> Won’t the bank pursue them for the difference in property value when they sell it?
Generally, no.
So-called “recourse loans” which are common in other parts of the world are, for some reason, not prevalent in America.
Certain states prohibit lenders from pursuing borrowers for the negative equity portion. Arizona, for example.
Having said that, why did lenders like BofA and Wells lend 5% down loans in a bubble market with zero deficiency judgments?
I argue that lenders KNEW the risks lending in these markets and now people are strategically defaulting and the banks are whining about it. Sure, borrowers are morally obligated, but lenders and the gub’mint have an obligation to behave as well. They didn’t either!
Recourse loans are much more prevalent in the United States than “no recourse” loans are. The frothiest of the bubble markets were in those states that are “no recourse.”
Certainly here in NC, you can be pursued for a deficiency judgment, for any shortfall between the amount owed and the amount the property fetches at auction or through an REO bank sale. No bubble here, either, unless it was second home properties on the coast, large recreational lakes and mountain resorts. Even most of these could be had at peak for less than a normal 1800 sf, 3 bedroom, 2 bath ranch in a decent neighborhood, in much of California.
The half-million plus that was normal for a regular house there, would have gotten you a very nice executive home in any city, or a lake house, or an oceanfront condo, here. Still does, just cheaper by 10-15%, generally speaking. Some areas haven’t fallen back that much, and a few not at all. Compare to urban and suburban California, -50%.
They knew going in, that they could walk with little consequence. It fuelled the speculation.