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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: CalculatedRisk who wrote (25387)	3/11/2005 1:19:20 AM
From: Elroy Jetson	Read Replies (2) \| Respond to of 116555

Here's the deal. Let's say you buy a home and the market tanks. Your home is now worth less than the mortgage. If you have not refinanced, this is a purchase money loan, so you can just give the home back to the bank. Once you refinance the bank can go after you for the deficiency. This is California law a Trust Deed state, but most states are the similar. In 1990 very few lenders sought deficiency judgments because the ex-homeowner would just file for bankruptcy leaving the bank little to show for their effort. They made exceptions when they knew they borrower had enough assets. One friend was a partner in a law firm in Houston that folded in 1990 so he moved to Los Angeles with a new law firm. When his Houston home sold for $116K less than the mortgage, the bank sought the difference - which they got because he had it. This being Texas, a mortgage state, the deficiency judgment could be filed even though he had never refinanced. Under the new bankruptcy law there is additional incentive for the bank to file a deficiency judgment. The bank is not limited just to the assets of the ex-homeowner - which when you lose a home is usually close to nil. The bank will now be able to seek recovery of the deficiency judgment from the future earnings of the bankrupt ex-homeowner if they earn more than the median income in their state, or something like that. .