[dredmorbius]

Balloon mortgages and an inability to refinance on attractive terms.

It wasn't a matter of holding the property. Most simply couldn't make payments.

Walkaways worked because real estate debt (in most of the US) is non-recourse debt. You leave the mortgage, the bank (or present mortgage holder) gets the property. Debt is settled.

(Lender in this case, or the present mortage holder, itself a rather complex question given mortgage-backed securities and fast-and-loose assignments of title, gets stuck holding the bag. Eventually values climbed again, at least outside economically-blighted zones.)

[throwaway2037]

    > Walkaways worked because real estate debt (in most of the US) is non-recourse debt. You leave the mortgage, the bank (or present mortgage holder) gets the property. Debt is settled.

It is rare this simple. You will likely be required to file bankruptcy, or something equally disruptive to "walk away". And, it will trash your personal credit rating. What is the incentive for banks to allow walk aways? It is very low. The administrative burden of taking ownership of a home, then trying to sell it will nearly guarantee losses for the lender. In most US states, if you cannot pay your mortgage, the bank will sell the home. Most of the time, any shortfall can be forgiven, but not easily. If there is a gain, you will be repaid, minus expenses, but this is exceptionally rare.

[Sohcahtoa82]

> Balloon mortgages

I remember seeing those. As far as I was concerned, I thought they were an absolute scam and I can't believe anybody chose one.

> It wasn't a matter of holding the property. Most simply couldn't make payments.

I know that was the case for most people, but I certainly heard about people that still could, but chose not to, simply because they were underwater. I was trying to understand those people.

> Walkaways worked because real estate debt (in most of the US) is non-recourse debt. You leave the mortgage, the bank (or present mortgage holder) gets the property. Debt is settled.

Wait, really?

This is actually news to me. I had assumed that you would still owe the bank the difference between the remaining balance and the value of the home. ie, if you bought the house for $500K, made payments for a few years, then walked away when the house dropped to $400K value, but you still owed $450K, then if the bank foreclosed, you'd still owe $50K to the bank.

[sgerenser]

Look up the difference between “recourse” and “non-recourse” states. In a non-recourse state, the mortgage lender gets the house in a foreclosure, and there is no other recourse available (like suing for the remaining debt). Only 12 states are non-recourse, but some of the big players in the 2008 financial crash are among them (California, Arizona, Texas).

[throwaway2037]

I wasn't aware of the divide between recourse and non-recourse states. Google tells me: <<Alaska, Arizona, California, Connecticut, Idaho, Minnesota, North Carolina, North Dakota, Oregon, Texas (sometimes), Utah, Washington>>

Ref: https://www.financialsamurai.com/non-recourse-states-walk-aw...

It looks like resource vs non-resource also impacts the likelihood of foreclosure.