If it were YOU personally, who lent that borrower the money to buy that home, and they later simply chose to "walk away"... calling it a business decision... would you go after YOUR OWN MONEY... or just drop the whole thing ?  What would you do ?

That is such an absurd straw man argument.  Big banks are loaned the money they use to secure mortgages at 0% interest from the federal reserve (buyers tax dollars).  They were payed for their losees by even more of our tax dollars via tarp.  They can eat the losses of engineering this crash and thus putting people 50% underwater on their homes.  I am sure it is hard to see this simple truth when you made your living by helping to inflate the bubble though.  Never bite the hand that feeds you, am I right?

Hi Richard,  Thanks for the timely artical.  I recently listed a home for short sale, and before receiving a contract, the seller was told by a Bankruptcy Attorney to just walk away and file for bankruptcy.  How does this play into deficiency judgements?  While I know very little about filing for bankruptcy, I assume there must be a proven hardship, right?  Is this a good course of action as opposed to a short sale?

Thanks for the update.

I feel like have been under a rock.  I am a Realtor, in foreclosure myself, my lender's loan officer told me to walk away, "Everyone is doing it, there is no problem..."  I decided to not do that.  Thank God!

I applied for a re-fi, never heard from them once I submitted debt information, assets (or lack of), etc.   Just got the letter of Foreclosure notification from the Lawyers representing my Lender.  The attorney I had been speaking to on the phone, getting advice on how to reply to the lawyers, possible attorney for foreclosure, short sale, or whatever decided to take the Summer off!  

He referred me to an unknown attorney, someone who I had not ever heard of, he is located in the High Rent area and I don't have money for an attorney muchless an expensive one.  I will be 65, I am on SS, food stamps, and now in a dilemma, I have no where to go, no family to move in with and no resources.   I spent all my resources on mtg payments till it was gone.  I had hoped that the "Market would Turn Around" like they kept saying it would for the last three years.  I am applying for a regular job, but the area I live in is depressed, unemployment is over 10%, Commercial properties are vacant, there are tons of homes on the market, FSBO's, it is not a good situation.

Any good, useful advice would be appreciated.  No lectures, or cutting remarks please.  I already have plenty of pain in other areas of my life, I will not get into that here.

Thank you.

http://www.irs.gov/individuals/article/0,,id=179414,00.html

http://www.housingwire.com/2010/06/10/clayton-finds-short-sales-cut-loss-severity-compared-to-reo

With loss severities of foreclosures growing rapidly over short sales, we should continue to see servicers selling pre-foreclosure non-performing loans in lieu of executing the foreclosure.  This allows the new owner of the loan to negotiate a principal reduction while still retaining a nice yield.  Essentially short selling the home right back to the existing owner.  Whole loan trading activity has been picking up rapidly over the past 18 months preventing thousands of foreclosures.  This process would prevent deficiency judgments, but would still result in lower loss severities for the servicer.

In Arizona we are a non-recourse state but I wonder as time goes by, if the banks will start to review all short sales and strategic defaults.  Most approval letters mention that the bank does NOT waive the right to pursue deficiencies.  What is to stop them?

Be careful here!

Whether its a homeowner who tried everything to save their home, but at the end had to "walk away",

or a so-called "strategic default" or a "business decision" to just walk away, ....banks, lenders, and as we just read, even Fannie Mae (yikes!), may seek deficiency judgments against foreclosed loans.

My point?

Why make a distinction between the homeowner who just walked away and the "business decision" or that decision to make a so-called "strategic default"?

A deficiency judgment will be enforceable in many states for 20 years, so even that "poor homeowner who had to just walk away", may obtain some assets over a 20 year period, that can be "grabbed via a deficiency judgment" many, many years ..."down the road".

So these lenders, wall street investers, banks, even Fannie Mae, may decide to have their attorneys "plunk down" a few hundred dollars, and start a lawsuit for a defeciancy judgment,

...and yes, it might even be against that poor homeowner who just had to walk away because they had no money.

No money now, but what about 10, 15 years from now?

Fannie and Freddie - what a piece of work.  The wheels are coming off the financial system.  Main street cannot shoulder the burdens of this wall street greed-gone-wrong forever.

I was a homeowner who was wrongfully foreclosed, so let me say first hand that not all borrowers are strategic defaulters. My husband and I bought our first home when we were 19 and have owned 2 homes. The home that was foreclosed on was purchased in 07 with intentions of spending many years if not the extent of our lives in that home.

In August 2010 he got a new job 600 miles away to which we began to contact the mortgage co and ask what our options were considering we could not possibly pay for a lease and the mortgage at once. We put the house on the market in August and waited. We were told that we had no options until we were in default...WHAT, that makes no sense whatsoever. I made my last house payment before I couldn't anymore in October and by December they were calling me at least 2 times a day. As you all know, being Real Estate agents, the market is not so great around the holidays, so it just sat. Mid January we got an offer that would be a short sale to which we applied and got an extension on the foreclosure date for another month. I stayed on the phone everyday maybe twice a day to make sure we had all proper documents needed for this to happen. Everything was going smoothly ( as it possibly could dealing with a bank) and by the end of the month, 4 DAYS AFTER the foreclosure date, we were notified by an automated email that we had been foreclosed...

No one at the bank seemed to know what happened and they would not talk about it because they said it was confidential.

The house was worth 136,000; we asked 129,000; we owed 114,000; the offer was for 120,000 and they would not accept the offer, but rather foreclosed without notification.

Now the house has been taken and on the market as a Fannie Mae home with an original asking price of 119,000; and has now been dropped down to 114,000.                   That's called fraud folks

Now guess who is knocking at my door, Fannie mae wanting their money.

We are not all strategic defaulters and should not be put in that category just because the bank took advantage of our situation.

Richard,

Thank you for the good information. I told Fannie Mae that I was going to dipute the amount of $19,360 that they are trying to come after me for, considering the bank did an unjustice to me and my family.

My husband and I have had great credit until the foreclosure, and now we feel like they can just come get us because we have done nothing wrong.

Bank of America has a name that we should be able to trust. They are more worried about getting new customers than keeping the ones they already have, and treating them so unjustly that this will surely be the reason for their demise in the future.

To Bruce who posited the question:  "If the bank has to take the loss on a property's declining value because the owner does not want to then shouldn't the lending bank also get the appreciation on properties they lend against that go up in value?"  Throughout history, until now, that's exactly what happened.  People would put down 20% on a home, pay on it for a number of years, and then run into financial straits and be foreclosed.  The loan was for 80% of the original value, the value had since gone up (to 120%, 130% of the original value, whatever), the bank then sells it for a huge profit.  Soooo, if the house goes up in value and the owners are foreclosed the banks win, if it goes down in value and the owners are foreclosed they have to pay the bank the difference.  The banks never lose?  If the house goes up in value and the owners are foreclosed do the banks send them a check for the difference?