Get Up! It’s Your Turn To Fuck The Bank in The Ass

(h/t) to Ezra

Consider this my act of civil disobedience. Mark Gimen explains why some home owners should allow their houses to be foreclosed :

In story after story about the foreclosure crisis, you will find the implicit idea that borrowers who can afford to pay their mortgage should keep on paying it no matter how much their house sinks in value because they have made a promise to pay and to do otherwise would be an abuse of the system.

Propagating this idea is good for lenders and probably good for taxpayers, but basically, it’s nonsense. Most states–California being the most relevant example–make it very difficult for a lender to go after borrowers for more money after they have foreclosed on a house. In California, lenders can foreclose in two ways. One way, the non-judicial foreclosure, lets the lender take back the deed with a 60 day notice after the first missed payment. In practice, this means that lenders can take the house in a matter of about four months. If they do that, however, they cannot get any more money. The other way lets lenders go to court to get the full amount due on the mortgage. This can take years. If the lender wins in court, then the borrower still has 366 days to pay off the mortgage and take back the house, which means that for all practical purposes it can’t be sold. Thanks to California’s “one act” rule, a lender cannot pursue both options: the bank must choose one.

In practice, this means that a bank that doesn’t want to get bogged down in a two year long morass has little option but to take back the keys, accept a huge loss, and call it even. Is this an “abuse” of the system? I don’t see how. The loss was something that lenders could have anticipated at least as easily as borrowers. The reality is that ordinary people are lousy at figuring out the ins and outs of real estate transactions. Relying on the one act rule to get out of a mortgage is not to abuse the system–it is to use the system in precisely the way it was intended to be used. The reason that the one act rule exists is that lenders and developers have through the years shown a great deal of ability to maneuver unsophisticated buyers into crummy real estate deals. The reason that the one act rule exists is to put the risk of these deals on the lender, not the buyer. The purpose is to discourage bad underwriting, dishonest marketing, and unjustified price inflation by making it very, very hard for a lender to get back the money if they lent more on a mortgage than a house was worth…invariably stories that mention the prospect of foreclosure talk about the hit that this causes to a borrowers’ credit rating. Obviously, there is a hit. However, journalists are mistaken when they imagine that a credit score is a judgment on the character of borrowers. It’s not. It’s a judgment about the likelihood of someone repaying a loan. Bad marks like a foreclosure affect this. But being overextended on credit affects this even more

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