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About american mortgages...

OutOfBreathOutOfBreath Posts: 1,804
edited September 2008 in A Moving Train
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
"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
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Comments

  • Kel VarnsenKel Varnsen Posts: 1,952
    OutOfBreath wrote:
    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 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.
  • OutOfBreathOutOfBreath Posts: 1,804
    I know here in Norway, if I were to buy a house, and loan the money, I will be the one bearing the loss if I sell it for less than I bought it. The house serves as collateral of course, but it is essentially me loaning the money for whatever (well not really, special conditions for mortgages), with the estimated worth of the house as security for the bank. In other words, I loan the money, and is responsible for paying them back, even after the house is sold with a loss. I can't choose not to pay and walk away without any debt from the house if the market is down.

    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
    "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
  • Kel VarnsenKel Varnsen Posts: 1,952
    OutOfBreath wrote:
    I know here in Norway, if I were to buy a house, and loan the money, I will be the one bearing the loss if I sell it for less than I bought it. The house serves as collateral of course, but it is essentially me loaning the money for whatever (well not really, special conditions for mortgages), with the estimated worth of the house as security for the bank. In other words, I loan the money, and is responsible for paying them back, even after the house is sold with a loss. I can't choose not to pay and walk away without any debt from the house if the market is down.

    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


    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.
  • unsungunsung I stopped by on March 7 2024. First time in many years, had to update payment info. Hope all is well. Politicians suck. Bye. Posts: 9,487
    It is only about a 100-120 point hit from what I've been told.
  • AnonAnon Posts: 11,175
    Kel Varnsen wrote:
    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.
    If your home is mortgaged to the bank you can't sell it? Well you can, but whatever you get for the sale goes straight to the bank, not in your pocket, especially if you have a negative equity. The bank holds a mortgage over the property. Surely you couldn't sell it unless it was freehold?
  • OutOfBreathOutOfBreath Posts: 1,804
    OK, I think someone misunderstood in the reporting then. It seemed pretty weird to me that the money was tied to the house and if you chose, you could just leave it to the bank and let them work it out.
    "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
  • know1know1 Posts: 6,794
    OutOfBreath wrote:
    OK, I think someone misunderstood in the reporting then. It seemed pretty weird to me that the money was tied to the house and if you chose, you could just leave it to the bank and let them work it out.

    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.
    The only people we should try to get even with...
    ...are those who've helped us.

    Right 'round the corner could be bigger than ourselves.
  • NiteLite10NiteLite10 Posts: 144
    I am not an expert but here's what my understanding is...

    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.
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