http://www.nytimes.com/2010/06/22/business/22default.html?ref=business As the housing market continues to sputter, the real estate industry is increasingly split on the responsibilities of overextended and foreclosed homeowners. Your Money Guides On one side are the bankers, who say borrowers should be liable for what they owe. On the other side are real estate agents, who say those who lost their... [more]
http://www.nytimes.com/2010/06/22/business/22default.html?ref=business
As the housing market continues to sputter, the real estate industry is increasingly split on the responsibilities of overextended and foreclosed homeowners.
Your Money Guides
On one side are the bankers, who say borrowers should be liable for what they owe. On the other side are real estate agents, who say those who lost their houses should not be so burdened by debt that they cannot move on.
The original legislation said borrowers who took cash out of their houses would be shielded as long as they used the money for home improvements. In its current form, the proposed law is not quite so forgiving.
The bill that passed the Senate by a lopsided vote of 30 to 4 would protect former homeowners up to the amount of their original loan. For instance, a family that took out a $500,000 mortgage to buy a house and then refinanced and took cash out, swelling their loan to $600,000, would be released from claims on the original sum but remain vulnerable on the $100,000.
Seventy-five years later, because of that law, anyone who has an original loan and wants to get rid of the house because it has fallen in value can simply walk away without further legal jeopardy. But a homeowner who refinanced, even for the straightforward reason of getting a lower interest rate, could in theory lose the house and be pursued for the deficiency.
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NOT PERMITTING DEFICIENCY JUDGMENTS IS GOOD FOR REALTORS
SINCE BUYERS ARE MORE ABLE TO PURCHASE IN THE FUTURE
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The agents, too, say this is a fairness issue. But there is also self-interest involved.
%u201CRealtors are very worried about this because they think it will destroy the housing market if people end up with these huge deficiency judgments and are never able to buy a house again,%u201D Ms. Corbett said.
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Under California law, purchase money loans are non-recourse. However once a homeowner refinances, the entire mortgage is recourse ... that is probably going to change:
This bill preserves a borrowers protection from a deficiency judgment when loans are refinanced, but only to the extent that the refinance is used to pay debt incurred to purchase the real property. The provisions of this bill become operative on June 1, 2011.
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Response by stevejhx
about 16 years ago
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What's your point?
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Response by Riversider
about 16 years ago
Posts: 13573
Member since: Apr 2009
Realtors have an incentive to promote non-recourse mortgages. Bankers the opposite.
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Response by stevejhx
about 16 years ago
Posts: 12656
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That's not really a point.
Nonetheless, it takes a bit more investigation than that to make a judgment - California is a title theory state, meaning that the lender actually holds title to the house and the "owner" has a "deed in trust," meaning he's essentially a renter. New York, to contrast, is a "lien theory" state - and a recourse state - where the owner owns the property and the lender has a lien against it for the mortgage.
It seems to me that in California lenders want it both ways - they both want to own the property and want to have recourse for the money lent against it. Foreclosure is much faster and less expensive in title theory states; in lien theory states owners have many more protections, and the foreclosure process is slower and more expensive.
At heart, loans in title theory states are unsecured - the bank owns the property, so there is no collateral. Seems they want the best of both worlds, their cake and to eat it, too. Do borrowers have no rights in your mind?
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Response by Socialist
about 16 years ago
Posts: 2261
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And if a borrower is pursued for a deficiency judgment and pays it, does that mean they get their house back? Or do the greedy bankers want BOTH the money and the house?
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Response by inonada
about 16 years ago
Posts: 8085
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If $500K is owed on the house at the time of sale, and the bank sells it for $450K with $50K in expenses, then the deficiency is $100K. The greedy bankers want the $100K back, so that they can give back what they have borrowed from their greedy depositors. These greedy depositors have greedy notions of "I've saved some money, and rather than put it under my matress, I'm going to put it in a bank with some expectation of it being given back to me."
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Response by stevejhx
about 16 years ago
Posts: 12656
Member since: Feb 2008
The bank owns the house from the get-go. The bank made the loan. Therefore, the price risk is the bank's - in a title theory state - because it owns the property and gets it back.
In a lien theory state, the borrower owns the home. The bank has only a lien. Therefore, the price risk is the borrower's.
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Response by alanhart
about 16 years ago
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Those bastards!
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Response by stevejhx
about 16 years ago
Posts: 12656
Member since: Feb 2008
Indeed.
Where's spunky?
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Response by Riversider
about 16 years ago
Posts: 13573
Member since: Apr 2009
I wonder how much of the differences in title vs lien theory states are mostly technical. Other than resulting in judicial or nonjudicial foreclosures I don't see real differences. Does the lender holding title limit their ability to seek a deficiency judgement or in other words treating the "deficiency" as an unsecured credit.
and calculated risk weighs in...
http://www.calculatedriskblog.com/2010/06/california-senate-passes-bill-to-extend.html
Under California law, purchase money loans are non-recourse. However once a homeowner refinances, the entire mortgage is recourse ... that is probably going to change:
This bill preserves a borrowers protection from a deficiency judgment when loans are refinanced, but only to the extent that the refinance is used to pay debt incurred to purchase the real property. The provisions of this bill become operative on June 1, 2011.
What's your point?
Realtors have an incentive to promote non-recourse mortgages. Bankers the opposite.
That's not really a point.
Nonetheless, it takes a bit more investigation than that to make a judgment - California is a title theory state, meaning that the lender actually holds title to the house and the "owner" has a "deed in trust," meaning he's essentially a renter. New York, to contrast, is a "lien theory" state - and a recourse state - where the owner owns the property and the lender has a lien against it for the mortgage.
It seems to me that in California lenders want it both ways - they both want to own the property and want to have recourse for the money lent against it. Foreclosure is much faster and less expensive in title theory states; in lien theory states owners have many more protections, and the foreclosure process is slower and more expensive.
At heart, loans in title theory states are unsecured - the bank owns the property, so there is no collateral. Seems they want the best of both worlds, their cake and to eat it, too. Do borrowers have no rights in your mind?
And if a borrower is pursued for a deficiency judgment and pays it, does that mean they get their house back? Or do the greedy bankers want BOTH the money and the house?
If $500K is owed on the house at the time of sale, and the bank sells it for $450K with $50K in expenses, then the deficiency is $100K. The greedy bankers want the $100K back, so that they can give back what they have borrowed from their greedy depositors. These greedy depositors have greedy notions of "I've saved some money, and rather than put it under my matress, I'm going to put it in a bank with some expectation of it being given back to me."
The bank owns the house from the get-go. The bank made the loan. Therefore, the price risk is the bank's - in a title theory state - because it owns the property and gets it back.
In a lien theory state, the borrower owns the home. The bank has only a lien. Therefore, the price risk is the borrower's.
Those bastards!
Indeed.
Where's spunky?
I wonder how much of the differences in title vs lien theory states are mostly technical. Other than resulting in judicial or nonjudicial foreclosures I don't see real differences. Does the lender holding title limit their ability to seek a deficiency judgement or in other words treating the "deficiency" as an unsecured credit.
You can google that.