patrick.net

This is what happens in recourse states such as Texas, Florida, Georgia, Illinois and others:

http://finance.yahoo.com/loans/article/113605/house-gone-debt-lives-on-wsj?mod=loans-home

quote: "Some close observers of the housing scene are convinced this is just the beginning of a surge in deficiency judgments."

California recently passed SB458, which prevents deficiency judgments on junior liens in a short sale.

Whether it's retroactive or not remains to be seen.

My short sale was in '08. If I'm sued, SB458 will be one of my defenses. If I lose, my only true recourse is Chapter 13 BK. I will fight the whole way.

It's a numbers game. If they think they can get more from me in a Chapter 13... enough to offset the court costs and risk of losing, then I suppose they'll go for it.

It remains to be seen.

I think a case can be made that buying into the bubble was a rational choice and not necessarily stupid. Investing in real estate in many areas allows one to privitize the gain and socialize the loss (such as several banks have done). This is unlike any other investment that I know of. I happen to think gold is in a bubble but of course I don't know for sure; If I had a fool proof way to make a highly leveraged investment in gold which would allow me to keep any future gains but walk away from any future losses I would seriously consider doing it.

I don't think it's moral for people to have speculated on a highly leveraged RE investment during the bubble knowing that if the investment continued to rise they would keep the profits but if the investment fell they would walk away relatively unscathed, but I think a case can be made that it was rational. BTW, I did not buy in the bubble and am a long term RE investor, not a speculator.

@fatguy

Interesting this SB458 -- so this law is actually retroactive. I think lenders of a second mortgage will hesitate more in allowing short sales, since their interest may be wiped out. Any other comments on this?

Banks may be more hesitant to start new litigation based on SB 458, but I'm sure they're just as interested as to whether it's retroactive or not. The only way to test that is in court, unless the legislature amends it one way or the other.

StoutFiles says

A lot of people got burned on that risk and now they don't want to own up for it.

I heard,now lots of responsible people who bought after 2004 can't refinance their mortgages.

fatguy says

California recently passed SB458, which prevents deficiency judgments on junior liens in a short sale.

Whether it's retroactive or not remains to be seen.

My short sale was in '08. If I'm sued, SB458 will be one of my defenses. If I lose, my only true recourse is Chapter 13 BK. I will fight the whole way.

Why would it be retroactive? Do you see any language in the law that suggests it would be?

The practical effect of SB458 is that second mortgagees and third mortgagees will just stop agreeing to short sales unless they get what they want (more money). This is not really a good law.

fatguy, did you take a cash-out refi?

bubblesitter says

I heard,now lots of responsible people who bought after 2004 can't refinance their mortgages.

They weren't *that* responsible -- they paid bubble prices voluntarily and bid up prices with stupid loans. How many people do you know that were truly responsible who can't pay their mortgage now? I've never seen one mentioned in a media article, despite the fact that sometimes the media refers to them as "victims."