Let Bank Owned Property Listing Grow, Law Professor Says

by Simon Lindsay on Foreclosures

Let your bank owned property listing grow if you are underwater and your bank refuses to modify your loan, according to Brent White, a law professor at the University of Arizona and author of an Arizona Legal Studies report on underwater mortgages, deliberate foreclosure and the housing crisis.

In his report, White advised distressed homeowners to deliberately default on their home loans if they are underwater and they are facing serious financial difficulties. He said that they should look after their own interest and not the interest of big banks since banks also had a big role in the foreclosure crisis.

White told homeowners to save the hundreds of thousands in dollars they are throwing into homes that will not rise in value in the next several years. He even advised them to make preparations before deliberately defaulting, such as buying a new house or a new car.

White explained that deliberate defaulters should not feel guilty or feel ashamed about walking away from home loan contracts and they should not think that deliberately defaulting is morally wrong. He stated that banks, government officials and the media are the ones propagating the idea that deliberately adding one’s home into a bank owned property listing is morally wrong because it serves their ends.

White reiterated that the lender-borrower relationship is inherently imbalanced and inclined in favor of the lender, making the morality argument unfair to borrowers. He said that mortgage lenders set their own lending rules during the boom years, enticing borrowers with low or zero down payments, low initial monthly payments, inflated appraisals and no income documentation.

If lenders adhered to the morality argument, White argued, they should have modified loans, reduced principal debts and lowered monthly payments when real estate values fell.

White said that if distressed homeowners strategically default in large numbers, the mortgage imbalance will be addressed.

In addition to discussing the morality argument, White also said that deliberate defaulters should not worry about not being able to make major loans in the next several years because of their mortgage defaults. White said that defaulters can borrow again after just a few years as long as they continue paying their other consumer debts.

As expected, mortgage lenders and government housing officials disputed White’s statements. They said that the act of advising troubled homeowners to deliberately default and drive their homes to bank owned property listing is irresponsible.