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Comment by csomar | Hacker News Reader

> that can be resolved in a few months

I'm not sure about the US but I think you are not kicked out from the first day / first month. For auto-leases, the bank might wait a couple months max; but for houses it's usually negotiable with the bank. For the bank, it's a lengthy process that requires selling the house to recover their capital. It's not something they want to go through unless the economy is super strong and they can sell the house really fast.

Right now, it might be hard to 1. sell the house fast and 2. sell the house at a good enough price to recover their capital. If you are only a few months away from a job you should be able to negotiate but my guess is that some (many?) people shouldn't have gotten into these loans in the first place.

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Lets say you are $150k into a $200k mortgage, then default. What prevents the bank from selling it at $50k, which is just enough to recover their principle?

Legally? Nothing.

Practically? There's a whole bevy of reasons why this isn't done in practice but the bottom line is it's not in the bank's best interest:

- The bank is likely mortgaging other properties in the area. They don't want the value of the housing going down.

- The bank doesn't want to slow down real estate sales with people waiting on "deals" on foreclosures. They'd just as soon be issuing new mortgages which results in more money coming in the door.

- The bank doesn't want to get a bad reputation. Look at the issues Wells Fargo is having. It's easy to lose your reputation, it's hard to get it back.

In general what happens is the property goes to auction. Because the buyer has to either pay cash or secure their own financing and be able to take quick possession of the property the house will typically sell for 17%-20% below market value.

In this example since you're $150K into a $200K mortgage let's say the house's market value is $300K. It would sell at auction for $240K. The bank will have $35K in expenses and fees and so will cut a check for $210K-$50K = $155K to the homeowner.

In general it's in your best interest to sell the house yourself before the bank forecloses. Let's look at this example again. You sell the house for $300K. Say you have $24K in closing costs, plus there's the $50K you owe the bank. You'll net $226K. That's $71K more in your pocket than letting the bank foreclose.

Nothing, in fact the bank might actually make more profits from fees (and they collect the interest in advance). So while you might get away with a few months of delinquencies, it's not a situation you might even want to be in.

The sale process has to be publicized and transparent so that it reflects arm’s length, fair market value. If that’s $50k then the first owner was severely underwater in the first place.

Good question. I assumed that's how foreclosures work, and why you can get such good prices on them.

You get lower than market prices but there are some catches: The foreclosure is a long process because they need to wait for the highest bidder, you need to deposit something like 1/3 of the house price, you need to pay some other fees, etc...

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