Owner is still homeless and in debt but the bank is feeling just fine.

What am I missing?

then you take the money and run.

Simple:

If you can sell your home you can at least walk away from it without debt or bankruptcy to discharge debt.

You can start over and buy another house at a much reduced price or just rent.

30 Million Americans are unemployed.

The greedy Banks (who we bailed out with our hard earned money) are now discovering that the foreclosed houses are worth nothing if no one can afford to buy them.

I hope the greedy Mo-Fo's choke on every forclosed porperty they have stolen.

This housing market is going to have to stabilize. People like myself are sitting on homes that are worth $90K less than I owe on them. I can pay on it for years and not be above water.

More and more people are just going to walk and leave the bank holding the property unless the bank lets the current owners sell and leave cleanly.

In my home county, just to list the property for sale by the Sheriff cost $1500, which is addition to any filing fees and Attorney cost incurred to get to the Execution sale. $10-20,000 in legal fees are NOT unusual and that is Pennsylvania which is a "low cost" state when it comes to attorney fees.

If the Owner has a clean title (A title search will reveal that) then a "Deed in lieu of Foreclosure" saves the bank a lot of money. In most execution sale the buyer of the property tends to be the bank, which bids the money owned on the Mortgage (if a higher bid is made, the excess over the mortgage goes to the Home Owner, so the bank has no reason to bid more then the outstanding mortgage plus costs). The bank then sells the house as any other house would be sold, and in this economy for a lot less then the outstanding mortgage.

Thus, even if the house is sold for less then it is worth, the bank makes out by NOT having to incur the cost of foreclosing on the property. This benefits the bank more then anyone else, but the home owner gets the knowledge that, in most cases, the bank has no plans to go after the homeowners for the excess of the mortgage over what the house is sold for. In many homeowners view this is enough of a plus to agree to a deed in Deed in Lieu of Foreclosure.

Instutional inertia in banks and other morgtage issuers is one of the big problems in all this mess. A lot of big banks and morgtage servicers were so intent on flogging the last nickel out of homeowners that they ended up costing themselves big time - and these attitudes come from autocratic top management who have cowed middle managers into a "screw the customer" mentality - regardless of cost. A lot of these MBA's havent added up a collumn of figures in years - it's all shoot from the hip.

So in some respects, there is no downside to making bad decisions as a banker.

it gets to collect the valuable interest payments all over again.
Much of the interest in a mortgage decreases after 5-7 years of payments.

If you sell your house for $200k less than it's loan value, you have to declare the $200k as income, and pay taxes on it. That's what's clogging up the pipeline- people would rather go into foreclosure/bankruptcy than fork over a chunk of change for a house their going to lose anyway.

If this is true, then this could end up helping everyone- homeowners, banks, the housing market in general, as quicker short sales may prevent the market values from declining further compared to lengthy foreclosures

The money the give would probably still be considered income and/or cancellation of debt by the IRS.

That being said, a canceled debt by a bank is not considered income unless you have a positive net worth -- and then only to the extent of your net worth.

So most people in foreclosure / deed in lieu of debt might get a 1099c, but they won't owe taxes because of it.

It depends on whether the debt was recourse or non-recourse, whether the taxpayer was insolvent at time of forgiveness of debt and whether the debt forgiven was debt on personal residence. The personal residence debt forgiveness is exempted from income (due to special law) until 2013, if I remember correctly. There are a lot of special rules that exempt the debt forgiveness from income, so you shouldn't being making such a blanket statement.

All things being equal I'm glad to be free of that underwater prison. Credit score prison isn't much better though. Apparently I get out in 6 years.

That's really the important bit.

That securities fraud is directly connected to the mortgage loans and property Titles here on Main Street.

That makes sense. With MERS and other mortgage processors being sued of late,
I imagine the banks are anxious to decrease the number of dead bodies and hope to hell no one thinks of doing a Quiet title.