Currently, the United States has seen more than 5 million foreclosures completed. My expectations is that we are about halfway through the working off of the ill-advised and financially untenable home purchases of the past decade. Meaning, we likely have another 5 million foreclosures to go.
Some other housing analysts think that number is too modest, and forecast millions more foreclosures. Housing expert Laurie Goodman, for example, noted in April that we maybe could have12 million more foreclosures before the housing cycle has run its course.
However, that was before a policy change at certain lenders. It seems some banks have realized that they have made it too easy for borrowers to wash their hands of a bad home purchase, and they are pushing back. Many are pursuing borrowers in recourse states for any short falls after a Foreclosure or Short Sale. (NOTE: In nonrecourse states, banks can pursue individuals for enabling purchase loans; They can go after 2nd mortgages or refis that were not for the purpose of the initial purchase).
This may make some of the marginal walkaways and short sales that much less desirable — and hence less likely to occur.
Here is the Washington Post:
“Over the past year, lenders have become much more aggressive in trying to recoup money lost in foreclosures and other distressed sales, creating more grief for people who thought their real estate headaches were far behind.
In many localities — including Virginia, Maryland and the District — lenders have the right to pursue borrowers whose homes have sold at a loss to collect the difference between what the property sold for and what the borrower owed on it, also called a deficiency.
Before the housing bust, when the volume of foreclosures was relatively low, lenders seldom bothered to chase after deficiencies because borrowers had few remaining assets to claim and doing so involved hassles and costs. But with foreclosures soaring, lenders are more determined to get their money back, especially if they suspect borrowers are skipping out on loan they could afford, an increasingly common practice in areas where home values have tanked.”
Don’t be surprised if this becomes a national trend. The next leg down in Housing is upon us, and banks do not want to take the full hit for the losses.
Note also that second lien holders are another major issue. My pal Josh Rosner has been discussing this for a while, and it is an ongoing issue. 2nd lenders are next in line to get paid after a distressed property is sold — and there is never any cash left over in a short sale or foreclosure. Expect to see more of these holders using the courts to pursue larger deficiencies in the future . . .
Lenders go after money lost in foreclosures
Washington Post, June 16, 2010
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