australian banks to loose 10 and 25 billion, page-20

Blueballs, if you have a mortgage you own the house, the bank merely has the right if you default on the loan to take possession and manage the house to repay the debt, usually by way of sale. Any excess of the sale proceeds over the amount of the loan (plus costs incurred by the bank to get repayment) belongs to the owner (or former owner) of the house.

It is unlikely in the event of a major bank collapse that liquidators/administrators would foreclose on people who have low loans relative to property value. People with substantial equity would probably be given every chance to repay or refinance the loan or that part of the loan book sold to another financial instiution.

If a liquidator were to sell EVERY property a bank had security over in the event of a bank collapse then the impact on the property market would leave them worse off than if they only sold the houses of those people with high LVR's. There would be no point dumping a batch of houses that may only have an average outstanding loan balance of $30,000 on the market if the overall effect would be to depress another $100,000 each off the realiseable value of a similar number of houses where the bank will receive the whole sale due to high LVR's.