Tuesday, December 21, 2010

Foreclosure is not the end

Foreclosure is not the end of a lender's rights with respect to defaulted home loans. In most states if the foreclosure's sale price doesn't fully repay the lender- and it never does- the borrower still owes the balance, known as the deficiency.

After all, the borrower did sign the note and got the money. As a matter of law, in most states, the borrower isn't off the hook for what they owe just because the lender got the inadequate collateral (in this case a house whose value is less than the debt) through foreclosure.

I point this out for two reasons.

First, most people probably aren't even aware of this continuing obligation of borrowers to the banks. Most people think foreclosure is the end; but they would be wrong, at least in theory.

Second, why haven't lenders pursued these deficiencies still owed personally by the borrower against the borrower and it's other assets? It's not because they are soft hearted I assume.

In addition, having not pursued their rights, for whatever reason, why haven't the banks gotten "credit" in the eyes of the public, press and politicians? The reasons are pretty obvious, given the current toxic atmosphere, the banks can do no right.

Conversely , aren't the bank's shareholders unhappy that they are not trying hard enough to recover the bank's (some would still say taxpayers) money? Apparently they are afraid as well.

There are basically two reasons why banks have not been pursuing borrowers personally for the amounts still owed. One good reason and the other somewhat problematic.

The good reason is that it is often not cost justified. The cost to sue the borrower personally and collect can be greater than the expected recovery. This would apply to most poorer people.

The problematic reason is more optics and fear. Just think what the media and the politicians would do if the banks, as is their right and perhaps their obligation, went after borrowers personally for these deficiencies? Pitchforks and torches anyone?

Many people (especially investor owners) can afford to pay these deficiencies. Why don't the banks go after them?

By the way, a lot of people have been gaming the system, living rent free for a long time; some of whom can pay, but have chosen not to because their houses are "underwater". Why hasn't that been reported? The banks probably never will go after them. Why hasn't that been reported as well.

So just losing a house in a foreclosure isn't really the end, but apparently that is only in theory.

Sorry for throwing out this "live grenade" but that's why blogs are fun.


Tuesday, December 7, 2010


Whether you agree with what was done or not, it was good to see President Obama finally lead instead of having to clean up behind the mess made by the Dem. leadership. That's how I remember Presidents doing things--leading-- but somehow Barrack decided to defer to his party's congressional leadership instead of leading them. Didn't work out so well at the polls.

I didn't have a big problem with raising taxes on the rich, and even the so-called rich, but I didn't see how that was going to help the short term economic malaise and actually create jobs, and it was amusing hearing liberals talk like deficit hawks (I didn't think many of them even knew what the word deficit means).

Frankly I'm surprised and pleased the Republicans went along. Their policy of "Just Say No" was working pretty well and their efforts ( which I thought bordered on treason) not to agree to do anything that would make Obama look good and therefore more re-electable, even if it was in the best interests of the country, also seemed to be working. Maybe they, correctly, were worried about over playing their hand. However I won't give them that much credit.

Let the progressives scream (in truth they got what they wanted, but only didn't get to take away what others had), we finally got our President back.