What the Banks Are Up To:
By: Robert Harris
I talk to five to ten people per week on what some people call strategic default. Some have one mortgage, others two, or even three.
Some took their second mortgages out at the same time as their first mortgage, and from the same lender (an 80/20 loan). Some have quit paying on one mortgage, some on all their loans. Each situation is different, and you need to talk your sitaution over with a qualified and experienced lawyer to get advice that's correct for your situation.
However, I have seen a couple of new twists and tactics from the banks.
First, even if the second mortgage is non recourse, meaning that it was taken from the same lender at the same time as your first, a bank may sue on the second before they foreclose on the first. That's because that while a second loan may be non recourse if the first is in foreclosure, it is full recourse if the first loan has not yet commenced foreclosure. So the lesson is, you may want to pay your second mortgage, even if you've quit paying your first, and even if it is a non recourse 80/20 loan.
Second, I've seen banks start a non judicial foreclosure, then switch, mid stream, to a judicial foreclosure.
Now, I don't think there's a particular problem in most cases, but I had one case where the homeowner moved out of the home after the non judicial foreclosure notice was received, then didn't live there when the judicial foreclosure started. So, is the bank going to argue it wasn't his principle place of residence when the foreclosure "commenced"? Because if it wasn't then the loan is full recourse. I don't think a court would reach that conclusion, but I also think the banks will do anything they can to get the homeowners on the hook for the full loan amount.
But, given that banks are starting non judicial then switching to judicial, I'd be very careful about moving out of the home, and I would be very very careful about going into default on a current residence, then buying another home as your new residence, before the foreclosure concluded.
There are more people out there for whom using your non recourse option makes financial sense. Are you going to save $60,000 for your kids' college, or "volunatarily" overpay $60,000, plus interest, for an asset that is worth less than you owe. You have the legal option to walk away from a bad business deal. Making a business decision can be the best thing for you and your family.