This is fantastic news from Jack Schakett, Bank of America Senior Vice President for credit loss and mitigation strategies. A huge stumbling block for a homeowner doing a Short Sale is the fact that their lender may pursue a deficiency judgement.
The government has programs to protect homeowners from this type of recourse, but those programs must be applied for and approved by your lender.
This extremely good news for California homeowners, as Bank Of America/Countrywide was a predominant lender during the real estate boom…..
According to Band Of America, Short sales, where the bank agrees to accept less for a home than the balance of the loan, are expected to rise as adjustable-rate mortgages reset this year and unemployment remains high.
Another concern for banking officials are strategic defaults _ when someone who can afford to continue paying the mortgage decides to walk away or attempt a short sale even though it will negatively affect their credit.
Jack Schakett, said this week if a borrower proves he or she cannot continue paying the mortgage on a house and has few or no assets, the bank will waive its right to a deficiency judgment during the closing of the short sale deal.
But, if someone can afford to pay, or has assets, the bank will try to negotiate a set fee for the borrower to pay at closing to the bank. If the borrower refuses to turn over any financial information, the bank will retain its right to go after the money in the long run.
“We want to help customers who legitimately can’t afford to make payments, but we
don’t want the ones who have a bunch of money to just be able to walk away,” Schakett said. “We’ll let them out of the transaction, but they have to share some of our pain.”
Schakett, who spoke this week in Austin, Texas during a National Association of Real Estate Editors conference, said the change is part of a new proactive approach to short sales that the bank is trying to take.
“Customers would like to know if they do a short sale deal, are they done, or not,” he said. “It’s best for both of us to know what we are going to get.”
More and more commercial real-estate companies are doing what many indebted homeowners would like to do: Walk away from mortgages on properties that are now worth a lot less than they paid for them.
Today’s Wall Street Journal highlights three major developers – Macerich,Vornado Realty Trust and Simon Property Group – that have recently decided to default on mortgages.
When companies do this, no one bats an eye–it’s just “smart business.”
When ordinary homeowners think about doing it, meanwhile, the mortgage industry and government begin moaning that a mortgage is more than a business contract. It’s a social contract, in which homeowners have a “moral obligation” to pay.
That’s bunk. An individual mortgage is no different than a corporate mortgage. If corporations are allowed to walk away from mortgage obligations without feeling shame and guilt, then individuals should be able to do so, too.
The contract homeowners sign when they take out a mortgage spells out exactly what happens if the homeowner stops making payments on the loan. The lender has the right to foreclose on the house, taking the homeowner’s downpayment with it. In addition, the borrower’s credit rating will usually get destroyed, and, in some states, the lender can come after his or her other assets to recoup the capital the lender has lost.
Those are big penalties. They provide a major incentive for the borrower to continue making his or payments. And that’s why the lender, a corporation, put them in the contract.
Importantly, the lender voluntarily entered into the contract–and it did so because it thought doing so was a smart business decision. That it actually turned out to be a lousy business decision is not the homeowner’s fault. It’s the lender’s fault. And the borrower, who is already feeling plenty of pain his or herself, should not have to bear the burden of guilt and shame on top of everything else.
