How Late Is the Average Mortgage Before a Lender Forecloses?

This past September, 611 days.

(Legal disclaimer.  This is a national average.  A lender usually has the right to foreclose after the first missed payment.  Don't take the average to mean you have 1 and 2/3 years to catch up on your mortgage.)

"He probably didn't have this in mind when he signed on to be HUD secretary"

A Politico article highlights the issues facing Shaun Donovan, helming HUD during the current housing downturn, as well as some critics who think the Department should focus less on the foreclosure crisis and more on affordable rental housing.

Image via Wikipedia

Monday Primer: Recourse vs. Non-Recourse Loans

Recourse and non-recourse are terms used to describe types of loans.  They describe the personal liability of the borrower to repay the loan, and becomes most relevant when we talk about default.

In a non-recourse loan, the lender has no recourse.  If you walk away from that loan, the lender may repossess the collateral, but may not come after you for the deficiency (the difference between what you owe and  the value of the collateral).

In a recourse loan, the lender has recourse.  You cannot walk away from this type of loan.  So if, for instance, you own $5,000 on a car that is totaled in an accident, you cannot simply walk away from the debt and allow the lender to repossess the car.  The lender will take the car (or what's left of it), but you will still be legally responsible and may be sued for the $5,000 you owe.

Traditionally, home mortgages for the purchase of a house have been non-recourse.  In the current economy, where so many people are underwater on their mortgages, you start to hear more about strategic default, or walking away from a mortgage.  This can be a strategically sound decision (hence the name).  If the value of the collateral is less than the amount of the financial obligation, walking away makes financial sense (we'll leave the ethics of it for another post).

However, most states, by statute, make home mortgages recourse debt.  In these states, walking away from an underwater mortgage may still lead to a financial judgment against you.  Most banks do not pursue a deficiency judgment, but with so many people defaulting and leaving deficiencies of tens of thousands of dollars or more, the number of deficiency judgments is increasing.

If you are underwater on a mortgage, the remedies a bank may have against you is another factor to consider before you consider strategic default.

A list of recourse and non-recourse states

House Is Gone but the Debt Lives On

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