Zywicki: Laws Make it Easier to Walk Away from Mortgages

Mason Law Professor Todd Zywicki told the Las Vegas Review-Journal that "non-recourse" statutes prohibiting lenders from suing borrowers for additional funds after foreclosure make it easier for borrowers to walk away from mortgage problems.

"These anti-deficiency laws make a huge impact on foreclosure rates because they are basically 'get out of jail free' cards," said Zywicki, a recognized expert on consumer bankruptcy and consumer credit who is currently writing a book on those topics.

Moody's estimates that about 1 in 6 of the nation's homes is "underwater," a term meaning that the mortgage debt exceeds the current home value.

California and Arizona, states that are the leaders in the number of borrowers opting to walk away from troubled mortgages, are two of the "non-recourse" mortgage states. Others are Alaska, Connecticut, Florida, Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington.

Mortgage woes causing some to walk away, Las Vegas Review-Journal, December 19, 2008. By Jennifer Robinson.

"Mortgage and financial experts hesitate to recommend a voluntary action that not only threatens to wreck your credit score for years but can result in authorities coming after other assets. But depending on state laws, they acknowledge it makes sense to at least look at it in certain situations.

"'You have to make the best decision for yourself, business-wise, which could be walking away from the house,' said Nicole Gelinas, a chartered financial analyst and senior fellow at the Manhattan Institute, a conservative think tank.

"Mortgage walking surfaced as a phenomenon in the wake of plummeting housing prices. The practice also is known as 'jingle mail,' referring to the borrower mailing the keys to the lender and surrendering the house.

"Bank of America Corp. brought the practice to light a year ago, reporting that a growing number of people who defaulted on their mortgages were current on their credit cards. This suggested that at least some saw bailing out on their houses as a way to gain control of their finances.

"Though statistics aren't readily available on the number of mortgage walkers, a year later, Bank of America spokesman Terry Francisco acknowledges that the problem still exists and said it has been exacerbated by the housing market's further decline.

"Speculators who bought houses for investment purposes rather than to live in are the likeliest to do it, he suggested."

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