Connect with us

Hi, what are you looking for?

The American Genius Real EstateThe American Genius Real Estate


No-cost houses: What long-term damage could mortgage loopholes cause?

Mortgage loopholes have led to people living in their home for free – just because someone can stay in a home without making a payment, does that make it right? What of the long term economic impact?

housing data

Since we are undoubtedly out of the Recession (with our unemployment or jobless rates below 6 percent and our national housing stats improving), it seems surprising that there is still lots going on in the distressed property world. Recently, the news has been abuzz with all sorts of articles about foreclosures being forgiven, certain banks having no legal right to foreclose, and much, much more.

Here are two interesting Recession-related articles that caught my eye and could have a pretty significant impact on both real estate professionals and the national housing market:

Second-Mortgage Case Has Judges Second-Guessing Old Decision

Forbes reports on a case to determine whether homeowners can eradicate a second mortgage through bankruptcy. The high court began hearing Bank of America v. Caulkett to determine whether a consumer (with two mortgages) who goes through a bankruptcy has the right to void a second lien when property is significantly underwater.

Supreme Court Justices Sotomayor and Kennedy both expressed concern that second-mortgage holders with no hope of collecting anything in a foreclosure “could nevertheless unfairly block a negotiated settlement in bankruptcy that would benefit borrowers and first-mortgage lenders”.

Currently, after a chapter 7 bankruptcy, the lien will continue to remain even though the borrower would not be required to pay. But, that could change and certain homeowners could have their second mortgages wiped clean.

Advertisement. Scroll to continue reading.

Homeowners Facing Foreclosure May Instead Be Home Free

According to an article The Boston Globe, homeowners in states with judicial foreclosure who have not made a payment for over five years may actually catch a break.

It seems that the statute of limitations on foreclosure in certain parts of the United States is six years, and so the banks do not have time to foreclose on the thousands of people who have not made a payment for five years or more. The article states that one mortgage lender, Bank of America, has initiated foreclosure proceedings on 20,000 homeowners who have not made a payment in five years.

Additionally, the article mentions that we should not blame the banks for this delay. In addition to lender inefficiency, government policies and procedures for modification and also changes to guidelines for notification and may be partially to blame.

What seems notable is that lots and lots of people may get off scot-free. As a result of legal loopholes, people who don’t make a single payment for their home are able to live there while others having trouble making ends but always seem to make those mortgage payments.

Food for thought: What will be the long terms effects of these loopholes on our real estate market, on our lending guidelines, and on our economy as a whole?

Advertisement. Scroll to continue reading.

Melissa is an in-demand business success speaker and author, as well as a real estate broker with thousands of short sale transactions under her belt. She leverages her experience as a short sale insider to motivate thousands of business professionals to plan their careers better, execute more effectively on their plan, and earn more because of it.


The Daily Intel
in your inbox

Subscribe and get news and EXCLUSIVE content to your email inbox.




Real estate scams continue to victimize people, but Realtors are in a position to better protect homebuyers. Here are some tips.


It’s no coincidence that the most exciting areas of our country are also the most diverse.


Affordability challenges continue to plague the market, further threatened by home price gains and rising mortgage rates. What will happen to homeownership and sales...


Meeting weekly is rarely something a team looks forward to, but there are ways for brokers to improve attendance easily.

The American Genius' real estate section is honest, up to the minute real estate industry news crafted for industry practitioners - we cut through the pay-to-play news fluff to bring you what's happening behind closed doors, what's meaningful to your practice, and what to expect in the future. We're your competitive advantage. The American Genius, LLC Copyright © 2005-2022