Mortage default question

[ford man xf]

This may sound like a question with an obvious answer, but when you default on your mortage repayments and the bank foreclose on the property and sell it, what do you actually owe the bank because obviously you have been paying mostly interest and not much principle, does the bank require you just pay the value of the loan? If the house sells for more than the value of the loan does the bank get the whole lot? I'm certain they do because the bank takes control of the property when the mortage defaults, what if you spent money on the property which influences the increase property value sale price for example you landscape, add a pergola?

[Smoke Pursuit]

Basically... Whatever is left over after the loan is paid out and all the fees associated with selling the property including interest arrears, legal, real estate agent, fixed loan costs etc you get the balance of.

If it goes the other way and the costs end up exceeding the value of the sale then the liability of those costs rests with the borrower (you).

There will be terms and conditions attached to your mortgage documents.

[302 XC]

Originally Posted by DASH GT

Basically... Whatever is left over after the loan is paid out and all the fees associated with selling the property including interest arrears, legal, real estate agent, fixed loan costs etc you get the balance of.

If it goes the other way and the costs end up exceeding the value of the sale then the liability of those costs rests with the borrower (you).

There will be terms and conditions attached to your mortgage documents.

That pritty much summed it up
The legal fees alone can be quite scary,even before foreclosure , every time you are served by a sheriff they charge by the large hundreds,and youll get a few before foreclosure

In the recent economic times , there wouldnt be too many after foreclosure thatll walk away with much

[xr6turbo2005]

Originally Posted by DASH GT

If it goes the other way and the costs end up exceeding the value of the sale then the liability of those costs rests with the borrower (you).

This doesn't happen too often though. If there was any equity in the property the borrower would be silly not to put it on the market themselves.

Once it comes to a stage where demands are served etc, the borrower isn't paying anything to the loan, and the interest starts to add up very quickly.

[ford man xf]

Thanks for the answers. Thankfully this hasn't happened to me, it was spoken about at work.

[gtfpv]

^^^^ thats true but the banks are there to make money , it all depends on how much equity is in the property . if the property is bank valued at say 700000 and the mortgage holder only owes about 200000 for example , the bank is quite happy to let the owner default and the loan to blow out , before they take the property , because they are making more money and its actually benificial for the bank when this happens . i have a friend who is not paying a cent towards his mortgages over 2 houses , the bank is fine with it as there is heaps of equity in them , but his mortgage is growing , his plan is not to pay a cent for 2 years and live it up with what he earns , then he'll sell his 2nd house which he wont sell now becase its his holiday beach home .

[Sam_Boss260]

Yeah, my brother had this happen. A couple hundred equity in the home loan, then the marriage split. So whilst they were sorting things out, they agreed with the bank that the payments/interest would come out of the equity.

Problem was that 2 years later, they still hadn't sold the house and used up all their equity. Bank was about to foreclose when they sold just in time.

[DRU842]

Just another point the Mortgage Insurance that goes along with low equity loans covers the lender not the borrower. If there is insufficient funds after the sale to cover what's owed the Insurer pays the lender & hunts the borrower down for the outstanding, plus interest & costs.

[tweeked]

Originally Posted by DRU842

Just another point the Mortgage Insurance that goes along with low equity loans covers the lender not the borrower. If there is insufficient funds after the sale to cover what's owed the Insurer pays the lender & hunts the borrower down for the outstanding, plus interest & costs.

This has always had me stumped that the system works this way. You pay the insurance, and yet you are not covered.

[ford man xf]

Sounds to me like mortage insurance is a waste of time then, I'm glad you mentioned this.

[Mechan1k]

Originally Posted by ford man xf

Sounds to me like mortage insurance is a waste of time then, I'm glad you mentioned this.

Lenders Mortgage Insurance has to be paid regardless ... unless your deposit is over 25% of the property value. Well .. that's what it was in NSW when i went through with purchasing last. Luckily i had more than that ... otherwise they just tack the insurance cost on the mortgage anyway.

[T3ts50]

Originally Posted by Mechan1k

Lenders Mortgage Insurance has to be paid regardless ... unless your deposit is over 25% of the property value. Well .. that's what it was in NSW when i went through with purchasing last. Luckily i had more than that ... otherwise they just tack the insurance cost on the mortgage anyway.

Its 20% nationwide depending on the property type.

[Smoke Pursuit]

Originally Posted by T3ts50

Its 20% nationwide depending on the property type.

Can be less depending on the lender...

[nuthin' fancy]

I have plenty of professional experience in this area.

The Banks will give as good as they get but if you can't conduct your affairs in an orderly manner, the bank will force you to repay them, either through your refinance, your sale or their sale. The latter is the most expensive option.

Ultimately the bank expects its loans to be conducted within arrangements and they will not tolerate continual maintenance on an out-of-order loan. Some second tier lenders will allow loans to continue to spiral until the equity is exhausted.

Anyone wanting any private advice, PM me.

[Keepleft]

US economic news blogsite, always positive re the 'real' US situation:-)

http://theeconomiccollapseblog.com/