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Home » Real Estate Coaching & Market News

Predicted That Millions Of Homeowners Are Considering…Just Walking Away.

Submitted by Tim Harris on May 13, 2008 – 1:49 pmOne Comment | Popularity: 1% [?]

Can Mortgage Borrowers Be Punished for Walking Away?
In a recent interview with the San Francisco Chronicle, Freddie Mac consumer outreach manager Robin Stout Migala claimed that there are many reasons why homeowners shouldn’t walk away from homes, including federal income tax liability and the chance that lenders may pursue walkaway borrowers.

Although Robin’s statements may be true in certain circumstances, it is equally likely that borrowers may not face the above-mentioned consequences.

As Mike ‘Mish’ Shedlock pointed out in a blog post Monday, some states (like California) are non-recourse states, which basically means that borrowers owe lenders nothing more than the house should they default. There are also non-recourse loans in recourse states with the same provision. As for tax liabilities, there are provisions in the Mortgage Forgiveness Debt Relief Act that allow tax free debt forgiveness.

The bottom line is that there will be consequences for those who do walk away–like a drop in credit scores–but the end result may not be as bad for borrowers as Migala implies.

Popularity: 1% [?]

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One Comment »

  • As a public service announcement to California residents please note..

    California is not soley a non recourse state – whatever that means.

    Purchase money loans may be “non recourse”… see California Code of Civil Procedure 580b.

    However, refinanced loans are most likely RECOURSE loans. And plenty of sold out junior lien holders with recourse loans can and do go after people for loan balance deficiency.

    John McConnin
    Licensed Attorney and Realtor in CA and FL

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