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Yeah, I'm actually surprised you can walk away from a mortgage (a legal contract) without also declaring bankruptcy. Any legal eagles around to explain how thi

Yeah, I'm actually surprised you can walk away from a mortgage (a legal contract) without also declaring bankruptcy. Any legal eagles around to explain how this is possible?

trjordan 17y ago
As the article noted, mortgage contracts in the US stipulate the penalties for walking away, and those penalties go no further than surrendering the house.
- ajross 17y ago
  Exactly. And as the house is the collateral for the loan, that makes perfect sense. If the bank was dumb enough to write a loan that they can't get back by selling the collateral, why should the borrower be expected to bear the burden? Frankly, I like the US system; it places the burden of analyis and risk management on the party most able to do that competently.
  - petercooper 17y ago
    Except that's more like a hire purchase agreement than a loan. If you take a bank loan to pay for a car/boat/to fund your startup/whatever and you can't pay it, you're still on the line for the loan if the assets purchased can't match the capital owed. Mortgage loans seem to be treated as a special case in the US.
    - ajross 17y ago
      True, though there are loopholes there too: startups are almost universally corporations or LLCs, generally for the express purpose of insulating the owners from the liabilities of the business. And banks routinely write off uncollectable car loans by selling them to collection agencies; they aren't large enough to bother with enforceable legal action. The homeowner protection laws are the same kind of thing. As a society, we decide that home ownership is worth encouraging (whether that's true or not is an interesting side question), so we implement policy designed to encourage it.
- nradov 17y ago
  Not exactly. It varies in different states, and on whether the mortgage was for purchase money or refinancing.
wisty 17y ago
They are not breaching the contract. The contract says they can walk away any time, but they lose their house. A full recourse mortgage (where you don't have the option of walking away) must be illegal, otherwise the banks wouldn't put such a clause in their contracts. (I don't know, I'm not a legal eagle).

Yeah, I'm actually surprised you can walk away from a mortgage (a legal contract) without also declaring bankruptcy. Any legal eagles around to explain how this is possible?

trjordan 17y ago

As the article noted, mortgage contracts in the US stipulate the penalties for walking away, and those penalties go no further than surrendering the house.

ajross 17y ago
Exactly. And as the house is the collateral for the loan, that makes perfect sense. If the bank was dumb enough to write a loan that they can't get back by selling the collateral, why should the borrower be expected to bear the burden? Frankly, I like the US system; it places the burden of analyis and risk management on the party most able to do that competently.
- petercooper 17y ago
  Except that's more like a hire purchase agreement than a loan. If you take a bank loan to pay for a car/boat/to fund your startup/whatever and you can't pay it, you're still on the line for the loan if the assets purchased can't match the capital owed. Mortgage loans seem to be treated as a special case in the US.
  - ajross 17y ago
    True, though there are loopholes there too: startups are almost universally corporations or LLCs, generally for the express purpose of insulating the owners from the liabilities of the business. And banks routinely write off uncollectable car loans by selling them to collection agencies; they aren't large enough to bother with enforceable legal action. The homeowner protection laws are the same kind of thing. As a society, we decide that home ownership is worth encouraging (whether that's true or not is an interesting side question), so we implement policy designed to encourage it.
nradov 17y ago
Not exactly. It varies in different states, and on whether the mortgage was for purchase money or refinancing.

wisty 17y ago

They are not breaching the contract. The contract says they can walk away any time, but they lose their house. A full recourse mortgage (where you don't have the option of walking away) must be illegal, otherwise the banks wouldn't put such a clause in their contracts. (I don't know, I'm not a legal eagle).