uh oh meg, this will be one ugly can of worms opening.

People try to walk away and then find out the co-borrowers actually do get persued and deficiency balances can be turned into judgments that can be turned into wage garnishment. Bankruptcy becomes the only reasonable way out, but the new laws (new being a few years ago) made it harder to get a CH7 making people choose the more restrictive CH13.

The bank takes over the mortgages? I thought it took over ownership of the mortgaged asset!

Seen this happening already in new developments.

Semi-empty homes harboring vagrants, homeless, and the like
Unkempt lawns littered with all sorts of debris you can could name, and then some.
Homes stripped of their copper pipes and wire for recycling.

This could be an age of the new slums.

Bitch of this is that someone has to take responsibility for all this. So who does? The homeowner, they disowned the place and probably disappeared. The bank, they'll go into liquidation from dealing with the eyesores. The gov't, here we go again, where's the money coming from and who's going to pay for it.
I'd say the former homeowner that paid the last mortgage is the one physically responsible for the upkeep.

My home is worth less than I bought it for, but I have a fixed loan and I won't walk away from the payments. Can I understand those who do? Yes. I have no love of banks and, heck it's nothing personal you know: just a business decision. This is the only thing someone can do to a bank that's similar to charging fees and raising rates because they can. The banks are being treated the same way they've been treating us. No tear from me.

This is a terrible practice for people that got in over their heads. If you got an ARM, you should have to face the consequences, sorry, too bad for you, some people just have more sense. Aren't there any consequences to doing this other than a bad mark on your credit report that will be gone in a few years? Don't they have to pay the piper at SOME point? These people are going to ruin the mortgages for people in the future as the banks are going to try to cover their butts with higher rates and/or stricter terms.

@stevegoz:
To be technical, it forces the borrower to sell, and one of two things happen.

#1. A person makes a bid that is higher then the banks minimum price for the property. The amount collected gets applied to the mortgage (any seconds are stripped due to the foreclosure) with any surprus funds going back to the borrower.

#2. No bid meets the banks minimum so the bank takes ownership of the property and the borrower is left with a deficiency balance (basically an unsecured loan) and a judgment (which is what the foreclosure starts as). The bank then tries to market the property themselves to make back the money.

In a more vengeful world, the mortgage brokers would have to take over the lousy deals that they sold both parties on.

Tag should probably be "Meltdown" instead of "Meldtown". Although Meldtown might be a cool place to live, I dunno.

Article underplays the crushing your credit will take. Also your foreclosure will show up when anyone pulls your credit- jobs, rentals, professional applications, licensing applications, security clearances ect.

Why not walk away from everything we're upside down in? Cars, trucks, motorcycles, boats, SUVs. Only losers walk away from losers. It takes stones to suck it up and stick to it. I guess this is how you find out what someone is made of. Or what they aren't.

Seems like it accurately reflects the mindset too prevalent in America today that has made the economy what it is. People are spoiled. They want all the reward with none of the risk. I was just out to breakfast the other morning and listened to some guy complain about how the current economic situation was Bush's fault. It is ridiculous how idiotic and irresponsible people are these days.

@crabbyman6:

Yeah, the did face the consequences. And as a result of that, they chose to walk away.

What do you want them to do? Go to jail? Starve to death because they have to make a house payment?

@vastrightwing: Its not like they didn't know what they were signing, they got themselves into it. I'm not a fan of banks, but come on, its not like these are surprise terms that they sprung on you. You'd be pissed if you lent someone money and they decided not to pay you. Why don't you just walk away from your credit card bill? Child support, pfff, done with that. This is insane.

@Nighthawke: Hopefully the township will put a lien on these properties and go after the borrowers.

"If it's heads I win, tails the bank loses, it's worth the gamble."

I guess I'm one of the people who don't categorize a personal bankruptcy and loss of credit as a "bank loses" situation.

@LorneReams: The Chapter 13 is only more restrictive in that it actually forces the debtor to pay for what they've agreed to buy, albeit at a renegotiated (read "court ordered") rate/term. There used to be a time when people with means would file Chapter 7 and walk away from debts they could actually pay, the new law forces those people to actually live up to their obligations. Kinda fucked up I know, making people be responsible for decisions they made.

@Black Bellamy: err, walking away is not a consequence, its a choice. What I want them to do is follow the agreement they made. I know, I know God forbid someone in this country face personal accountability.

I guess this is what you do when you have no one to blame for something but yourself.

This happened in Orange County in 1989. I know many people kept paying on their homes that were less than their mortgage.

Even today they make out like bandits.

But if you are willing to take a massive hit on your credit report, this may be a option for those who were duped by the bank.

Yeah there is the personal responsibility angle, these people shouldn't have taken the loan in the first place and will pay the price with bad credit for next 10 years.

However, the banks should have never loaned the money in the first place so I hold the banks more accountable than the rubes who bought into these loans.

A contract is a contract. I don't think the banks, mortgage lenders, OR (my emphasis) buyers should be allowed a walk, let alone any type of a bailout.

Some banks will go belly-up; some people will file bankruptcy.

Insert comments about ....slippery slope.... here.

That being said, some people will have no choice but to walk. Do what you need to do, but don't expect that one should be rewarded for making a bad financial decision, because it's the responsible and prudent homeowners and renters that will get shivved to pay for your lack of responsibilityand due-diligence.

Quote: "There's a whole lot of people who would've been stuck as renters without these exotic loan products,"

So, whats so bad about renting? It may not be the perfect life, but you buy what you can afford, live to be safe and comfortable....you shouldn't speculate on future earnings to get that Tudaor like the Jones's....oooops, sorry, preaching to the choir.

I miss that commercial about the guy on his riding lawnmover in front of the new house saying Im maxed up to my neck, please help me....

@crabbyman6: Uh oh, never say "they knew what they were signing" around here. There were some shady last-minute bait and switch loans, promises of a refi, etc. going on. Beware the storm you just brought on yourself.

I'm not exactly made of money, but this rise in forclosures has caused me to seriously consider buying property as investment. IF I can get a nice but empty house for a really good deal, keep it in nice shape, IF I rent it for a year or two, and IF I consider the long term vs. short term...it might end up being a good plan.

I really see nothing terribly wrong with this. Whenever you enter into a contract, it is your right to breach that contract-as long as pay the consquences for doing so. In this case, you have people who made a contract with the bank (the mortgage), and it is now more advantageous to breach it and take the sucker punch to their credit score than to keep paying. If the banks did not want this possibility, than they ought have used more stringent lending guidelines during the height of the real estate bubble. That would have, of course, required lending institutions to put long term gains ahead of short term ones. In any case, if the terms of the mortgages sold by the banks do not prohibit this, then I say go for it if it gets you out of your upside-down interest only or ARM.

@crabbyman6:

You have it exactly right. I work for a small local savings bank who did not make any sub-prime or exotic loans, but the conditions of this market will eventually affect new homebuyers who will get hit with stricter rules and higher rates. In fact, if the Foreclosure Prevention Act goes through allowing the courts to change the terms of recorded mortgages as they please--my boss will stop wanting to make mortgages at all. Why take the risk of loaning money if the terms can be altered down the line without your consent?

If you sign a note for a loan, any loan, you are "promising to pay" it back. You should do your best to honor that commitment, not walk away when the going gets tough or your investment looks smaller.

@NoWin:

It is a fundamental property of contract law that you have the right to breach the contract-you just suffer the damages as contemplated by the contract or by applicable civil law.

If I was new to this country and someone came up to me on the street and said: "Hey man, I've got a great deal for you: you should ROB A BANK! Yeah! It's the best thing for you! You just go in, demand the money, and then you are set for life! Here, I'll even give you the mask and gun - AT NO COST TO YOU!", and then I proceeded to rob said bank. When I got home and the police are at my door, can I just hand over the money and say 'I'm sorry, I didn't know it was illegal and that there could be potentially bad consequences for my actions!' and let that be that?

NO! I would be arrested! Now, wasn't it my responsibility, when that man first approached me, to at least question what he was saying. Perhaps I should have taken down his number and done a little research on this whole bank robbery thing. If I had, I would have found out that it was illegal and that I'd be thrown in jail for doing it. 'Good thing I did my homework' I'd say to myself.

It's the same effect with these people. They can cry about crooked banks and loan sharks pointing them in the wrong direction, but at the end of the day, the blame falls on them for not doing their due diligence. There are libraries in this country that have internet and computers that are free to use. There are numerous government and charitable organizations that will educate people on buying a home and what to look out for. These people either blatently disregarded good advice, or they made the biggest purchase of their life on an impulse. Now, as others have pointed out, we all will pay for their petty mistakes.

Things would really have to take a dive before our home would be worth less than we owe on it. We put 30% down (on a 5.25% fixed 30 year note).

Its hard for me to believe this will happen, but if it does, we'd still sell off everything we own before we'd walk away from our home. We've just put too much time making it just the way we want it.

I have a hard time understanding people who think this way, but maybe its because I've never allowed myself to be put in their situation.

I've said it before, and I'll say it again: any solution which doesn't reward people for doing the right thing and punish people for doing the wrong thing is not a good solution, short-term or long-term.

It's the "I want it all and I want it now" mentality that everyone seems to have, nowadays. They know exactly what they are getting into when they get these risky loans but hey, that's okay. By the time they have the house or car taken, they'll have trashed it and/or tired of it, anyway. Just walk away, find another underhanded loan agent and start the same process all over again. There really should be higher penalties for this than there are.

On a related note, doesn't this just circle back around to that recent article about small and mid-sized banks going under because they aren't able to afford the properties either?

I don't quite know where I stand on this. On one hand I'm sorta ok with the people who bought into these houses that they bought wide-eyed and hopeful have an escape plan when the mortgage spikes.
On the other hand, it sucks for just about everyone else except that person when the house is given up. The banks lose money, so they make it up somehow. The lenders are more sketchy about who they lend to, so that it's harder for decent wage earners with poor credit to buy a home, etc.

But overall I think this is a greater symptom of the disease of people using real estate as a money-making tool.

How about this: Your house is where you live. It's not an ATM, and it's not an investment. It's a place to go to when you want to eat or sleep or relax from work, pursue hobbies, etc. Too many people bought houses they couldn't afford thinking that the market would support them and if their payments went up they could re-fi or take out equity to pay the difference, and they get burned when that's not the case. Meanwhile, flippers buy houses and raise their value so that it's out of the range that lower-income families can afford, artificially raising the base price for everyone's house. It makes owning property a much harder game to break into, and a much more alluring one at the same time.

@blondegrlz: Heh, I'm not saying that sometimes I don't feel bad for these people. The bait and switch loans are exempt from my previous rants. Also, there was a "mortgage broker" around me that was just keeping the payments people sent to him and not giving them to the bank. He proceeded to blow the millions of dollars in bad investments, and now those people are out the money the sent in, but still owe the full amount on their mortgage. However, I'd bet that a majority of these people knew excatly what they were getting into, but had to keep up with their neighbors, and then buy a new SUV, and then... I see this all the time around me in the exurbs of Philly.

I can just see banks using this as an excuse to screw new mortgage borrowers even harder in the coming months/years.

@NoWin: That guy filed for bankruptcy in 2005.

What I do you think the odds are that most of these people still are spending 100+ bucks a month on cable and 100+ a month on cellphones. Pretty high I'd say. People just don't know how to prioritize their spending.

I would walk a way tomorrow. My Wife and I bought a condo, purposely did not over extend ourselves and spent 174,450. Now it is worth 150,000 and we owe 168,000. It is just an ugly situation, the condo association is horrible, neighbors are worse... I'll take the credit hit in a heartbeat just to be done and move on...

@loganmo:

What is wrong is that the Mortgage Act of 2007 really reduced the consquences of going into forclosure.
The bank and the borrower had a deal, and now the Government has tipped the scales twords walking away from the property.

All unintentionally. The put in a tax exemption if you get a financial "gain" from a refinancing to a lower amount if the bank forgave part of the debt. That ended up making the foreclosure more attractive than sticking it out.

Government should stay out of the Mortgage process on the back end. Regulate the lenders better, but don't screw with the deal after it is made.

Fraud is protected under the current laws, so if someone was defrauded by bait and switch, they can get relief, no extra special protection is needed.

I should have been irresponsible and bought a home I couldn't afford.... stupid me!!!!!!, i should have known the govt. would have bailed me out.

A contract is a contract. The consequence for not making the mortgage payments is foreclosure, so the bank has nothing to whine about when a borrower follows the terms of the contract.

Ultimately, these people who just walk away are irresponsible people. I don't CARE if your house lost value. Hard cheese. That's how America works. You're not GUARANTEED any kind of rate of return.

I TRULY hope the banks sue these walk away homeowners. If they are forced into bankruptcy they'll STILL be forced to pay it back with the new laws on such.

YOU signed the note now YOU deal with the consequences. Walking away and thinking the government will bail you out is unacceptable.

I don't think the banks are at fault at all. I think it is Idiots who chose to get loans and then desided to buy new cars/products rather than pay the loan.

I mean, who in their right mind would get anything but a loan with a fixed rate? I don't care if it was so you could afford the house, buy a smaller one or rent. No one tied their hands, and only a complete idiot would think a variable rate loan would only go down. jeez.

@CaptainConsumer: Actually most mortgages are non-recourse secured loans, and usually they had PMI added. So once the lender owns the original and now depreciated asset, there is no further venue of pursuit against the borrower other than HELOC's or seconds that may have been taken out against the property.

@CaptainConsumer: BRAVO BRAVO, i couldn't agree with you more

The problem that people are ignoring is that the subprime meltdown is tipping over into other sectors. It is not just affecting those who took out bad adjustable loans with teaser rates. Sure a lot of you are saying they get what they deserve we shouldn't help them. Who cares, yada yada.

What you're neglecting to understand that this is slowing the economy down, banks are loseing money, some are on the verge of breaking. The manufacuring sectors are slowing down, banks are clamping up on giving out new loans, period, to anyone, it is a lot harder to get a loan, to say open a new business etc. This hurts the economy further. Take this plus the double whammy that oil prices are going up, the economy is in a reccssion, people on the market are loseing a lot of money, people are earning less. The money we have, because of inflation, and the weakening dollar is worth less.

This is something that effects EVERYONE, no matter if your a heartless whimp who could care less what is going on. It will effect you whether you know it or not.

@CaptainConsumer: "Walking away and thinking the government will bail you out is unacceptable."

Unless you're part owner of a Savings and Loan company and your dad is the president. Then I guess it's OK.

@livefastjohnny:
Well that's too bad.

Once again in America, the smart people are left to bail out the dregs and morons.

@CaptainConsumer:

I agree with you completely! they signed the paperwork!

Maybe this is a contrarian view, but isn't now a good time to say to the loan holder "Hey, I don't want to walk out on my obligation, but given the current economic environment I think it makes sense to talk about a renegotiation of interest rate." Facing tons of unsellable property on their hands I'd think they would be happy to work out an equitable deal for people who will continue to make their payments and not burden the company with more property.

@emilymarion333:

I'm SICK of mollycoddling these people. "Oh I was cheated, I was a victim"

No, no you weren't. You signed the papers. If you didn't READ them or you didn't have a lawyer look over them, again HARD CHEESE.

Their names should go into a database and any future lawsuit monies or lottery monies they make should be garnisheed.

They're nothing but leeches, societal fleas if you will.

@Quintus:

Why does society expect one standard from people and another from business?

No business worth its salt skips a beat cutting out a bad investment, or going bankrupt to ditch pesky pensions or bad debt--but people are somehow stigmatized for the very same behavior.

Let yourself be locked into that kind of thinking if you want, but you will always be poor and content with only moral standards set by others. People need to start treating their personal finances like they are a business. That means cutting bad investments out sooner rather than later, even if --ooooooo-- they have to deal with a foreclosure.

Corporate america would (and is legally required by its fiduciary duties to its shareholders) do no different.

I have more obligation to my family than a bank, so yes I would walk away.

@CaptainConsumer:

Your contempt for your fellow human is palpable. This particular article is not about victimhood or being swindled, it's about making a business decision whether or not to accept foreclosure.

Simply put, there is no reason on earth why someone shouldn't just walk away from a loan they can't afford and start over, the same way, say, United Airlines, K-Mart, or any other number of major business have done.

If you give up a good job, or a good marriage, or even a few extra bucks that could be better spent on other things to preserve a mortgage you cannot afford, you are a fool, and you are fooled by the blowhards like the commenters here telling you you are a cancer on society. That's capitalism, baby. That's why the banks charge interest---to defray risk.