When borrowers default on second homes

The New York Times

When borrowers default on second homes
Strategic defaulting - where the homeowner has the ability to pay the
mortgage, but chooses to stop making payments - among affluent homeowners
with second homes and investment properties is increasing.


* Homeowners who strategically default are likely to find their credit
will be negatively impacted and they should expect to be prevented from
getting another mortgage loan for 7 to 10 years.
* Many homeowners are concerned about the possibility of the lender
suing for the amount of money owed on the loan when a house goes into
foreclosure. Whether or not the lender has legal justification to do so
depends largely on where the property is located.
* In "recourse" states, a lender can go after the homeowner, and
usually other assets like a primary residence, for the full mortgage amount.
Examples of recourse states include Maine, New Jersey, and Hawaii.
* In "nonrecourse" states, a lender agrees to accept whatever the
property fetches at a short sale, foreclosure sale, or deed-in-lieu, and
generally can't sue for the full loan amount. Florida, Connecticut, and
Arizona are among the nonrecourse states.
* California is in a third category called "single-action" or
"one-action," which allows the lender either to foreclosure on the owner or
file a civil lawsuit for the full loan amount. Other single-action states
include New York and Idaho.
* Homeowners should be advised that even in a nonrecourse state, those
who opt for a strategic default on a previously refinanced property may not
be protected from lenders, because the mortgage in not in accordance with a
first purchase.
* Although California is a single-action state, lenders can still sue
homeowners for repayment of a second mortgage or home equity line of credit.

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