State Rep wants to end mortgage walk-aways
Reporter: Craig Smith
TUCSON (KGUN9-TV) - Because of the real estate crash, thousands of Arizonans owe much more on their mortgages than their homes are worth.
Arizona law says if you decide it makes no sense to keep throwing money down a black hole you can simply walk away, tell the bank to keep the house, and owe the bank nothing more.
Now a state lawmaker wants to see if he can convince fellow lawmakers to make that impossible.
During the last Tucson's mayor's race, candidate Mary DeCamp announced she was walking away from a house that because of the crash, had become worth much less than she owed on it.
She said, for her, walking away was the right thing to do.
"I could have been bailed out by my friends and my relatives just as the taxpayers bailed out big banks I chose not to because this crisis is hitting so many people this was an opportunity for me to stand as a spokeswoman to call attention to how broken our system is.
Arizona law says if you give up the keys and let the lender foreclose, the lender can not force you to pay the difference between what you owe and what the house is actually worth. Lawyers call that a non-recourse loan.
Now State Representative Jack Harper says he may ask lawmakers to scrap that law. He feels the ability to walk away without losing more than the house encourages people to take mortgages they can't really handle, then turn to taxpayers for bailouts.
"I think that part of it ought to still be held against the person then they either pay it when they walk away from their mortgage or they file bankruptcy to escape it, but not just walk away and there be no ramification."
U of A law professor Brent White wrote a book that laid out walk-aways as something to consider if you're underwater on your mortgage.
He says several other states that don't allow walking away from your mortgage are passing laws that would allow walk-aways.
He says, "And the reason they did this is that when a loan is a full recourse loan it puts the borrower at a disadvantage in seeking to renegotiate with their lender when they're faced with a catastrophic decline in the homes value. So because Arizona is a non-recourse state borrowers in Arizona have a better chance of convincing their lender to agree to a short sale, convincing their lender to do a loan modification or even a deed in lieu of foreclosure."
Representative Harper does work as a mortgage broker but he says his proposal would not affect his business because mortgages he originates are sold to other lenders so he would not be in a position of foreclosing on anyone.
He says if he can convince his fellow lawmakers to change the law here it would not affect existing mortgages because that would mean interfering with an existing contract. It would only affect new mortgages