The number of home-owners in Japan who are falling behind in mortgage payments and relinquishing their homes are increasing. According to the Fudosan Keibai Ryutsu Association (FKR), the number of foreclosed properties in 2010 was 51,746. This was a decrease of 7,000 from 2009, but is still at a high level.
Lawyer Yasunobu Taki from Park Law Office explains:
“We saw a rapid increase in the number of inquiries from clients regarding their home loans from June 2011. Many of the clients were unable to make the additional ‘bonus’ mortgage repayments which are due around the same time that companies pay staff bonuses.”
Foreclosures due to mortgage default typically follow this process:
“If the borrower has not made mortgage payments for 3 continuous months, the bank will notify the borrower that they have started legal proceedings for collection. Approximately 6 months later, the procedures to start the foreclosure auction will begin. If the borrower makes a month’s repayment as soon as they receive the first notice, there are cases where the foreclosure procedures can be delayed.”
The outstanding debt can sometimes exceed the value of the property, so a borrower may be in an unfortunate situation where they still owe money after losing their home. Many home loans in the United States are non-recourse, which means the borrower is not liable to pay back any remaining debt to the bank once the house has been foreclosed and sold. However, home loans in Japan are full recourse loans, which means the borrower may still owe the bank money even after the house has been foreclosed.
Professor Yousuke Hirayama from Kobe University’s Graduate School of Human Development and Environment says:
“In Germany, the typical loan-to-value ratio for a home loan is 50 ~ 60%, but in Japan the banks offer LTV’s up to 100%. If the value of the property falls, the property is no longer an adequate form of collateral.”
If you can no longer make mortgage repayments, sending the key to the bank and leaving your home does not free you of the debt. There are plenty of cases where the home-owner has sold their house on the open market, but are still left to struggle with loan repayments as they had to sell for less than the value of the loan. If the value of the outstanding debt after the sale of the house is 2 ~ 3 million Yen (25,000 ~ 38,000 USD), the repayments can be manageable, but when the debt is over 10 million Yen (126,000 USD), many borrowers are forced to declare bankruptcy.
Source: Shukan Post, February 24 Issue, 2012