Debtor's Dilemma: Pay the Mortgage or Walk Away - WSJ.com

Walk Away warning. Banks may decide to pursue the deficiency in some states.
By the way this wall street journal article is a bit misleading. Lenders are frequently able to sue for the deficiency on second loans in CA. for more info on California anti deficiency laws and Walk Away plans.

Debtor's Dilemma: Pay the Mortgage or Walk Away - WSJ.com: "Banks warn they may get tough with strategic defaulters by pursuing legal claims on a borrower's other assets. 'We will try to reduce people's payments if they have a hardship,' says Thomas Kelly, a spokesman for J.P. Morgan Chase & Co. 'But we have a financial responsibility to get people to pay what they owe if they can afford it.'

Steven Olson, a loan officer and roof installer in Roseville, Minn., defaulted in 2007 on a plot of land in Florida he had bought as an investment. 'I thought I could move on with my life,' he says. But the lender, RBC Bank, a subsidiary of Royal Bank of Canada, sued him, seeking to make him pay more than $400,000 to the bank to cover its losses on the loan. Mr. Olson has hired a Florida lawyer, Roy Oppenheim, to resist the claim. An RBC spokesman declined to comment."

Homeowners tend to walk away and accept foreclosure after a 15% in their home value

REALTOR® Magazine-Daily News-More Owners Walk Away When Underwater

More Owners Walk Away When Underwater
A study of the Massachusetts housing market by researchers from Northwestern University and the University of Chicago concludes that a home owner’s propensity to default increases the further their loan goes under water.

The study found that home owners begin to walk away after declines of 15 percent or more. More than 17 percent of households would default, even if they can afford to pay their mortgage, when the equity shortfall reaches 50 percent of the value of the house.

for more information on walk away plans and walkaway strategy

California sues Countrwide - Does this open door on taxation and credit issues?

If you are having problems with your lender this law suit may give you and your attorney some leverage in dealing with credit and tax issues.

If you have a property in California and you are concerned about tax or credit issues speak with an attorney who can leverage this news for you.

I suspect I will be counseling my clients on how to use this lawsuit to their advantage. Every set of facts is unique, but now you have a lawsuit on your side when you go to dispute your debt.


Calif., Ill. file lawsuits against Countrywide -- baltimoresun.com

But Brown charges that its success resulted from "deceptive advertising" and intense pressure and financial incentives for managers and sales staff to sell risky loans without regard to the borrower's ability to repay them. He alleged that Countrywide also pushed prepayment financial penalties that boosted profits and kept people from refinancing out of the loans.

The lawsuit singles out a variety of "teaser rate" loans that Countrywide and other lenders specialized in as housing prices rose. Those offered interest rates as low as 1 percent.

The state said many borrowers mistakenly assumed those were permanent rates because Countrywide often offered that impression. Borrowers then quickly found themselves making higher monthly payments than they expected or could afford.

Now thousands of borrowers across California are defaulting on those loans. The lawsuit notes that 20,000 Californians lost their homes in May alone and 72,000 were in default, meaning they were at least two months behind on payments, though not all were Countrywide borrowers.

The lawsuit also pointed to Countrywide's own February 2008 records that 27 percent of its subprime loans given to borrowers with spotty credit histories were delinquent.

Six pages of the lawsuit deal with an especially risky type of Countrywide loan called pay option ARMs. That "highly profitable" loan offers borrowers lower initial interest rates and several payment options. But most borrowers chose the least expensive, which makes the adjustable-rate mortgage grow instead of getting paid off. Eventually, in industry parlance, the loan "explodes," raising the monthly payment beyond what many borrowers can afford.

The lawsuit says that 19 percent of Countrywide's 2005 loans were pay option ARMs.

California Walk Away Plans and foreclosures

In mortgage market, ‘walkaway’ homeowners may be urban myth - Los Angeles Times

In mortgage market, ‘walkaway’ homeowners may be urban myth
Foreclosures

This article is an interesting. The title is deceptive. I would say 80% of my calls are from people who would walk away if they were not concerned about their credit. Of course when they learn about their exposure to deficiency judgments (for California real estate see - sold out juniors or judicial foreclosures) they become interested in short sales and deed in lieus.

The concept is also deceptive because my law partner found some stats which showed a very strong relationship between negative equity and foreclosures. And these stats were assembled prior to the current foreclosure "crisis".