Professor: Some Homeowners Better Of Walking Away
: As we've heard, that's a question that Heather Baker, and Milo and Lin White, have answered very differently. Well, now for some surprising expert advice from professor Brent White, who teaches law at the University of Arizona. Welcome to the program, professor White.
P: Hi, thank you.
: Now, your paper on this subject is called "Underwater and Not Walking Away: Fear, Shame, and the Social Management of the Housing Crisis." I gather you're saying people should overcome their fear and shame and be prepared to walk away, if that makes sense.
P: A perfect example of this is Morgan Stanley, which walked away from five properties in San Francisco just this month. They essentially just gave the properties back to the bank. The properties had lost 50 percent of their value. Tenants were hard to come by. And Morgan Stanley made a business decision that it would make sense to walk away from the properties. So, the question I asked in my article is that if a bank and corporations can walk away from a mortgage, why shouldn't Joe Homeowner be able to walk away from their mortgage?
: But here's what, as we heard, Milo White told reporter Peter O'Dowd about walking away from his home. He said: We don't feel right about that. We've communicated with the bank at every turn. He's talking about feelings that a corporation doesn't possess. What we do with those misgivings about not being true to our word?
P: You know, I wouldn't say that they're misgivings. I think that these are deeply held values that many Americans share, a sense of more obligation to pay our debts. A contract is a legal document. It's not an ethical statement. And a contract contains - particularly a mortgage contract in a non-recourse state, like the Whites' mortgage in Arizon - there's a contractual option to default.
: Now, you've raised the phrase, a non-recourse state. You're saying that in some states, if you still owe, say, $120,000 on a mortgage after the property has been sold and the proceeds go to the bank, they don't come after you for the balance of the loan?
P: That's right. In some states, they're barred from pursuing you for what's called a deficiency judgment - and Arizona would be one of those states. And so that means that the contract - the agreement between the lender and their borrower, by law in a non-recourse state, is that if the homeowner defaults, the bank gets the house.
: How do people know if they're in a recourse state or a non-recourse state?
P: And if you go on the Internet, there's also tons of misinformation out there, intended to scare and shame homeowners into staying in their homes. So it's difficult to find good information, and it is likely going to require someone to seek it out from a knowledgeable attorney.
: Professor Brent White of the University of Arizona. Professor White, thank you very much for talking with us.
P: Thank you.
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