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Comment by jeffbee | Hacker News Reader

Weird article. People do not lose their shirts when leveraged real estate purchases go wrong, because it's the bank holding the bag and they can't come after the rest of your assets, only the securing property. Also, in certain jurisdictions, the property tax risk doesn't exist.

That said, I am also not buying a house, but my reasons are very different from these.

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> People do not lose their shirts when leveraged real estate purchases go wrong, because it's the bank holding the bag

That is not true, both parties suffer. Imagine paying 10 years worth of mortgage in a place turned bad (NY in 80s, Detroit recently, Greece even more recently) and finding out that you're still in very negative equity. All your payments have been for nothing, and the most reasonable course of action is to go bankrupt and have the house foreclosed.

Also, US mortgages are on central government balance sheet, not bank balance sheet, so it's the taxpayer that suffers.

Some states are recourse states when it comes to first mortgages. In all states (I believe!) second mortgages are recourse loans. Your second sentence is not true in a lot of circumstances.

An example of HN's Silicon Valley bias, maybe? California (and also Texas) are non-recourse states, but most other states are not.

If the bank repos the property and it sells for less than the debt owed, they can and will come after you for the difference.

That depends on jurisdiction. It's not generally true. In my state, which is huge and populous, if the bank isn't made whole by auctioning off the property, that's their problem and they can fuck right off.

Interesting. I didn't realize some states didn't allow it. Looks like around 14 states don't allow deficiency judgements.

It's almost like the banks have skin in the game to vet who they lend money to!

Edit:

It appears that some states have a "non recourse" law so your debt is limited to the property value.

>There are currently 12 non-recourse states: Alaska, Arizona, California, Connecticut, Hawaii Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington

https://www.legalmatch.com/law-library/article/what-is-a-rec...

Original comment:

>and they can't come after the rest of your assets, only the securing property

That's not true. The come for the property FIRST. Then once they've sold that and it fails to cover the debt (plus interest and fees, plus the cost of sale) they come for whatever else you have.

This depends on the state, e.g. in California:

"Strategic default works in California because this is a "non-recourse" state. Unlike in many states, a mortgage lender in California has only one type of legal recourse in the event that a borrower defaults on a loan: to foreclose on the property. All that the bank can do is repossess your house; they cannot sue you in court to recover payment for the deficiency, which is the difference between the outstanding loan balance and the amount that the bank recovers by selling the home in a foreclosure auction. Strategic default has the advantage that in many cases it allows the homeowner to remain in the property for an extended period because the process of foreclosure often takes a considerable amount of time. During this period, you can save the money you would normally be spending on your mortgage and use it to pay down other debts."

https://www.sandiegolegalpros.com/other-practice-areas/forec....

Oh, sorry, I didn't know that. I stand corrected!

Depends on the loan and the state (in the US). In most US states, a mortgage can be either recourse (which is as you described) or non-recourse (lender can only cover the debt using the house, not any other assets) - no idea which is more prevalent there. I live in a non-recourse state, which forbids recourse mortgages - https://www.legalmatch.com/law-library/article/what-is-a-rec...?

Sorry, I spoke too soon. I've corrected me comment. Thanks for the info!

It depends where you live. In some states, home mortgages are generally non-recourse loans which means that lenders are only entitled to the securing asset (i.e. the home). California is such a state, for example.

this is usually why a special purpose vehicle is used to buy the second property - buck stops there

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