New Haven Independent

The gist of Feldstein’s article was that homeowners with mortgages in the USA can walk away from their mortgage debt obligations free and clear, with no residual consequences.

In the 6th paragraph Feldstein explained, for example, that “mortgage defaults in the United States, unlike almost every other country are effectively no-recourse loans meaning the creditor can take the house used as collateral but is unable to take other assets or income to make good on the balance.”

Nothing could be further from the truth.

That information is patently false. Those who have read Feldstein’s article and actually buy into this false understanding of mortgage collections are in for a big surprise when their mortgage company comes knocking on their door for the deficiency balance. Shame on the Wall Street Journal for not checking the facts of one mans supplied information before publishing his opinion.

For the past 20 years I have worked as a mortgage banker responsible for underwriting, documenting, funding and collecting payments on thousands of loans in every state in the nation. I have written and serviced mortgages - including FHA loans - on behalf of all of the big name lenders including Countrywide, Bank of America, Wells Fargo, Washington Mutual, Accredited, Taylor Bean and hundreds of others. Not one of these mortgages is non-recourse.

Some of those institutions are extinct now, while others are rebuilding. But one thing they all share in common is that they have never been in the business of writing residential house mortgages that are no-recourse mortgage notes. In the United States that is just not the how mortgage note obligations are written - at least not when it comes to loans for homes owned by American families. I have never underwritten a mortgage loan outside the United States so I cannot comment on how foreigners do their business.

The standard practice in the U.S. mortgage finance industry is that nearly every mortgage note written on residential property in this country requires the debtor to personally guarantee the obligation. If a mortgage is underwater and the property sells for less than the note balance (including attorney fees and court costs) the borrower is legally obliged to pay the difference — or in legal parlance, the “deficiency.”

There are two types of foreclosure used in the USA (depending upon state statutes), namely “Foreclosure by Sale,” and “Strict Foreclosure.” But it really doesn’t matter which we’re talking about in terms of Feldstein’s opinion piece, because both foreclosure arrangements allow the lender to legally pursue the borrower for any deficiency. This is done through a civil deficiency judgment. Civil deficiency judgments can be effective for up to 20 years.

“I have closed hundreds of residential mortgages and I have not seen one non-recourse loan.”” Says Larry Levinson, a New Haven attorney with a specialty in Real Estate Law. Adding “With respect to deficiencies, it should be pointed out that the lender definitely has the right to go after the borrower’s. They need to timely file the motion for deficiency judgment. In my experience it is rare for the lender to actually pursue collection, especially the larger out of state banks. Sometimes the borrower will need to negotiate with the local banks with respect to the deficiency amount.”

The bottom line is that misinformation like that put forth by Mr. Feldstein and then given added credibility by the highly respected Wall Street Journal can cause additional heartache and stress. Borrowers who want to put their lives back in order and who mistakenly think that they are absolved of deficiency debts through foreclosure are being led down a blind alley - by a totally misinformed guide.

Contact the author here.