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Op/Ed

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.

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?

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.

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