We, The American People, Have Been Robbed

People, your taxpayer dollars continue to bail out banks and friends of banks run by the very same multi-millionaire, ivy-league good ole boys who drove the United States of America off the economic precipice. How long can these corporate behemoths in partnership with our very own government continue to fleece the American People? The stench here is unbelievable. Thanks to RI for some of these links:

Toxic Assets: Geithner Puts Only the Rich in Titanic Life Boats

Geithner Rescue Package ‘Robbery of the American People’ – Telegraph

Geithner Update: Grab Yer Ankles and Say "Uncle Sam"

Goldman Sachs, Welfare Queen

Anatomy of a Giveaway

The New World Reserve Currency: Another Fairy Tale

Building on a Weak Foundation

When Bernake Says All is Well, Time to Duck & Cover

Weak Demand at Treasury Auction Gives Wall Street Pause

The Top Trends of 2009

Bob Moriarty: Act on Contrarian Thinking

EU Leader Condems US Road to Hell

Dear AIG: I Quit

More good reading from Patrick.net

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81 Responses to We, The American People, Have Been Robbed

  1. Avatar BanteringBear says:

    DonC-

    Perhaps a poor choice of words on my part, but all that matters is we are talking about an increase in the money supply. Which brings me to your point:

    “However, just to keep this in perspective, the companies which compose the S&P 500 are siting on $8.5T in cash. Usually they’d have $1.5T or so. At some point that money will be put to use, but while they are sitting on all this cash someone has to be the ATM of the credit system.”

    As Sully has asked, how do arrive at this number? Anyhow, let’s just go ahead and assume it’s accurate. Let’s also then consider the fact that residential and commercial real estate prices continue to erode at a breakneck pace, and the brunt of these losses are borne by the companies making up this list. Hence, this $8.5T continues to shrink. I have to disagree with you about much of this making it into the economy, as it will, IMO, go up in smoke like so much already has.

  2. Avatar Future Buyer says:

    I can’t read any of those articles because I would find them too depressing. Yes, the government is robbing the taxpayers blind. Here is my take on what “we the people” can do about it. All Republicans in office=BAD. All Democrats in office=BAD. What we need is some good old fashioned grid-lock to render the government INEFFECTIVE and totally USELESS! So here’s to the Republicans winning back some Congressional Seats in 2010 and me remaining as non-partisan as possible!

    On the bright side there are an awful lot of short-sale pendings out there and the banks are really coming around in realizing that a “bird in the hand is worth two in the bushel”. I just closed on a short-sale and it wasn’t too painful. So I guess I am no longer Future Buyer.

  3. Avatar DonC says:

    Sully — My bad. The number was just what I remembered. However, in thinking about it, it can’t be right because I think the S&P market cap is now roughly $10T and M2 is probably only $12T. It’s either an estimate of combined markets or I just remembered it incorrectly. I don’t think I remembered it incorrectly because it was a shock when I read it.

    In any event, the number isn’t that important except to the Fed, which has to manage it. The point is that sitting on cash cuts velocity, so the Fed’s increasing reserves is a good and necessary step, not a guarantee of future inflation. I can’t say if adding $1.2T to the money supply makes sense given that the companies in the S&P are sitting on $1T makes sense or not. Not my area. But obviously there is ample reasons to increase reserves.

    BB – Deflationary spirals, if that is what we have, are meant to be broken. But as I mentioned before I do agree with you that deflation is a much larger danger at the moment than inflation.

  4. Avatar smarten says:

    BB and Sully – Deflation may be a larger danger compared to inflation AT THE MOMENT, but attacking it the way President Obama and Congress are opens the door to devestating long term consequences.

    I’m not an economist so I can’t give you all of the reasons why. But I heard Senator McCain on Meet the Press this morning and he raised this very issue. According to him, NO COUNTRY has EVER been able to sustain deficits like our country is in for without serious devaluation of its currency and massive inflation. He even pointed to what happened to our economy in the late 1970’s-early 1980’s [when long term mortgage interest rates topped 18%] as evidence of the proposition stated.

    All I am saying is watch out! If we try to get out of the economic mess we’re in by massive spending, we’re setting ourselves up for massive inflation. President Obama complains that he inherited a $1T deficit [actually, it was roughly half this amount before the TARP infusion, half of which will be spent on his watch]. The projections I’m hearing some four years out are calling for a yearly interest expense on our then deficit of nearly $1T!

    You want me to share a GUESS as to when [and please remember, this is only a guess] we’ll be facing massive inflation in the eye? Five years!

  5. Avatar Reno Ignoramus says:

    Hey Smarten, I have a question for you as the resident Incline Village expert.

    What’s the deal with MLS # 90004738, 996 Tyner Way, listed for $355K?

    This seems way too low, unless there is some unknown aspect to this property. $355K for an almost new house in Incline?

    Please advise. Thanks.

  6. Avatar smarten says:

    RI, RI, RI…

    [BTW, thanks for the “resident expert” moniker. But I think I like BB’s label affixed a while back: “the oracle from Incline”]. Please don’t ask me questions like this one UNTIL a property like this has gone into escrow and is no longer on the market. Otherwise, JJIncline and I have to compete against other would be purchasers! But really I don’t mind speaking on this one because for me, this property is geographically undesireable.

    The lender to which this property reverted is IndyMac; the SAME lender that came up with the way under market list price of $617.9K for 823 Ophir Peak [I’ve now learned there were 7 offers on this property and the highest priced one will probably be in excess of $700K]. Tyner sold at trustee’s sale for $936K. To bid in this amount owed at trustee’s sale and then list the property as a REO at 38% of this number [the exact opposite of what Mike was telling us was happening at some trustee’s sales] presents a new marketing philosophy I can’t recall having seen before.

    Nevertheless, this property WILL be in escrow by the end of the week [just as Ophir Peak was] and at a sales price in excess of $355K. After all, priced at $137/square foot…well no IV SFR has sold at anywhere near this number.

    You know, Ophir Peak and this Tyner property are examples of what I was trying to share w/BB some months ago. IMO the sub-prime mortgage mess was not the cause of the worldwide economic depression we’re in. If it were just bad mortgages, the market would take care of itself. Here neither property will be a “toxic asset” on anyone’s books, and no government bailout was necessary. And lest not anyone think IndyMac took a hit on either of these foreclosures. I’m certain these mortgages are part of a much larger pool [isn’t this precisely what IndyMac did with the vast majority of its mortgage originations] where investors in Dubai or Riydah are the ones taking it on the chin!

  7. Avatar inclinejj says:

    I still say Tyner is a typo..unless they priced it low in order to get a dozen offers??

    Also 2nd Indy Mac Property listed by a Reno Broker vs someone in Incline?? hmmmm

  8. Avatar BanteringBear says:

    Smarten-

    I’m going to agree to disagree with you on the inflation argument, but leave it alone because I think I have said most everything that needs to be said about the current destruction of wealth, and how it dwarfs what’s being created. That means the money supply is actually shrinking, not expanding. I cannot hypothesize on future policies of an administration, the very “if’s” you use in your post, as they will largely be influenced by the events unfolding at that point in time, thus, I’m only commenting on what effects the current spending/policies are having on the money supply and the economy.

    As far as the economic mess we’re in- in the grand scheme of things, it’s the bust portion of a completely unsustainable economic boom due to a failed monetary policy. Like many have opined before, it’s the job of the fed to take away the punch bowl just as the party is getting started. Instead, thanks in large part to Alan Greenspan, etc., they brought many more bowls out in addition, and kept the party going 24/7. “Subprime” is a term that was originally used for high risk mortgages written for marginal borrowers. During the boom years, we can pretty much slap the “subprime” label on most all mortgages, as the majority of people purchasing the homes had absolutely no way of paying the money back. Stalled, and subsequently eroding, property values are what precipitated this meltdown. You like to blame derivatives, but remember that there are counterparties to those transactions. The underlying problem is that all of the big players bets were based on real estate always going up. Falling prices did them all in.

  9. Avatar Reno Ignoramus says:

    Thanks for the reply, Oracle from Incline. I think then what we are seeing with this house and Ophir is a marketing strategy wherein the listing price is obviously and deliberatley set so low as to attract serious interest, and then a “bidding war” of sorts is encouraged.

  10. Avatar BanteringBear says:

    Very interesting development regarding MLS# 90002830:

    Active/Pending- Short Sale. Hmmm. Looks like old Allen “I don’t have to sell” Murray, had to sell after all. He was greedy (he even parroted “greed is good”), refused to lower his fantasy price a few years ago, and look where that got him. I promised him I’d be the first to post his NOD to the blog. I actually haven’t checked the recorders office to look for such, but it appears as if Allen might just escape by the skin of his teeth. He better pray this sale goes through. Allen Murray never could afford that house. He’s just another in a long list of FB’s living a life they never earned, but simply borrowed. The whole thing was quite transparent.

  11. Avatar Reno Ignoramus says:

    Interesting development on Allen’s house now showing as a short sale. Does anybody have any recent info on what the bank’s are requiring to “qualify” an owner for a short sale? It used to be that the owner had to demonstrate that he had no ability to bring any money to the table in a sales transaction. It was like an owner had to “qualify in reverse”. In other words, demonstrate he has no savings or other source of funds. Is that still true these days?

  12. Avatar inclinejj says:

    Who is Allen Murray? Was he the owner of the house up on Tyner???

  13. Avatar Reno Ignoramus says:

    Allen is the guy who called me a “hostile pessimist” about 2 years ago or so when I said that the housing market had nowhere to go but down. He is the owner of the house BB referred to in his comment just above. Apparently the house is now a short sale. BB and Allen and I and Smarten and a few others had some very shall we say “animated” discussions on the blog.

  14. Avatar BanteringBear says:

    Yes, very interesting RI, and I, too, would like to know what criteria banks are looking at to qualify somebody for a short sale. As others may recall, DowntownMakeoverDude shared a story well over a year ago of a woman who bought a second home as an “investment” only to find herself upside down in it. As far as I recall, she either owned her primary residence outright, or had quite a bit of equity in it. Since her gamble turned out to be not in her favor, she figured she’d just try to go the short sale route, and make the bank take the loss. The bank laughed quite heartily at that, and expressed their interest in her other property.

    What we know of Allen, from his excessive blathering about his personal wealth, is that he indeed has other properties. He was not shy about boasting of this, and so it is quite curious that he would qualify. The obvious conclusion would be that Allen Murray doesn’t have two nickels to rub together because, otherwise, a man of such considerable wealth would just write a check and be done with the whole thing. But, as Warren Buffet so accurately said, “you never know who’s swimming naked until the tide goes out.” It looks like Allen Murray didn’t own a bathing suit.

  15. Avatar inclinejj says:

    996 Tyner Way

    This property was foreclosed upon..The bank owns it and is selling it as an REO

  16. Avatar Raymond says:

    incline, the property they are talking about as a short sale is in Reno on Dant St. They are not talking about the IV property.

  17. Avatar smarten says:

    4271 Dant –

    So I did a bit of research and of course I could be wrong, but on January 25, 2007, Mr. Murray placed a $900K first and $88K second against his personal residence – both mortgagees being Greenpoint Mortgage. This appears to been associated w/his former girl friend’s conveyance of her joint tenant interest in Allen’s home.

    Also interestingly, Mr. Murray is in arrears in at least his last four real property tax installment payments – for a total of $11.2K. So all along while Allen was bantering w/RI, BB and I insofar as being heeled enough to weather the storm, he wasn’t paying his property taxes.

    The $799K or less pending sales price is still pretty pricey for Reno but regardless, Greenpoint is going to take a haircut.

    I don’t know Greenpoint’s guidelines for short sales but from what I’ve seen recently w/other lenders, at least insofar as first mortgages are concerned, is the decision is pretty much governed by the security’s fmv. Of course at this stage, the pending sale could be awaiting Greenpoint’s consent to accept less than what’s owed.

    The more interesting question [at least to me] is whether Greenpoint will require Allen to reaffirm his obligation to repay any deficiency [at least $265K]. If Allen’s still lurking out there, maybe he can clue us in [or maybe he rather than Derrick is Mr. “Apple”]?

  18. Avatar reno newbie says:

    anyone seen the inside of dant? is it priced to sell?

  19. Avatar Peergyn says:

    I have a friend who tried to get his lender to accept a short sale. He had to provide his most recent tax returns to the bank, and the bank scrutinized the return to see if he had any other assets available to him from which he could have made up the deficiency at the close of escrow. It was only after the bank determined that he was really broke that it would agree to a short sale. I don’t think the bank would have accepted a short sale if my friend had been able to come up with deficiency between the debt and the sales price. I’m not saying all banks do this, but it was my friend’s experience.

  20. Avatar Raymond says:

    It only makes sense that the bank is not going to agree to write off, say, $200K in a short sale if the owner/borrower/seller has $200K in other assets he could use to bring to the table at closing. I would think it’s quite understandable that the bank wants proof the owner/seller is broke before it agrees to get paid less than it is owed. Doesn’t it?

    Why would a bank allow an owner/seller/borrower to walk away with money he could have used to pay off the debt at closing?

  21. Avatar CalBoomer says:

    Despite your histrionic attempt to characterize the administration’s actions as based on social class, the simple fact is that the banking system has to be restored for the simple good of all. Keynes pointed out a long time ago that massive deficit spending by the government was the only cure for a depression (and a modern depression is what we are in). What ended the Great Depression was not all the public works projects but World War II. In the absence of another world war, the massive deficit spending the government is embarking upon is really the only solution for the current global mess. Sorry if that offends your social tastes.

  22. Avatar PursuitAce says:

    OH NO CALBOOMER…WAVE OFF! WAVE OFF!
    PULL UP! PULL UP!
    Too late…

  23. Avatar DonC says:

    smarten — Just a couple of points of clarification. Bush ran deficits much larger than what his budgets showed. Why? Basically he made liberal use of creative accounting. For example, the wars in Iraq and Afghanistan were never part of the budget. Also the budget never had entries for things like emergencies, apparently on the theory that hurricanes and tornadoes and floods only happened in movies.

    The Concord Coalition, which is a respected bi-partisan organization devoted to budget matters, has said the Obama budget is, in stark contrast to the Bush budget, a basically honest document. Yes there are some shadings here and there but by and large it’s transparent.

    Second, John McCain has said he doesn’t know much about the economy. He probably shouldn’t talk too much about it. At the end of WWII the ratio of government debt to GNP was far higher. During the war our deficit as a percentage of GNP was much higher it’s not even close. Interestingly in the years following WWII inflation was quite tame.

    My bigger beef with McCain is that he’s always willing to spend trillions on any and all wars. When he said during the campaign that we could stay in Iraq for a hundred years so long as we didn’t suffer casualties, it was the perfect example of how clueless the man was about the economy. I was like: “Earth to John, we can’t AFFORD to stay in Iraq for a hundred years regardless of casualties. We’ll go broke”.

    I just don’t know what to say about a guy who thinks it’s a great idea to spend $2T on the rat hole we call Iraq but thinks the country is going bankrupt spending $50B educating our kids.

    BB – The theory goes something like this: Increasing the money supply will drive down interest rates and make marginal deals attractive. It will also introduce inflation, which is a disincentive for people to sit on cash.

    CalBoomer – The deficits at the moment are not exactly massive. One criticism is that they are too small. If demand is expected to be off by $3T over two years a stimulus of $800B can’t replace it.

  24. Avatar Phil says:

    WOW! This is better than taking a economics class!

    Well Obama has one thing right, he seems to be giving up on Government Moters! And Fiat is going to join Chrysler? Why not just wait till they get restructured as well.

    Now if we can get Geithner to give up some banks. Did anyone catch him say a lot mroe money is going to be needed to “invest in” (bail out) them.

  25. Avatar smarten says:

    In response to Raymond’s statement that “it only makes sense that the bank is not going to agree to write off, say, $200K in a short sale if the owner/borrower/seller has $200K in other assets he could use to bring to the table at closing,” let me attempt to share why in the real world, it may not make sense.

    First, you have to remember bankers are by and large stupid.

    Second, you must realize that the overwhelming majority of financial institutions that hold most residential mortgages these days, have no skin in the game; by and large, they’re nothing more than “servicers” for OP [other persons’] mortgages.

    Whose other mortgages? Investors from all over the world via fractionalized interests [meaning they have no say so in the managing partner’s decision in what to do with any particular mortgage] in pools of thousands of mortgages.

    So really, these institutions need only go through the motions to make it look to their investors as if they and their pools’ managing partners acted “prudently.”

    Third, you have to remember that a mortgage is nothing more than security for an underlying obligation [here, a promissory note]. Foreclosure is a remedy available when there is a breach of either the note [generally in repayment] or independently, the mortgage itself [such as where there is waste to the security or an additional advance (such as delinquent property taxes or default under a senior mortgage)].

    But foreclosure isn’t the only remedy [the lender can always disregard the security altogether and bring a lawsuit directly on the note].

    Generally, a mortgagee can’t have its cake and eat it too. So when there’s a default, it needs to make an election as to what remedy to pursue. Once it has made that election, it is generally precluded from later exercising a different one.

    The easiest, quickest, least costly and least brainy remedy is non-judicial foreclosure [it can also be the dumbest where the security is worth far less than the underlying obligation it secures]. And this is the remedy of choice for most institutional lenders.

    So let’s say a lender is owed $950K under its $900K note [the extra $50K represents non-payments, late charges, costs of foreclosure, etc.] secured by a first mortgage against a borrower’s home [like Dant]. But let’s say the home isn’t worth more than $700K. If the lender’s mentality allows for only non-judicial foreclosure as a remedy, IT DOESN’T MATTER WHAT ASSETS OR INCOME THE MORTGAGOR HAS – because foreclosure as a remedy, once consummated, wipes out the lender’s claim to any deficiency.

    That’s why a lender who is committed to non-judicial foreclosure as the only realistic remedy can care less what the mortgagor as opposed to his/her mortgaged property is worth. Understand?

    Now if we’re talking about a junior mortgagee against the same property, the short sale query becomes a little bit different – especially if the junior mortgagee chooses to let the holder of a senior mortgage foreclose so its junior mortgage is wiped out. At that point, the “sold out junior” can simply file suit on the underlying note because it hasn’t exercised any remedy at all and due to extinguishment of its junior mortgage as a matter of law, it no longer posesses any other remedy.

    So before a junior mortgagee agrees to a short sale where it will get nothing, it may very well be interested in the mortgagor’s income/assets. Understand?

    Hope I wasn’t too “legal” in the explanation and you can see why asset managers may agree to a short sale, even where the mortgagor has net worth. But generally in those circumstances, they may require the mortgagor to reaffirm his/her obligation for any deficiency as part of the deal – something I would never agree to do for the reasons stated above.

  26. Avatar CommercialLender says:

    Always wondered if Allen Murray = Derrick.

    CalBoom – we’ve been down this path ad nauseum. One’s belief that Keynes was right and ‘ended’ the Great Depression is usually a self-reliant partisan belief. There is ample evidence – usually from the other political party than yours – that both Keynes’ theory is wrong and that his policies as instituted in the FDR administration were not at all helpful in ending the GD. In fact his policies clearly prolonged the GD, in my and many an opinion. Your comment is a very interesting one that sheds light to the human manipulation of fact and history (on both our parts, just fyi).

  27. Avatar billddrummer says:

    To Smarten,

    I believe you’re substantially accurate. However, in NV, unlike CA, under a non-judicial foreclosure, the lender has the power to proceed against the debtor for any deficiency. CA operates with a single-action rule, which in effect states that recovery under foreclosure is the single action allowed to the mortgage holder to recover sums due under a default.

    Now, what appears is happening here is that lenders aren’t bothering to proceed to recover the deficiency left. Many times, there are no substantial assets to recover a defiency from. (Pardon the twisted syntax.)

    So while the lenders retain the power to proceed against the borrower, many times it’s just not worth the trouble. And what you pointed out is correct: That the overwhelming volume of these defaulted loans have been fractionalized to numerous ‘owners,’ who are less interested in recovering a deficiency than in getting anything from the sale of the property.

  28. Avatar CommercialLender says:

    BB – you have numerous good points, so does Smarten, et.al. One of your most poignant, to me at least, is the concept of the wealth-loss-effect on the economy as a whole and the relative smaller effect these massive gov’t stimuli has on the in/de-flation argument. Namely, the economy is down more than the money supply is up. Well, can one only hope in this example this condition will not too suddenly reverse?!. You have me pondering and have done so on this point for several months.

    Lost in the rest of your argument, though, is the effect of money “in the consumers’ hands” to the inflation argument. Can you name an historical example where the people had buckets full of money simultaneously in a gov’t with horrific inflation or hyper inflation? Germany 1930s? Russia 1990’s? Mexico crisis? Zimbabwe? Not to my limited knowledge. What we saw is a situation where the people have the same amount, fixed salaries, fixed savings, etc. but the gov’t got in a bind and printed too much money (or defaulted causing the pain thru its burdensome debt obligations).

    You describe correctly that we have been thru our inflation period already, namely the past 5+ years where we all readily point to real estate inflation. I’ve been saying for years that our inflation was not inflation in the textbook sense, but in the AGGREGATE. Namely, we did not necessarily pay more for Goods A, B and C, but we bought more of them. How much junk does the typical American’s garage have stuffed in it? We bought more, not paid more with some items excepted. However, that in no way means we did not have ‘inflation’ in the aggregate.

    Now, we have de-flation in BOTH the pricing and in the aggregate senses. Housing prices are falling, but then so are the number of homes-per-household such as 2nd homes for retirees. Prices for, say, jeans are down, but then people are holding off buying that other pair of jeans until they are more certain of their incomes. So, sales of goods are falling AND prices, too. My point here is not so simple as supply-vs-demand because in our current deflation, caused by poor sentiment and over-extension of consumers’ balance sheets, it does not matter how much the price of X falls, ‘cuz I ain’t buying! This mentality is leading the average person to save/horde cash and pay down debt, which we are also experiencing. This is the effect you allude to whereby citizens are removing money supply from the system, at least temporarily, while the government is putting money into the system, albeit to banks who are not lending back to citizens.

    I’m not sure I agree with you that inflation is not around the corner again. When citizens and banks start getting their money out again, we’ll have dangerously too much money supply. I agree I’m having a time trying to figure the catalyst that will swing us quite uncomfortably from de- to in- flation, but I feel confident we will in the not distant future. The simple fact is that these govt surpluses and excessive bond sales will, despite the consumer/publics lack of direct benefit at the moment, cause our fiat currency to be valued less in the future than now. This is more so true if a backup or secondary (or new primary) reserve currency is established, heaven forbid. The Chinese and other bond holders will look at the US government and demand higher rates for this monetary over stimulus, or will shun the greenback to the same effect.

    That’s totally irrespective of whether we consumers will have too much money in our hands and therefore start paying too much for loaves of bread and houses. So, there’s your path you seek. Indeed, this is exactly what happened to each country listed above – watch out little guy and pensioner.

    Finally, let’s keep in perspective that the late 1970’s massive inflation and high interest rates (real) came in that order. The baby boomers were just getting on the scene, women en masse entered the workforce, the govt printed too much money to fund the Vietnam war, etc. Volcker correctly realized that inflation was the enemy and embarked on a policy to raise interest rates dramatically. Greenspan was the reverse, I believe. He did not realize that goods in the aggregate were being consumed in my theoretical explanation of a secondary cause of inflation, and tried to manage what was a temporary employment blip post dot.com and 9/11 by reducing rates. This caused more people to buy more things and some with pricing inflation (houses, high end cars for example).

    This is why we are left to face very painful deflation, but the inflation that will result particularly from today’s late-Bush and early-Obama policies will come home to roost via weakened dollar and higher bond yields. We have not seen this so far by virtue of the fact everyone else on earth is similarly situated so the relative dollar demand is hovering around a flatline.

    All that said, BB, the wildcard to our discussion of if or when deflation will turn to inflation is demographics. Those same babyboomers are starting to retire and horde cash, buy less and generally be net sellers/users of their assets. Is this demographic effect enough to keep us out of a near term inflationary whipsaw?

  29. Avatar billddrummer says:

    And to CalBoomer,

    I was late to the discussion, but it wasn’t only WWII that ‘ended’ the Great Depression, but the end of protectionistic trade practices conducted by the Hoover Administration. FDR’s cabinet was aware that protectionism was hampering export business, and moved to cancel many of the tariffs and trade protections that were put in place to ‘prop up’ American businesses.

    As it turned out, the propping up didn’t work, and 25% unemployment was the result. Now the WPA’s make work programs provided jobs, but I believe the removal of trade sanctions played a large role in the aftermath.

  30. Avatar smarten says:

    billddrummer, with all due respect, I don’t think your distinction is accurate.

    In California, a mortgagee cannot secure a deficiency judgment, regardless of the remedy elected, if his/her/its mortgage was used for purchase-money purposes and the security represents a 1-4 unit housing unit. In all other circumstances, there is no prohibition against obtaining a deficiency judgment.

    In Nevada, there is no anti-deficiency bar regardless of the property or use of the mortgage proceeds.

    However in BOTH states, you’re stuck with the same election of remedies quandary I highlighted. Thus in Nevada [as well as California], if you foreclose by means of non-judicial foreclosure, you LOSE your right to recover ANY deficiency because the act of foreclosure extinguishes the underlying obligation TOTALLY. The ONLY way you can preserve your right to recover a deficiency, is to proceed by means of judicial foreclosure. But this means filing a lawsuit, getting an order for a foreclosure sale, proving that the price obtained at sale represented fair market value, and then proceeding against the mortgagor[s] after the sale is complete – expensive, non-timely, questionable, and requiring a brain to process.

    So the majority of institutional lenders aren’t refusing to collect the deficiencies they’re arguably entitled to after they’ve completed non-judicial foreclosure. They’re refusing to foreclose by means of judicial foreclosure – the only procedural vehicle which allows them to secure a possible deficiency after foreclosure!

    If every lender who had foreclosed by means of non-judicial foreclosure and realized less at sale than the amount owed still had a claim for that deficiency [but was too lazy to pursue it], people like me would be buying the claim for fractions of pennies on the dollar.

    BTW, consider the principles I have outlined with respect to the Cal Neva Hotel which is facing trustee’s sale. Half of the hotel is located in NV., and the other half in CA. There are two mortgages being foreclosed upon; one in CA. and the other in NV. Both mortgages are for the entire amount of the underlying obligation for the entire hotel.

    So let’s assume trustee’s sale #1 takes place in NV. and the entire amount owed is bid in at sale. Thus that amount is extinguished and technically, the CA. mortgage secures an underlying obligation that no longer exists. I can see someone bidding in $1 and buying half the hotel or alternatively the amount owed being bid in twice [once in CA. and once in NV.] and the current owners of the property having a claim for $25M as the overbid. A very interesting legal issue.

  31. Avatar 3niner says:

    “Keynes pointed out a long time ago…”

    Keynes pointed out many things that are not, in fact, true.

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