Let’s say I make an agreement with a lender that I will take their money and make payments. If I do not make payments, they have the right to foreclose and use the Trustee Sale procedure and take my home.
The Lender qualified me and said that they thought the loan was a good fit for me. The appraiser confirmed the property was worth a certain amount. The loan broker assured me the loan was perfect for me. The Real Estate Agent was in accord.
Now, the property that was the collateral for the loan has dropped drastically. Should I now be penalized and make payments on a worthless loan? I have the money to make payments, but I have decided not to do so. So, you can go ahead and foreclose. And, by the way, do not threaten me with the idea that I will never get a loan again. History shows that I will be able to get a loan again soon.
To show that I am a moral person, I will offer you, the lender, a deed in lieu of foreclosure at this time. There are no other liens on the property (which your legal staff can confirm). This allows you to take control of the property at once. Or, I could just stay in the property until you complete the Trustee Sale, and I could even use techniques to stall foreclosure—but I won’t. I just want to move on with no foreclosure on my record.
And by the way, as the lender, you and your staff knew all about the non-recourse elements of this loan when you offered me these terms. You knew that I had the right to stop paying, and you would have some more REO.
I miss the discussions about strategic foreclosure in my classes and with my DGE instructors. My conclusion was, “Lender, we made a business agreement. I would make payments. If I do not make payments, you can take my home. I am not going to make payments, so take the home as we agreed. I believe that I have a strong obligation to make the best business decision for my family in this situation. Not for you or the public.”
I realize there were many scam artists involved in these loans during the bad times. They deserved to be punished to the full extent of the law. All of the reckless loans (No Docs, 125% of equity, teaser rates) cost taxpayers like you, readers, and me billions. And attorneys in California would hold seminars around the state and spend most of the time talking about Judicial Foreclosures, not Trustee Sales. Real estate licensees and the public should know their options in these home loan situations. I have never heard of a judicial foreclosure on a regular home, as let’s not confuse legitimate home owners.
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