Walking away from your mortgage just got a lot scarier

[Libertarian_Guard]

We've been touting the benefits of walking away from an underwater mortgage here for years.


Of course, as we noted, there's one catch: "recourse debt." The laws vary greatly by state, but often (as in California, I believe, but I'm not a lawyer, so consult one) purchase loans are non-recourse while refinance loans are recourse. Recourse debt means the banks can sue you many years after a foreclosure for the loss they took.


For a while, it looked like this recourse risk was only theoretical, as the banks were overwhelmed with an operational deluge and political pushback on targeting the poor. Now, it seems, that has changed.


Wall Street Journal: House is gone, but debt lives on.

Joseph Reilly lost his vacation home here last year when he was out of work and stopped paying his mortgage. The bank took the house and sold it. Mr. Reilly thought that was the end of it.

In June, he learned otherwise. A phone call informed him of a court judgment against him for $192,576.71.

It turned out that at a foreclosure sale, his former house fetched less than a quarter of what Mr. Reilly owed on it. His bank sued him for the rest.

The result was a foreclosure hangover that homeowners rarely anticipate but increasingly face: a "deficiency judgment."

[...]


The increase in deficiency judgments has sparked a growing secondary market. Sophisticated investors are "ravenous for this debt and ramping up their purchases," says Jeffrey Shachat, a managing director at Arca Capital Partners LLC, a Palo Alto, Calif., firm that finances distressed-debt deals. He says deficiency judgments will eventually be bundled into packages that resemble mortgage-backed securities.

Because most targets have scant savings, the judgments sell for only about two cents on the dollar, versus seven cents for credit-card debt, according to debt-industry brokers.

Silverleaf Advisors LLC, a Miami private-equity firm, is one investor in battered mortgage debt. Instead of buying ready-made deficiency judgments, it buys banks' soured mortgages and goes to court itself to get judgments for debt that remains after foreclosure sales.

Silverleaf says its collection efforts are limited. "We are waiting for the economy to somewhat heal so that it's a better time to go after people," says Douglas Hannah, managing director of Silverleaf.

Investors know that most states allow up to 20 years to try to collect the debts, ample time for the borrowers to get back on their feet. Meanwhile, the debts grow at about an 8% interest rate, depending on the state.



If you have a recourse mortgage, you're probably better off trying to short-sell the house and getting the bank to release your deficiency liability in writing. Banks will do this in a short sale but you have to ask.


The best strategy of all for deeply underwater homeowners is to take advantage of the FHA's great new FHA "Bail and Buy" program. Under FHA Bail and Buy, you short-sell your underwater house, then you get a 3.5% down, taxpayer-guaranteed loan to buy another house at current market prices. WINNING!!!

http://www.wcvarones.com/2011/10/walking-away-from-your-mortgage-just.html

[Glass]

I think people who have a purchase mortgage or one of the non-recourse ones can demand the note.

The other people who re-fi'd need to check their paperwork to determine what their loan actually is. Trusting that articles generalisation about purchase and re-fi mortgages could be doing themselves an injury.

The thing you DONT WANT TO DO is refi the loan in the manner described at the end or in any manner for that matter. They may find themselves getting out of the frying pan - no recourse mortgage and into the fire - recourse mortgage.

A lot of people do not know that the refinance options that were touted were really designed to get people back on the hook with new mortgage after the banks stuffed up the title custody chain on the original mortgage with the Robosigning fiasco. People could walk away from that type of loan but not the new ones.

DYODD on this one.

[Cebu_4_2]

Can't get money from a rock.

[vacuum]

Huge thanks for posting the op LG. I am considering refinancing...possibly tomorrow. I wasn't aware that I could be going from an non-recourse to a recourse loan. This seems like a huge thing to me, I don't know why no one ever talks about it. You're basically going from 0 liability to possibly hundreds of thousands of dollars in liability by refinancing.

I need to find out if my current, original, loan is non-recourse (I live in Washington which has non-recourse provisions), and if so, figure out how to get the refinance to also be non-recourse. I think it would be foolish to take on such huge liability to save a couple hundred per month. I want to keep walking away as a perfectly valid option....

[solid]

Investors know that most states allow up to 20 years to try to collect the debts, ample time for the borrowers to get back on their feet. Meanwhile, the debts grow at about an 8% interest rate, depending on the state.

So, the debt keeps growing at 8%, and 20 years later they can go after folks and make them slaves in their retirement. 8% is a good investment, these savages can sit on their investment and stick it to folks if/when they feel like.

Thanks for this L.G., it could possibly affect a friend of mine. Bunch of vampires! Anything and everything to suck the people dry of their freedoms.

[gunDriller]

So, the debt keeps growing at 8%, and 20 years later they can go after folks and make them slaves in their retirement. 8% is a good investment, these savages can sit on their investment and stick it to folks if/when they feel like.

Thanks for this L.G., it could possibly affect a friend of mine. Bunch of vampires! Anything and everything to suck the people dry of their freedoms.

the vultures have found a new toy to play with.

[palani]

Making sure the bank has the ORIGINAL note and mortgage (two documents) is essential. If they sold either document then they have been paid and have no standing to do anything. If they have a defect in their standing they might offer you terms to come back into the spiders web to get you trapped again.

Go into a meeting on re-finance with a demand that the originals be produced. If no originals you should consider STOP PAYING THEIR BILLS. Send the amount you would have paid into an escrow account to eliminate the concept that you are attempting to get away with something.

At closing a good tactic is to require a RECEIPT for the note and a RECEIPT for the mortgage. These are valuable documents and you expect them back at when the loan has been repaid. You will not get them unless you get a receipt.

[sirgonzo420]

Can't get money from a rock.

That depends on the rock...

[JohnQPublic]

Huge thanks for posting the op LG. I am considering refinancing...possibly tomorrow. I wasn't aware that I could be going from an non-recourse to a recourse loan. This seems like a huge thing to me, I don't know why no one ever talks about it. You're basically going from 0 liability to possibly hundreds of thousands of dollars in liability by refinancing.

I need to find out if my current, original, loan is non-recourse (I live in Washington which has non-recourse provisions), and if so, figure out how to get the refinance to also be non-recourse. I think it would be foolish to take on such huge liability to save a couple hundred per month. I want to keep walking away as a perfectly valid option....

Usually the original loan on a house is non-recourse (in a non-recourse state), eve if it gets sold. Any refi is normally recourse, as is usually a HELOC, or any type of 2nd or higher.

[BrewTech]

Silverleaf says its collection efforts are limited. "We are waiting for the economy to somewhat heal so that it's a better time to go after people," says Douglas Hannah, managing director of Silverleaf.TRANSLATION:

"We are waiting for the working people to start producing again so that we can go back to making money as economic scavengers and parasites. It's true that we are bottom-feeders, but when you are as clever and ruthless as we are, you don't have to work for a living!"

Rather than produce anything of value (which these folks are incapable of), they will simply wait on the sidelines and go back to fucking things up again when the time is right.

[Twisted Titan]

This is why you own physical gold and silver so you can tell them effers to pound sand .

gold and silver gives you the recourse of repudiation.

[BrewTech]

Profile of this particular parasite:


As the founder of Silverleaf Advisors, Douglas Hannah continues to build the platform for distressed real estate assets. Florida is an epicenter for these opportunities given the intense speculation during the banking boom. In the past 3 years, Silverleaf has successfully foreclosed on over +100 distressed loans with a business strategy to purchase secured and unsecured debt underwritten for real estate assets, converting the debt to an asset or judgment. The Silverleaf platform provides liquidity events for banks needing to offload troubled loans and assets. The team underwrites legal and asset risk mitigation to minimize any downside exposure and manages the entire foreclosure and deficiency process.

Silverleaf has been attracting investor capital by offering terms that provides complete transparency, back end alignment and flexibility. Limited control has become critically important in the wake of fraud and investor manipulation.

Douglas Hannah is currently managing their Fund IV and operates JV's as the "boots on the ground" for investors. Douglas holds a BS in Finance from the University of S. Florida and has been a licensed Florida real estate broker for over 20 years.

[Bigjon]

Alfred Adask talks about foreclosure and says this is one of the best sites covering this issue.

http://4closurefraud.org/


Here is a link to the program the link is only good until this coming Thursday, whereupon it will be replaced by the Thursday show.
At about the ten minute mark.
THUR: http://dgscoins.americanvoiceradio.com/indie-thurs-avr.mp3

[vacuum]

Usually the original loan on a house is non-recourse (in a non-recourse state), eve if it gets sold. Any refi is normally recourse, as is usually a HELOC, or any type of 2nd or higher.
In my case, I was looking at what they call a streamline refinance loan...basically its a pretty simple process that can be done over the phone. It replaces the original loan and is designed to lower payments only, its not a 2nd and there is no cash out of it.

[k-os]

My mortgage company has been hounding me to refinance, and I thought it was suspicious (lots of emails and oddly, FedEx packages). I don't think they have any idea where the documents are for my mortgage, and they want to get new ones. They are offering quite a deal for a person like me - no closing costs and 3.25% fixed APR. The offer has language like "even if you were recently turned down".

No thanks.

[JohnQPublic]

In my case, I was looking at what they call a streamline refinance loan...basically its a pretty simple process that can be done over the phone. It replaces the original loan and is designed to lower payments only, its not a 2nd and there is no cash out of it.

Be sure to check if it changes the recourse status. I think some streamlines do not. Good luck!

[gunny highway]

looks like these will be coming back soon...

[Cebu_4_2]

My mortgage company was working with me until I got a note taped to the door saying the house was sold at a Sheriff Auction.

Them silly Banksters.

Now I am Fukt.

[ximmy]

My mortgage company has been hounding me to refinance, and I thought it was suspicious (lots of emails and oddly, FedEx packages). I don't think they have any idea where the documents are for my mortgage, and they want to get new ones. They are offering quite a deal for a person like me - no closing costs and 3.25% fixed APR. The offer has language like "even if you were recently turned down".

No thanks.


See, this frightens me... If the bank does not hold the note, you pay off the house in 10-20 years and they say, Umm we don't know who owns your home... Sorry have a nice day.

I'm planning on selling mine in the next year or two (getting rid of the mortgage) and paying cash for the next one.

[Cebu_4_2]

See, this frightens me... If the bank does not hold the note, you pay off the house in 10-20 years and they say, Umm we don't know who owns your home... Sorry have a nice day.

And then the owners of the note come on board and demand you pay them the value of the note.

[vacuum]

See, this frightens me... If the bank does not hold the note, you pay off the house in 10-20 years and they say, Umm we don't know who owns your home... Sorry have a nice day.

I'm planning on selling mine in the next year or two (getting rid of the mortgage) and paying cash for the next one.
But if you've got a copy of the title, wouldn't that be enough to prove you own it? If they don't have their copy, all that proves is that there might not be any valid entity that you owe a mortgage to.

[ximmy]

But if you've got a copy of the title, wouldn't that be enough to prove you own it? If they don't have their copy, all that proves is that there might not be any valid entity that you owe a mortgage to.

Warren Nyerges opened his front door in Naples (http://content.usatoday.com/topics/topic/Places,+Geography/Towns,+Cities,+Counties/Naples), Fla., to find a scraggly-haired summons server standing on his stoop. He plopped a foreclosure notice from Bank of America (http://content.usatoday.com/topics/topic/Organizations/Companies/Banking,+Financial,+Insurance,+Law/Bank+of+America) in Nyerges' hands. But Nyerges had paid for his house in cash. And he'd never had a checking account, much less a mortgage, with Bank of America.

Foreclosure errors are hitting more innocent homeowners

http://www.usatoday.com/money/economy/housing/2010-12-11-foreclosure-wrong-people_N.htm

[Cebu_4_2]

[SIZE=4]Foreclosure errors are hitting more innocent homeowners

And the homeowners even rightfully so have to spend thousands defending the wrongful foreclosure with no recourse unless they sue in appellate court. Time, stress against a rigged system. If this was a movie I think it would be a comedy but it is real.

[vacuum]

Be sure to check if it changes the recourse status. I think some streamlines do not. Good luck!
The guys from the banks seem clueless as to whether the loan specifies it is recourse or non-recourse. I'm thinking that perhaps it isn't a question of the loan type, but rather more of a legal question depending on state law? So certain types that perhaps don't have a cash out or are a 2nd would automatically continue to stay non-recourse, and the paperwork itself won't specify either way?

[palani]

And then the owners of the note come on board and demand you pay them the value of the note.

Funny thing about notes and mortgages. Seems yours is the only signature on the document. Someone waves a copy in your face (even if it is certified from the recorders office) and asks "did you sign this?" your response just might be "I'll be happy to answer your question once the document in question has been entered into evidence." Now as YOUR's is the only signature then YOU are the only one who can be presented with the document while you are on the witness stand and say "yes, I recognize this document".

Wouldn't want to tell a lie. I never have signed a copy in my life. A proper answer is "I don't recognize this document" and as quickly as that any thought of evidence evaporates in the wind.

[Cebu_4_2]

Wouldn't want to tell a lie. I never have signed a copy in my life. A proper answer is "I don't recognize this document" and as quickly as that any thought of evidence evaporates in the wind.

Damn thats sweet! Wish I was in remembering state. Might have to copy paste in word in my foreclosure file. Thanks a LOT I like it.

[palani]

Damn thats sweet! Wish I was in remembering state. Might have to copy paste in word in my foreclosure file. Thanks a LOT I like it.

Not a bit.

Bear in mind though that there are two types of hearings ... argument and evidentiary. Getting an evidentiary hearing is like finding hens teeth. Lawyers want to win or lose based only on argument and they want to suck you in to this mode as well. Got to keep demanding an evidentiary hearing. Don't worry. You'll never get one.

[Cebu_4_2]

Well that's promising news... ;-[

[Joe King]

My mortgage company has been hounding me to refinance, and I thought it was suspicious (lots of emails and oddly, FedEx packages). I don't think they have any idea where the documents are for my mortgage, and they want to get new ones. They are offering quite a deal for a person like me - no closing costs and 3.25% fixed APR. The offer has language like "even if you were recently turned down".

No thanks.I wonder what their response would be if you were to demand a certified copy of the original docs?

[palani]

I wonder what their response would be if you were to demand a certified copy of the original docs?

I can tell you what my response would be. I'd break up laughing.

The ONLY document that means anything is the ORIGINAL. And that must be UNMODIFIED. The slightest mark on it is enough to invalidate it.

If a certified document were sufficient all I would have to do would be to go to the recorders office, pay a couple bucks for a certified copy and then foreclose, without having any other involvement with the property (and that is what is happening).

[Joe King]

I was referring to a certified copy of the original they presumably are holding. {the mortgage company}

Or better yet, ask to arrange a time for you to go to their offices to see it. {the original}

[palani]

I was referring to a certified copy of the original they presumably are holding. {the mortgage company} Yes. It is still a copy and I don't care who certifies it. They might be certifying a certified copy for that matter.


Or better yet, ask to arrange a time for you to come see it. {the original}
Much better choice. Even better would be to have a signed receipt for the original executed when you left the document in the bank's possession. With that you can visit your original documents every year until such a time as you get the original back.

The thing is, fractional banking permits a bank to loan out 10x the assets they have in their possession. Your $200,000 note lets them loan out $2,000,000 and at 5% interest paid they receive $100,000 a year from other loans. They make more off the document than you pay them in interest.

[Joe King]

The thing is, fractional banking permits a bank to loan out 10x the assets they have in their possession. Your $200,000 note lets them loan out $2,000,000 and at 5% interest paid they receive $100,000 a year from other loans. They make more off the document than you pay them in interest.Yes, I fully understand how their game woirks. Which is why I've never chosen to play it with them.