In the wake of the housing meltdown, strategic defaults, or walkaways, continue to be a popular way to dispose of a home whose value has dropped significantly below the mortgage balance. Those using this option can usually afford their house note, but choose to move on to housing that offers more value for their money.Sites like http://www.youwalkaway.com assist walkaways: “We won’t judge your reason, we just want to help you find solutions. Use the law to your advantage. “
The LA Times reports that Fannie Mae (Federal National Mortgage) will pursue deficiency judgments on certain types ofdefaulted mortgages and will take steps to keep walkaways from getting new mortgages for 7 years. While mortgage deficiency judgments are illegal in some states, most allow this practice. I discussed the prospect of walkaways being held accountable for their debts in an April Post “Strategic defaults or foreclosure hell?”.
Strategic defaults have been in the news for quite a while now. In May, CBS’s 60 Minutes did an extensive report.
I have concerns that banks and FNMA will, get deficiency judgments, then turn the debts over to collection agencies for pennies on the dollar. And we all no how collection agencies operate.
At the root of this issue is the easy money of the early and mid-2000’s, when you could buy a home, or refinance it at greater than market value, with acquisition costs of zero or less (that’s right, buyers were getting money back at closing). I looked up the purchase information for a recent walkaway owner: 80% first mortgage, 20% second mortgage, and 6% in seller’s concessions. Absolutely no equity in a sinking asset – nothing to keep this person, and hundreds of thousands just like him, from strategically defaulting with the slightest of provocation.
photo credit: Creative Commons License Respres
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