The hard part, of course, is getting someone to sell it to you without their knowledge.
The hard part is likely purchasing your specific debt. Often times, transactions in the consumer debt markets are intermediated by a broker, who may give you very limited information on the debt you're buying. Additionally, consumer debts are often sold in bundles/tranches where it is not uncommon for 50+ debts to be sold as a single portfolio.
In the best case scenario, the firm collecting on your debt wouldn't be using a broker, and they would allow you to look into the details of the debts to asses the risk of the portfolio.
No. There is Deed in Lieu of Foreclosure, which sounds like what you are talking about, but that is not a unilateral option you exercise by mailing keys...you need the banks permission, which they usually don’t give, especially when the property is underwater.
If people could unilaterally turn in keys and escape the debt you can be sure the banks would have gone under during the Great Recession. As it was the Federal Bailout essentially covered the legal fees for banks to foreclose on these toxic assets and recover what they could.
Still even then (like parents hypothetical) if a bank foreclosed and $300k was owed and they sold the property for $130k the next step was a separate filing for deficiency judgement (the difference or $170k in this case).
Edit: A quick google told me that there are 12 "non-recourse states" for "most residential mortgages": Alaska, Arizona, California, Iowa, Minnesota, Montana, Nevada, North Carolina, North Dakota, Oregon, Washington and Wisconsin. https://www.arklawgroup.com/blog/how-do-i-know-whether-my-mo...
You can find many articles about California, for example, where they will say someththing like “in California, in most foreclosures banks can’t go after borrowers for deficiency judgement”, but it’s misleading. California has both judicial and nonjudicial foreclosure, and judicial foreclosures allow deficiency judgments and nonjudicial foreclosure generally don’t. So why don’t all lenders go for the judicial foreclosure and for the deficiency judgement? Time and Money! It simply takes longer and costs more to go the judicial route and why do that if you ultimately can’t collect from the borrower?
The thing is the banks/borrowers have so much data, their automated systems are pretty good at knowing if they will likely be able to collect enough to cover the extra cost of the judicial foreclosure in which case they go that route and then for the deficiency judgement. Once they have that they can garnish wages, attach accounts, etc...
This is more misleading than what it “corrects”, which is actually entirely correct for the case usually of interest (and which the articles are almost always specifically addressing), owner-occupied residential properties. Its true that California allows deficiency judgements for judicial foreclosures except as barred by the State anti-deficiency statute. But that statute prohibits all deficiency judgements for purchase-money or refinance loans for residential property with up to four units when the owner/borrower resides on the property (and, unlike most anti-deficiency statutes, covers second and subsequent mortgages for that purpose, not just first mortgages.)
>Is my understanding really untrue and the banks can go after your other assets in all US states?
My response is not misleading by any means.
Especially when that question came as a direct response to the same person who originally broadly stated you can just mail your house keys to the bank and walk away.
My point is simple and fairly obvious...don’t mail your keys to the bank and think you can walk away, even if you are in a non recourse state.
I used California as a perfect example of a non recourse State that has both judicial/nonjudicial foreclosures and in judicial foreclosures allows...recourse (deficiency judgments).
Yes you included a few rules outlining where deficiencies would not be available, but the fact defiency judgments are available at all - especially in California, which is ultra stringent even amoung non recourse states - is the much bigger point being discussed.
Yeah, that's generally a fair point and there are lots of good examples you could have pointed to; California, however, isn't one of them.
> Yes you included a few rules outlining where deficiencies would not be available
A few rules, which happen to encompass the entire category usually discussed with the “mail your keys” thing: any single-family house you own, with one or more purchase or refinance mortgages, and live in.
(And, well, more than that category usually at issue, because it also includes small multifamily units with the same other conditions.)
No it doesn’t encompass “the entire category”. Even in California deed in lieu of foreclosure cases (eg the bank agrees you can mail your keys in) banks can and do obtain defiency judgments in 5% of such cases.
It reminds me of student loans, where lawyers and layman constantly say student loans are not dischargeable in bankruptcy. But they are. Student loans have a higher standard to discharge than most other debts. I guess people can say it’s misleading to say student loans are discharable -but they are- even if it’s a low percentage. The important part of the discussion is again it’s possible.
A deed-in-lieu is an agreement—a contract supplementing the mortgage contract and agreeing it's terms—not a foreclosure, and whether or not a deficiency judgement is available is determined beitherms of the agreement (or the mortgage itself), not the foreclosure rules.
OTOH, the prohibition on foreclosure deficiencies on the whole class of mortgages at issue in California gives borrowers considerable leverage on getting a deed-in-lieu without deficiency permitted (or a short-sale without that), since in a foreclosure the bank won't get a deficiency and will bear additional costs that they don't have with the deed-in-lieu. But, yes, if you agree to give the bank privileges they wouldn't have in foreclosure because you are desperate to avoid foreclosure, you will need to fulfill that agreement.
Also, note that stats that aren't extremely new can be misleading, because the extension of the anti-deficiency statute to refinance mortgages as well as purchase money mortgages only happened in 2012, and cases take time to make it through the legal system. This affects both actual foreclosures and deeds-in-lieu, because without the foreclosure protection, the leverage for deed-in-lieu agreements wasn't there, either.
A deed in lieu can occur without a foreclosure taking place, but it can also occur during the foreclosure proceeding (ie it’s a type of settlement within the active foreclosure case). But it’s not like the defiency judgment is memorialized in these agreements, the 5% I cite are statistics from the courts, this the 5% are court ordered defiency judgments...not part of the original settlement (deed in lieu).
You are not wrong a savvy borrower who may have potential liability for a defiency can include in the deed in lieu a waiver of the lenders right to pursue the diffidence, if any. But lenders don’t need to agree, and won’t if they believe they could collect. But again these deeds in lieu are negotiated instruments and not triggered by mailing keys to the bank.
>Also, note that stats that aren't extremely new can be misleading, because the extension of the anti-deficiency statute to refinance mortgages as well as purchase money mortgages only happened in 2012
Agreed, and I was actually going to bring this up before, because despite the additional protections against defiency judgments in the Code for 2nd mortgages/HELOCS courts in California are still upholding the lenders right to get a defiency after judicial foreclosure cases where the homeowner took cash out from refinancing 2nd mortgage/HELOC (and to pedantic - still subject to those limitations you added). Eventually this will be clarified through appeals and those protections will either be upheld or those laws won’t have as much teeth as a blanket protection for all such class of notes. I believe the 5% stats are for 2007-2016 for deed in lieu.
All this is so far beyond the pale of the actual discussion. And I think for the benefit of non lawyers, should be left to:
California is a non recourse state. Even amoung non recourse states California is known for having very protective laws for the borrower. Yet, even being a non recourse state and having some of the best protections for borrowers, mailing your keys/deed in lieu (whether during actictive foreclosure litigation or before the filing of any cases) carries risks of a deficiency. Nevertheless the idea of mailing keys wasn’t specific to California, and California was only used to highlight the possibility of a deficiency judgment in non recourse state. More generally the majority of states (38) are recourse states where the banks can come after you for the defiency as a general rule and amoung the 12 non recourse states, defiency judgments are allowed in at least some cases.
Like many other things, it depends on the state.
In Washington, for example, the lender can use a simplified process (that gets used over 99% of the time) for a foreclosure that makes it non-recourse.
The other option is to go to court, something that banks will only bother doing if they are fairly certain you have especially large assets that they can seize to make it worthwhile.
Yes it’s the difference between judicial and nonjudicial foreclosure.
But reworded: In Washington 100% of Banks can go for deficiency judgements after judicial foreclosure, but the banks have so much data they make the strategic choice of waiving that right in 99% of cases by going the nonjudicial route and foregoing the potential of the deficiency judgement. Further, in 1% of cases the bank has data that suggests the borrower has assets, income or even potential future income/assets that make the added time/cost of judicial foreclosure worthwhile.
In general it makes sense a defiency judgement isn’t worth the paper it’s written on...or he borrower wouldn’t have been foreclosed but in that 1% of (Washington cases) banks see people with income/assets who can pay trying to get out from an underwater property.
No, only 15 states generally prohibit mortgage deficiency judgements (and those prohibitions mostly apply only to first mortgages, and some are limited even there), in the rest the creditor can come after you for the unrecovered balance after a foreclosure sale.
https://www.legalmatch.com/law-library/article/anti-deficien...
Additionally, a borrower who is paying on an underwater mortgage is much better than a foreclosure where the bank gets an asset worth less than you owe. Every month that you make a payment improves the bank’s position, since your payment is going to reduce the deficit between loan amount and home value.
Sorry, US banks can't issue margin calls on conforming home loans.
It was amended in 2016 I believe to allow some purchases if they met specific criteria.
The "usual" way to getting around these things has been to create a company and have the company buy it. Companies are nominally 'new' people and don't have family or relatives.
in bankruptcy, you can buy back your own debt for pennies on the dollar (among other options), intermediated by (and with the approval of) a judge (or mediator). i dimly recollect that in certain cases your primary residence can be retained in exchange for other remedies.
You just have to deal with Debt Collector harassing you for 2-3 years, and take a pretty big hit to your credit, and you can often settle debt for nothing more than the original principal loaned.
Of course, good luck trying to borrow money for the next 7-8 years...
Everyone telling you it's "pennies on the dollar" are missing your point. Someone so delinquent on their debt that the bank is about to foreclose probably doesn't even have a penny, much less pennies.
This trick may work if you have a relative who has money and is willing to bail you out. Another person this might work for is someone who has protected assets that the bank doesn't know about. Yet another option could be if the house was bought under a corporation/LLC that has gone bankrupt but the owner of the company still has plenty of cash.
Credit score doesn't matter if you don't need credit.
In the 2008 mortgage crisis, a lot of speculators just walked away from underwater mortgages, not because they couldn’t pay, but because it made more financial sense for them to give up the asset in return for being released from the loan.
Foreclosure != bankruptcy