mortgages and property values

     Why do people get so excited about property values? There may be several different reasons--they don't want to pay higher property taxes, as they might if their home has been reassessed at a higher value. They may be interested in buying or selling a home. The most pressing reason would be their mortgage. When a person buys a home and obtains a mortgage, the security for the loan is the property he or she is buying. In other words, the bank that lends money for a mortgage knows that it can get its money back by foreclosing and selling the property, if the borrower should fail to pay the loan. A person might borrow $100,000 to buy a property that is selling for $120,000. The rest of the price would be paid as a down payment by the buyer--$20,000.  Now the borrower, or home buyer, owes the bank $100,000. Say the value of the property drops--to $90,000. The bank can no longer get all of its money back by foreclosing and selling the property. The home buyer now has only $90,000 worth of property to use as surety (collateral) on a $100,000 loan. This is when many banks would foreclose to cut their losses, assuming that the property might continue to decrease in value. The bank has the right to demand payment in full on the loan--the whole $100,000, or it may sell the property to cover this amount.  The home buyer may still owe the bank money after the home is sold, and will not have a home to show for all that he or she has already paid. That is why people get excited about property values.