ITS TIME WE WALKED
Homeowners should be walking away in droves,” Brent T. White, an associate professor of law at the University of Arizona, wrote in a discussion paper. The real mystery is not—as media coverage has suggested—why large numbers of homeowners are walking away, but why, given the percentage of underwater mortgages, more homeowners are not.
Despite reports that homeowners are increasingly “walking away” from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences.
Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations – and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision.
Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse.
The First Strategic Default Study Here.
The Second Strategic Default Study Click Here.
The Fourth Strategic Default Study Here.
After the bank forecloses and liquidates a property they can determine how much they lost and may be able to come after the home owner for that amount. It all depends on the laws in the state the home is in. It also depends on the state that you might decide to move to. Some states have homestead laws that protect any new residence from liens and may even prevent earnings from being attached or garnished . Retirement IRA and 401K are not touched in any case. And the deficiency also can result in a 1099 that make the amount effectively “forgiven” look like it was income. But on principle home, I have heard that the IRS is forgiving tax due on these 1099’s – can someone verify this?
The paragraph about the norms of the homeowners versus
the norms of the lenders is right on target. The lack of
morality, decency and fairness of the lenders is apalling.