New law forces foreclosed homeowners to pay banks even more
This is so grim it's impossible to make up. A new law in Arizona could potentially allow banks to hold homeowners liable for the difference between the selling price of a foreclosed home and the amount they borrowed against the house.
Arizona has one of the highest rates of foreclosure in the country. For many families in Arizona who purchased at the top of the bubble, the differences between their mortgage note and their home value is $100,000 or more. This new law would mean that, not only would the homeowner get their credit trashed and be locked out of real estate markets for five years or more, but the banks could actually continue to collect money after the foreclosure.The intent of the law was actually to nab speculators. But the law doesn't differentiate between those living in their homes and those seeking to flip a house for profit. For banks, the law would potentially remove the risk of homeowners walking away from an underwater property by making them liable even after they turn in the keys. For struggling Arizona homeowners pinned under mortgages they can no longer afford, such an incurred debt could be catastrophic.
Naturally, the law was pushed through by the tender-hearted Arizona Bankers Association. It was introduced late in the legislative session and largely escaped media notice. Of course, it's hard to blame the bankers for trying to force loan recipients to live by their word. Then again, plenty of banks seem to be in the business of defaulting on their debts and no one is passing laws aimed at making it easier to collect on old debts from belly-up financial institutions.
In the meantime, a public backlash is rapidly building against banks that have resisted pleas from homeowners to restructure loans to help avoid foreclosure. The mortgage processing organizations, likewise, seem to have little interest in keeping people in their houses and more interest in running up their debts with dubious fees and bogus interest and penalty charges.