I occasionally have people ask me what they should do about their underwater mortgage. I sometimes give them an opinion as to what I think might be appropriate but I always tell them to consult an attorney or You Walk Away (the latter has attorneys for the states they do business in).
The reason I say this, and it came up Friday before I did these recent pieces, is because I cannot possibly know what the laws and nuances are in every state.
Today I received another email in response to “Strategic Defaults” a Mortgage Broker Comments on Fear and Shame Tactics which in turn was in response to Government and Lender Policies of Fear and Shame Help Keep Homeowners Debt Slaves.
The following is from Dan McKillop, J.D. of McKillop Law Firm, Sarasota Florida.
I read your page every day, and appreciate your take on our economy. I wanted to warn you about blanket advice from a mortgage broker that you highlighted in your most recent post. In particular, the advice for homeowners to just walk away from their homes and take a credit hit could be very very risky for homeowners, depending on the state they live in.
For example, please consider the state of Florida, where my wife and I practice foreclosure defense law. A homeowner absolutely SHOULD NOT just walk away from a home in Florida. Florida is a judicial foreclosure state, with very few mandatory protections for defaulting homeowners. Most importantly, in Florida the homeowner’s promissory note is not extinguished in foreclosure in Florida. This means that a bank can foreclose on the property and then pursue the ex-homeowner for the deficiency. Just walking away is the worst thing a homeowner can do in Florida, and in many other states across the nation.
Blanket advice is very dangerous advice to be giving to anyone, particularly in a state like Florida. In Florida, the bank would foreclose on the property, and they would then have the right to pursue her for the $100,000 deficiency. I will grant that not all banks do pursue deficiencies right now, but the kicker is this: the banks have years in which they can wait and choose to pursue a deficiency. These debts can be sat on, or sold, and the ex-homeowner may find the debt weighing over their heads for decades.
The correct advice from Mr. Becker should have been “Please Go Talk To A Lawyer.” Only someone familiar with both real estate foreclosure law AND collections law should be giving out advice, especially in the current environment.
I admit that I am not familiar with the laws of the state of Virginia, but if that woman was from Florida, just walking away could make things much worse.
In the spirit of full disclosure, my law practice is primarily focused on foreclosure defense. We work hard to provide Florida homeowners with real solutions to their mortgage debt, and in most cases are able to get negotiated releases for homeowners.
Many people walk into our office thinking that “walking away” is a viable option. However, homeowners who don’t know their rights AND the lender’s rights as well, should only be steered in one direction…towards a competent lawyer who understands foreclosure and collection laws in their states.
If you have any questions on this matter, or anything related to foreclosures, please let me know.
Dan McKillop, J.D.
555 S. Osprey Ave
SARASOTA, FL 34236
Your advice is appreciated.
In another Email “DD” Writes:
Excellent posts. This is really the only way the lending community can be brought back into line. Watching revenue disappear when people stop paying exorbitant mortgages they should never have been given in the first place will make the lenders more careful. Good writing as usual! I wish Obama had your phone number. He needs some good advice.
“Kill The Debt” Writes:
In my line of work, consumer debt, the MOST frequent question I deal with is credit reports/FICO score.
One of the most successful social/societal campaigns ever foisted on a populace is the credit score. Many people make irrational emotional decisions that can impact them negatively for years, all in the name of FICO.
I have many ways of answering the questions that are posed relating to the credit score. One of them is to phrase my answer as a question. The detailed explanation surrounding the question I ask will depend on the answer I get, but the question and answers track well with what Becker has put forth.
Here is the rub:
How much would you buy your credit score for?
In “Strategic Defaults” a Mortgage Broker Comments on Fear and Shame Tactics, Becker’s friend suggests a credit score value of 100k for a 3 year period….
Like it or not, hang your hat on morality or not; strategic or circumstantial default will be part of clearing the debt overhang for years going forward. Until the waste and refuse resulting from the last couple decades of the debt & credit orgy are cleared, there will be little in the way of an effective economic recovery.
Yes, it is amazing that someone’s primary concern is over a credit score, so much so they would be willing to pay $100,000 for it. If asked to do so up front, out of pocket, no one would.
More importantly, “Kill The Debt” is correct with his assessment “Until the waste and refuse resulting from the last couple decades of the debt & credit orgy are cleared, there will be little in the way of an effective economic recovery.“
On that basis, the moral thing to do is consult an attorney then walk away.
Mike “Mish” Shedlock
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