Foreclosures – Part IV

Summing Up

As Wikipedia points out, foreclosure is practically the last step once all other avenues have failed for a mortgagee to recoup its monies previously loaned out. And much like a bank mortgagee sale here in NZ, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs. And they are also not obligated to pay anything back to the home owner in a case where there are surplus monies left over.

As highlighted above a crucial different is in states like California, Arizona, and some others is that borrowers loans can be of a NON-RECOURSE nature. In fact in California its law. And in this case many homeowners are simply giving back their home keys and walking away. This will generally result in some nasty entries on their credit report that will come back to haunt them for the next 7 years if they apply for credit again.

Once the property has been sold, and the mortgagee has got all the money it can, it is typically said then, that “the lender has foreclosed its mortgage or lien“.

However if a promissory note was made within a recourse clause facility, and if the sale does not bring enough to pay the existing balance of principal and fees, the mortgagee can file a claim for a deficiency judgement. (this is similar to what happens in New Zealand 99.99% of the time)

So you can see in light of these 3 main points in my preceding posts, the “foreclosure” situation is different from what we have in NZ. We can be thankful ( if that is the right term J ) to our own banking system for having more overall stringent criteria and proceedures for loan processing.

Admittedly there will be a percentage of home buyers in NZ who have over stretched themselves. This is a big consideration for anyone who has taken out a 95-100% or higher home loan in the last 24-36 months. If they can maintain their lifestyle and payments then I believe in a place like Nelson they should be ok.

However if they are living in another part of NZ that has suffered a higher change in home prices than we have, then it only needs a change of opinions in a relationship, a loss of a partners job, a new baby, etc for the reality that a financial change in income may bring.

If such an affected home owner were to place their home on today’s market, they may well find the best current price is below the figure required to pay out their mortgage.

If you find yourself in this type of scenario may I suggest, and this is based on recent buyers & home owners experience in Nelson, that you could do worse than to start your line of enquiries with a mortgage broker first to review what options are available, before proceeding to any next step.