Housing Fiasco Question 2


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Since yesterday I watched Jonathan Jarvis video on the visualization of the credit crisis several times. Mainly because of the quality in which it is made. If you missed it, visit www.crisisofcredit.com or browse to my yesterdays post.

There was one scene in the video that was especially impressing to me and there is a question for my American fellows rising in my mind. I would really appreciate it if somebody could answer it.

The explanation was that homeowners stop paying and leave, tough they can afford paying their mortgage. The understandable reason was simply this: why paying a $ 300.000,- mortgage for a house that’s worth $ 90.000,- due to the crisis?

Now my question(s) is(are):

Can you just leave and stop paying?
Giving your house to the bank and say good bye?
Without any consequences?

A friend of mine said that this was the case. You just give the key to the bank and then go away. No further consequences involved.

Of course I have my doubts and would like to know if he is right, as it is completely different here in the Netherlands.

OK, while you are considering answering this question, let me tell you how it would work in Holland.

The Dutch way:

Let’s say my house is worth these $ 90.000,- , my mortgage is $ 300.000,- and that I would not be able or not willing to pay my mortgage anymore. Here’s what would happen after six month:

The bank would throw me out of my house and then set up an auction. It’s quite normal that houses in auctions are sold under their value. If the final bid price would be $ 80.000,- I would have to pay the bank the difference between the sum of the mortgage and the final bid price. That would be $ 220.000,-
You see, without having a home anymore I would have to pay a very high amount of money.

Another scenario could be that the bank can’t sell the house to anybody. In this case I still would have to pay the $ 300.000,- without a roof above my head. Even worse.

The bank would do anything to get this money from me. At some point  I would be declared bankrupt. Thus, after a period of time I would be free of all my debts.

Here comes a little funny part:

If the bank can’t sell the house and it is forsaken for at least a year, there is a law that allows people to break into a orphaned house and live there. Free of charge! The owner (bank) has big problems to get those people out of his house. There’s something in the Netherlands laws that says that you have a right to live under a roof or something like that. Hipocrite, if you consider that it allows the bank to throw you out of it in the first place.
If there are any Dutch visitors knowing it better, please correct me at this point.
However, the person that does just that could be me and after all I could live in the same house free of charge. Isn’t it fucking funny? Again, correct me if I’m wrong. There are many things in the Dutch laws I don’t understand, like giving rapist therapy to let them out of prison earlier and this kind of things. But this is another topic.
So, if there is any American fellow who can answer the above question, please don’t hesitate to do so by leaving a comment. As always is every comment more than welcome.

Further reading: Welcome to the crisis of credit

See you soon,
Mario

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2 thoughts on “Housing Fiasco Question

  • shea

    There’s a lot of empty houses that the banks have repossessed. Rather than try to work with the people, they foreclose, and have all these properties, that they can’t sell, and loosing value, because on paper it looks better on the balance sheets if they do this, instead of getting some money out of it, or working with the borrower.
    and not sure what happens to the foreclosed, bad credit, etc.
    The banks go to the govt. and then they get billions. It’s all about greed, and it has ruined the economy, and it still continues.
    There’s a lot of investment funds, that were fraud, like the Madoff thing. I’ve read about 3 or 4 others like that. Simple word for that is stealing.

    • Mario Post author

      Thank Shea,
      I wonder if my friend was right that those people who’s house is repossessed don’t have to pay anymore, as they gave back (don’t know if I say it right) there homes.