San Diego Housing Bubble News and Analysis

Why worry? If a lot of people don't want to pay the loans back, then the loans will be 'modified'. Presto! No more problems, and everyone is happy.

You know how citimortgage is now suing for losses on recourse mortgages
well here it's the IRS that gets to enforce.

patb, I'd be very interested to see the total nationwide amount, in excess of home proceeds, collected on these recourse mortages, measured as a % of the total foreclosed-on / shorted loan amount.

As many people have already pointed out, it is extraordinary for a lender to pursue a recourse mortgage loan beyond the home proceeds. It is so rare that I suspect no one considers the stats worth collecting, the collected amounts are so close to zero. Instead we have just a few anecdotes to
generate some impressions amongst the public.

I think you'd have to walk up to the loan servicer's office and tell them they are a bunch of morons, and then spit on them, before they'd even consider pursuing collection against you. If they come after you anyway, then have an attorney send 'em a letter. If that doesn't work (and it almost always will), then threaten to talk to the newspaper. If that doesn't work (and it almost always would for any TARP-indebted bank/servicer), then call your local state or Congressional rep and give a sob story. I guarantee you, the number of people who have to pay is tiny. Almost anyone who doesn't want to pay can avoid paying.

I can't resist mentioning that Barney Frank is my Congressman. Can you imagine Citibank taking the call from his office if they pursued a recourse loan they'd given me, after I'd provided a sob story to Barney's office? I guarantee that loan would be "taken care of" within 24 hours.

let me know how that strategy works

"let me know how that strategy works"

patb, I am morally offended by this whole business of borrowing without repaying in full, so it's very difficult for me to do it. But I am in no doubt that it's easy for a large and growing number of people. I am also pretty sure that letting that happen is not a good idea.

the feds are discussing expanding teh 7(a) loans for small business.
This is very dangerous, because throwing credit to drowning men is
attractive but as the owner, you are personally liable for this,

Not correct. A small business can be incorporated. By doing this, it limits the losses to the value of the business. It is actually a good idea for a small business to incorporate, and many do. It limits any losses, particularly when starting up a business. It also limits the amount of damages that may occur against the owner in a lawsuit (ie slip-and-fall)

well i've watched people forced into bankruptcy over failed
7(a) loans when the bankers came after them so, I'm very leery about
the hazard these create.

I have a 7(a) 1.3 Million dollar Line of credit through the SBA for my firm.
According to SBA records, I am the Largest operating line of credit
in our state and the single most profitable line of credit for the SBA district office. So, I consider myself an expert in this product and it's application.

Now when I signed the master note, I was required to sign a personal guarantee, and my partners were required to also sign these.
I had a long discussion with our banker when we signed all that and
they assured me that the bank would use all legal efforts to collect from
me in the event this line went south.

So, yeah, I know what i'm saying.

patb, you do have real knowledge. Now, if you drew on that LoC and your firm went bankrupt, and the SBA threatened to go after you personally for the unpaid debt, do you honestly think that calls to your local Congressman would go unheeded?

If done right, an entity will generally protect your personal assets. But patb's experience is typical: most banks see through the aims of the entity and make the owners (partners, members, shareholders, etc) sign personal guarantees to make sure they get their money if things go south. Many banks won't make the loans without personal guaratees and at least one of the people giving the guaranty must have some reachable, sizeable assets.

But patb's experience is typical: most banks see through the aims of the entity and make the owners (partners, members, shareholders, etc) sign personal guarantees to make sure they get their money if things go south.

I wouldn't say 'see through'.. I would say that banks try to circumvent the protection allowed by a corporate entity by trying to get the company principals to pledge assets/guarantees against the loan (ie. act as co-signers). Depending upon size of entity, net asset value of corp and historical earnings, you can tell them to pound sand when they do this and threaten to walk. Banks want to get their fingers on as many assets as possible should things go bad and try to charge as much interest on any loan that the can. They also have to lend money to make money.. They don't lend, they don't make money.