It varies by state. Most states are “recourse” states, meaning that the defaulting mortgage holder can be pursued for a deficiency judgment, which would be any shortfall, between the amount owed on the note and the amount brought at REO sale or auction.
Some states, however, are “no recourse” states. Hand the house keys back and walk away with nothing but damaged credit.
Not so coincidentally, the states with the worst problem are the states that had “no recourse” lending.
Fair enough. I fully support State’s Rights! And I had also forgot about the whole PMI thing as well. As I recall PMI is basically to insure the full mortgage amount in the event that unforeseen circumstances preclude the borrower from paying back the loan.
I haven’t Googled or anything, but I’d bet $10 right now that California is a no-recourse state.