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>You can generally "mail the keys to the bank" and have no further liability. No. There is Deed in Lieu of Foreclosure, which sounds like what you are talking

>You can generally "mail the keys to the bank" and have no further liability. No. There is Deed in Lieu of Foreclosure, which sounds like what you are talking about, but that is not a unilateral option you exercise by mailing keys...you need the banks permission, which they usually don’t give, especially when the property is underwater. If people could unilaterally turn in keys and escape the debt you can be sure the banks would have gone under during the Great Recession. As it was the Federal Bailout essentially covered the legal fees for banks to foreclose on these toxic assets and recover what they could. Still even then (like parents hypothetical) if a bank foreclosed and $300k was owed and they sold the property for $130k the next step was a separate filing for deficiency judgement (the difference or $170k in this case).

dmurray 8y ago
I am not a lawyer. I was going to reply to rhizome (sibling post of yours) saying this really differs from jurisdiction to jurisdiction, but in my understanding, in most US jurisdictions the lender has no recourse (either none at all, legally speaking, or tends to get nowhere in practice). Is my understanding really untrue and the banks can go after your other assets in all US states? Edit: A quick google told me that there are 12 "non-recourse states" for "most residential mortgages": Alaska, Arizona, California, Iowa, Minnesota, Montana, Nevada, North Carolina, North Dakota, Oregon, Washington and Wisconsin. https://www.arklawgroup.com/blog/how-do-i-know-whether-my-mortgage-loan-is-a-recourse-or-non-recourse-loan https://www.arklawgroup.com/blog/how-do-i-know-whether-my-mo...
- will_brown 8y ago
  Foreclosure procedures do depend a little on jurisdiction (ie judicial vs nonjudicial foreclosure states or both), but even within those non-recourse states you link to, lenders can in fact come for deficiency judgements between the balance of the loan and the fair market value of the property. You can find many articles about California, for example, where they will say someththing like “in California, in most foreclosures banks can’t go after borrowers for deficiency judgement”, but it’s misleading. California has both judicial and nonjudicial foreclosure, and judicial foreclosures allow deficiency judgments and nonjudicial foreclosure generally don’t. So why don’t all lenders go for the judicial foreclosure and for the deficiency judgement? Time and Money! It simply takes longer and costs more to go the judicial route and why do that if you ultimately can’t collect from the borrower? The thing is the banks/borrowers have so much data, their automated systems are pretty good at knowing if they will likely be able to collect enough to cover the extra cost of the judicial foreclosure in which case they go that route and then for the deficiency judgement. Once they have that they can garnish wages, attach accounts, etc...
  - dragonwriter 8y ago
    > You can find many articles about California, for example, where they will say someththing like “in California, in most foreclosures banks can’t go after borrowers for deficiency judgement”, but it’s misleading. California has both judicial and nonjudicial foreclosure, and judicial foreclosures allow deficiency judgments and nonjudicial foreclosure generally don’t. This is more misleading than what it “corrects”, which is actually entirely correct for the case usually of interest (and which the articles are almost always specifically addressing), owner-occupied residential properties. Its true that California allows deficiency judgements for judicial foreclosures except as barred by the State anti-deficiency statute. But that statute prohibits all deficiency judgements for purchase-money or refinance loans for residential property with up to four units when the owner/borrower resides on the property (and, unlike most anti-deficiency statutes, covers second and subsequent mortgages for that purpose, not just first mortgages.) https://www.weltman.com/?t=40&an=40108&format=xml&p=7735 https://www.weltman.com/?t=40&an=40108&format=xml&p=7735
    - will_brown 8y ago
      In light of the question I was answering: >Is my understanding really untrue and the banks can go after your other assets in all US states? My response is not misleading by any means. Especially when that question came as a direct response to the same person who originally broadly stated you can just mail your house keys to the bank and walk away. My point is simple and fairly obvious...don’t mail your keys to the bank and think you can walk away, even if you are in a non recourse state. I used California as a perfect example of a non recourse State that has both judicial/nonjudicial foreclosures and in judicial foreclosures allows...recourse (deficiency judgments). Yes you included a few rules outlining where deficiencies would not be available, but the fact defiency judgments are available at all - especially in California, which is ultra stringent even amoung non recourse states - is the much bigger point being discussed.
      - dragonwriter 8y ago
        > My point is simple and fairly obvious...don’t mail your keys to the bank and think you can walk away, even if you are in a non recourse state. Yeah, that's generally a fair point and there are lots of good examples you could have pointed to; California, however, isn't one of them. > Yes you included a few rules outlining where deficiencies would not be available A few rules, which happen to encompass the entire category usually discussed with the “mail your keys” thing: any single-family house you own, with one or more purchase or refinance mortgages, and live in. (And, well, more than that category usually at issue, because it also includes small multifamily units with the same other conditions.)
alasdair_ 8y ago
>No. There is Deed in Lieu of Foreclosure, which sounds like what you are talking about, but that is not a unilateral option you exercise by mailing keys...you need the banks permission, which they usually don’t give, especially when the property is underwater. Like many other things, it depends on the state. In Washington, for example, the lender can use a simplified process (that gets used over 99% of the time) for a foreclosure that makes it non-recourse. The other option is to go to court, something that banks will only bother doing if they are fairly certain you have especially large assets that they can seize to make it worthwhile.
- will_brown 8y ago
  >In Washington, for example, the lender can use a simplified process (that gets used over 99% of the time) for a foreclosure that makes it non-recourse. Yes it’s the difference between judicial and nonjudicial foreclosure. But reworded: In Washington 100% of Banks can go for deficiency judgements after judicial foreclosure, but the banks have so much data they make the strategic choice of waiving that right in 99% of cases by going the nonjudicial route and foregoing the potential of the deficiency judgement. Further, in 1% of cases the bank has data that suggests the borrower has assets, income or even potential future income/assets that make the added time/cost of judicial foreclosure worthwhile. In general it makes sense a defiency judgement isn’t worth the paper it’s written on...or he borrower wouldn’t have been foreclosed but in that 1% of (Washington cases) banks see people with income/assets who can pay trying to get out from an underwater property.
masonic 8y ago
Any "forgiven" principal also becones taxable as regular income that year (in the USA).
- joecool1029 8y ago
  It would seem that is not always the case: https://www.irs.gov/newsroom/home-foreclosure-and-debt-cancellation https://www.irs.gov/newsroom/home-foreclosure-and-debt-cance...
  - masonic 8y ago
    That expired in 2016.

dmurray 8y ago

I am not a lawyer. I was going to reply to rhizome (sibling post of yours) saying this really differs from jurisdiction to jurisdiction, but in my understanding, in most US jurisdictions the lender has no recourse (either none at all, legally speaking, or tends to get nowhere in practice). Is my understanding really untrue and the banks can go after your other assets in all US states? Edit: A quick google told me that there are 12 "non-recourse states" for "most residential mortgages": Alaska, Arizona, California, Iowa, Minnesota, Montana, Nevada, North Carolina, North Dakota, Oregon, Washington and Wisconsin. https://www.arklawgroup.com/blog/how-do-i-know-whether-my-mortgage-loan-is-a-recourse-or-non-recourse-loan https://www.arklawgroup.com/blog/how-do-i-know-whether-my-mo...

will_brown 8y ago
Foreclosure procedures do depend a little on jurisdiction (ie judicial vs nonjudicial foreclosure states or both), but even within those non-recourse states you link to, lenders can in fact come for deficiency judgements between the balance of the loan and the fair market value of the property. You can find many articles about California, for example, where they will say someththing like “in California, in most foreclosures banks can’t go after borrowers for deficiency judgement”, but it’s misleading. California has both judicial and nonjudicial foreclosure, and judicial foreclosures allow deficiency judgments and nonjudicial foreclosure generally don’t. So why don’t all lenders go for the judicial foreclosure and for the deficiency judgement? Time and Money! It simply takes longer and costs more to go the judicial route and why do that if you ultimately can’t collect from the borrower? The thing is the banks/borrowers have so much data, their automated systems are pretty good at knowing if they will likely be able to collect enough to cover the extra cost of the judicial foreclosure in which case they go that route and then for the deficiency judgement. Once they have that they can garnish wages, attach accounts, etc...
- dragonwriter 8y ago
  > You can find many articles about California, for example, where they will say someththing like “in California, in most foreclosures banks can’t go after borrowers for deficiency judgement”, but it’s misleading. California has both judicial and nonjudicial foreclosure, and judicial foreclosures allow deficiency judgments and nonjudicial foreclosure generally don’t. This is more misleading than what it “corrects”, which is actually entirely correct for the case usually of interest (and which the articles are almost always specifically addressing), owner-occupied residential properties. Its true that California allows deficiency judgements for judicial foreclosures except as barred by the State anti-deficiency statute. But that statute prohibits all deficiency judgements for purchase-money or refinance loans for residential property with up to four units when the owner/borrower resides on the property (and, unlike most anti-deficiency statutes, covers second and subsequent mortgages for that purpose, not just first mortgages.) https://www.weltman.com/?t=40&an=40108&format=xml&p=7735 https://www.weltman.com/?t=40&an=40108&format=xml&p=7735
  - will_brown 8y ago
    In light of the question I was answering: >Is my understanding really untrue and the banks can go after your other assets in all US states? My response is not misleading by any means. Especially when that question came as a direct response to the same person who originally broadly stated you can just mail your house keys to the bank and walk away. My point is simple and fairly obvious...don’t mail your keys to the bank and think you can walk away, even if you are in a non recourse state. I used California as a perfect example of a non recourse State that has both judicial/nonjudicial foreclosures and in judicial foreclosures allows...recourse (deficiency judgments). Yes you included a few rules outlining where deficiencies would not be available, but the fact defiency judgments are available at all - especially in California, which is ultra stringent even amoung non recourse states - is the much bigger point being discussed.
    - dragonwriter 8y ago
      > My point is simple and fairly obvious...don’t mail your keys to the bank and think you can walk away, even if you are in a non recourse state. Yeah, that's generally a fair point and there are lots of good examples you could have pointed to; California, however, isn't one of them. > Yes you included a few rules outlining where deficiencies would not be available A few rules, which happen to encompass the entire category usually discussed with the “mail your keys” thing: any single-family house you own, with one or more purchase or refinance mortgages, and live in. (And, well, more than that category usually at issue, because it also includes small multifamily units with the same other conditions.)

alasdair_ 8y ago

>No. There is Deed in Lieu of Foreclosure, which sounds like what you are talking about, but that is not a unilateral option you exercise by mailing keys...you need the banks permission, which they usually don’t give, especially when the property is underwater. Like many other things, it depends on the state. In Washington, for example, the lender can use a simplified process (that gets used over 99% of the time) for a foreclosure that makes it non-recourse. The other option is to go to court, something that banks will only bother doing if they are fairly certain you have especially large assets that they can seize to make it worthwhile.

will_brown 8y ago
>In Washington, for example, the lender can use a simplified process (that gets used over 99% of the time) for a foreclosure that makes it non-recourse. Yes it’s the difference between judicial and nonjudicial foreclosure. But reworded: In Washington 100% of Banks can go for deficiency judgements after judicial foreclosure, but the banks have so much data they make the strategic choice of waiving that right in 99% of cases by going the nonjudicial route and foregoing the potential of the deficiency judgement. Further, in 1% of cases the bank has data that suggests the borrower has assets, income or even potential future income/assets that make the added time/cost of judicial foreclosure worthwhile. In general it makes sense a defiency judgement isn’t worth the paper it’s written on...or he borrower wouldn’t have been foreclosed but in that 1% of (Washington cases) banks see people with income/assets who can pay trying to get out from an underwater property.

masonic 8y ago

Any "forgiven" principal also becones taxable as regular income that year (in the USA).

joecool1029 8y ago
It would seem that is not always the case: https://www.irs.gov/newsroom/home-foreclosure-and-debt-cancellation https://www.irs.gov/newsroom/home-foreclosure-and-debt-cance...
- masonic 8y ago
  That expired in 2016.