Sunday, November 29, 2009

Law professor stirs debate on the "morality" of homeowners' "walking" on upsidedown mortgages


The University of Arizona, James R. Rogers College of Law, has offered a paper by law professor Brent T. White, “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis”, link here.

Kenneth R. Harney assessed this paper in the Saturday, Nov. 28 Washington Post, in an article, “the moral dimensions of ditching a mortgage,” link here. Before getting agitated, it's important to remember that White is focusing primarily on those who deliberately walk when they could continue paying, just because their loan is upside down. Most foreclosures happen to people who cannot make payments, especially now with high unemployment and underemployment.

It’s true that some states no longer allow lenders to pursue deficiency judgments, which have rarely been pursued (out of practicality reasons) during the latest housing crisis.

We had a somewhat similar crisis, associated with the savings and loans, in Texas and the southwest in the late 1980s, that caught my condo in Dallas. I would learn a lesson about the dangers on selling on assumption if the new purchaser doesn’t qualify (a practice no longer allowed by the FHA on its loans because of these problems). The original owner could then be responsible for a deficiency, and in the early 1990s it was common for “walk and mail them the keys” homeowners in Texas to be pursued.

If you can find it at a library, look for James A. Wiedemer: "A Homeowner's Guide to Foreclosure: How to Protect your Home and your Rights", Dearborn, Dearborn Financial Press, 1992, paperback, orange, large pages, about 200 pages. I bought it in 1995 (the 1992 version); there’s a 2008 edition here that might be worth checking out; I’ll look into it.

As late as June 2008 I got calls for "jobs" selling subprime loans. I am "retired", but I said, "no way."

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