, and well, he sees the "human" part of this problem, a family that loses their home and still having a debt that probably will never pay, and I see the "objective" debt towards the bank... made me think.

Well, anyway, thanks for the interest guys.

well even with credit card debt you can call up the CC company and make a deal with them... it will show up as a charge off on your credit report though.

throughout history people who were in debt have made deals with their lenders and in many cases did not pay. hell I'm owed money from a few guys for sports bets and those bozo's haven't paid up.