About american mortgages...

I think I picked up somewhere on the news over here, that the mortgages in america is tied to the house, not the person. Meaning, that if they can't/won't pay, they can walk out on the house and leave it all to the bank.
Is this true? And if it is, why is it arranged like that? I can see how that can lead to low downpayments in periods of downturn when all the risk is essentially on the bank.
Peace
Dan
Is this true? And if it is, why is it arranged like that? I can see how that can lead to low downpayments in periods of downturn when all the risk is essentially on the bank.
Peace
Dan
"YOU [humans] NEED TO BELIEVE IN THINGS THAT AREN'T TRUE. HOW ELSE CAN THEY BECOME?" - Death
"Every judgment teeters on the brink of error. To claim absolute knowledge is to become monstrous. Knowledge is an unending adventure at the edge of uncertainty." - Frank Herbert, Dune, 1965
"Every judgment teeters on the brink of error. To claim absolute knowledge is to become monstrous. Knowledge is an unending adventure at the edge of uncertainty." - Frank Herbert, Dune, 1965
Post edited by Unknown User on
0
Comments
Is that not how all mortgages work? That is how mortgages work in Canada, you take out a loan from the bank, and the house becomes the collateral. If you bail on your payments the bank takes your house, sells it and gets their money back that way. I am not really sure if there is any other way it could work.
My question was whether you really can just walk out of the house debt-free and leave the problem to the bank when the market busts, if you so choose.
Peace
Dan
"Every judgment teeters on the brink of error. To claim absolute knowledge is to become monstrous. Knowledge is an unending adventure at the edge of uncertainty." - Frank Herbert, Dune, 1965
I think it is the same here. If I buy a house on day and have a 100,000 dollar mortgage, and then I sell it the next day and can only get 50,000 dollars, I still owe the bank 100,000 dollars. If I skip town and stop paying them they will take my house sell it and try to make the rest of the money they are owed back. I am not sure what happens if them selling the house doesn't generate enough money to pay but either way if it goes to the point where your house gets reposessed your credit rating will be destroyed.
"Every judgment teeters on the brink of error. To claim absolute knowledge is to become monstrous. Knowledge is an unending adventure at the edge of uncertainty." - Frank Herbert, Dune, 1965
That's true in principle, but not nearly so simple. There are ramifications to turning over a house to the bank. I'm pretty sure the bank can come after you for the difference in the amount owed vs. the selling price.
...are those who've helped us.
Right 'round the corner could be bigger than ourselves.
The mortgage loan is secured by the property, not necessarily your other assets. In California, I believe, they cannot go after your other assets if you default on your mortgage. Basically, they can foreclose on the house and get the deed. It ruins your credit but otherwise you can walk away... which is what many people are doing right now.
I think the bank could choose to sue you instead, but then they would not be able to foreclose.
In the past, most people put 20% down so this protected the bank against losses and also discouraged people from walking away and losing their money. However, in recent years many people had zero or very little down on their mortgages. When the prices drop 20-30%+ the purchasers now are under water by $100,000 or more. So.. they owe a lot more than the value of the house. Since they didn't necessarily put much or anything down, it may seem to be a worthwhile trade off to hurt their credit but not owe more than their house is worth.