Plain Old Petunia
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Post by Plain Old Petunia on Feb 8, 2011 22:16:15 GMT -5
Remember my "Buy a house with boyfriend?" thread? Well, I still mull it over. The main pro to me is that I think I could make a nice profit for myself. I am in a foreclosure hotspot and prices have gotten very low. The main con to me is that if BF and I split, I would have to sell my half to him or the whole thing to someone else or something, and there would go my planned profit. (I think I could make a nice profit over the next decade or so, not expecting one overnight).
So today I was browsing on ziprealty.com and realestate.com, when I noticed that prices have dropped further still. So I dropped my search range, and my goodness, there are lots of homes nicer than my present home in the 140k-150k range. Which has me thinking, would I be better off financially to buy such a house and let mine go? I could swing the down payment, would have a smaller monthly payment than now, and would owe less on a nicer home. It is my personal residence, so no tax consequences on the foreclosure. My credit would be bad for a couple of years. I would have a new 30 year mortgage, but I am only 3 years into my current one, so that is a loss but not much.
Tell me why I should or should not do it.
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Peace77
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Post by Peace77 on Feb 8, 2011 23:09:53 GMT -5
NO! Don't do it.
Don't buy property with someone that you are not married to. You're asking for trouble there.
A foreclosure will stay on your credit history for at least 7 - 10 years but will never really go away. If you ever apply for a mortgage again, you will be asked if you have ever been foreclosed. Your credit will be trashed and your insurance rates will go up.
You signed a promissary note to pay your mortgage and now you decide you don't want to because you want a bigger or better house.
People buying over their means is part of the reason we got into this housing mess is the first place.
No bank is going to approve you to borrow right after a foreclosure and no bank will lend you the money if the only way you can afford it is to default on your current mortgage.
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Plain Old Petunia
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Post by Plain Old Petunia on Feb 8, 2011 23:32:21 GMT -5
Wouldn't you have to qualify for both mortgages at the same time? If you can swing that much, why were you wanting to buy with the boyfriend? I think your credit might be bad for more than a couple of years, but I'm no expert on that. I always pay my bills on time. Yes, I would have to be able to pay both mortgages. A few months ago, my current lender approved me to buy a new primary residence. I asked for 100k and they said yes. If I bought a house for 140-150k, I could come up with the down (though would have to tap my IRA a bit). Possibly I could just do 20% down and take a 120k mortgage.
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Plain Old Petunia
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Post by Plain Old Petunia on Feb 8, 2011 23:41:30 GMT -5
NO! Don't do it. Don't buy property with someone that you are not married to. You're asking for trouble there. A foreclosure will stay on your credit history for at least 7 - 10 years but will never really go away. If you ever apply for a mortgage again, you will be asked if you have ever been foreclosed. Your credit will be trashed and your insurance rates will go up. You signed a promissary note to pay your mortgage and now you decide you don't want to because you want a bigger or better house. People buying over their means is part of the reason we got into this housing mess is the first place. No bank is going to approve you to borrow right after a foreclosure and no bank will lend you the money if the only way you can afford it is to default on your current mortgage. This particular "Hmmm" of mine is buying a 140-150k house by myself, not with BF. Yes, agreed, people making 40k per year buying 460k houses with negative amortization loans is how we got into this mess. Yes, I know that right after a foreclosure I would not be approved for a new mortgage. It only works if you can buy first, which I can. And yes, I did sign a promissory note and now am thinking of not paying because I am upside down and could buy a nicer house for less money.
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Plain Old Petunia
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Post by Plain Old Petunia on Feb 8, 2011 23:54:24 GMT -5
Oh, and CheesecakeLady: I considered buying a home with BF because he suggested it. The appeal to me was the potential profit (since I think, but could be wrong, that we are at a bottom). He wants to buy a big house, not one in the 140 - 150k range. That would buy me a 1600 sq ft or so newer home in a nice area.
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Deleted
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Post by Deleted on Feb 9, 2011 2:19:31 GMT -5
Petunia,
I actually think we're through the worst of it in many cities but your city may still have another year or two of pain. I can't remember are you in Merced or Modesto? If so it just made Forbe's 10 most miserable cities list. It's on MSN home page.
I don't remember your previous post very well. Was DBF going to put down a really big downpayment? I thought I remembered it was odd that the bank would lend you a mortgage at all because of the equity situation e.g. not having at least 20% equity.
How far underwater are you? What's the negative CF? (I'm assuming you are already moved in with BF).
Last I heard, FNMA, Freddie and I think FHA are not going to give you a loan for 5 years with a foreclosure, especially a strategic foreclosure.
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achelois
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Post by achelois on Feb 9, 2011 4:38:51 GMT -5
Sure, do it. The only thing that is important is to be able to make a few bucks. After all, you cant go in and rob a bank directly, there would be consequences for that.
Everybody is doing it.
It is only business.
You have to look out for yourself and your family.
The end justifies the means.
Btw, keep your eyes open. You may be able to find a richer boyfriend. Then you can this one and have even more money.
Greed is good.
Petunia, I really hope you were kidding with this post.
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xia
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Post by xia on Feb 9, 2011 6:55:31 GMT -5
wow, just wow... I hope the OP is a joke.
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Deleted
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Post by Deleted on Feb 9, 2011 7:08:36 GMT -5
I believe she's in CA with a purchase money loan. It looks like its a non recourse loan so really crappy credit for 2 years, somewhat crappy credit for another 3 more years, gradually tapering off until it basically disappears in 7. Per my post she won't be able to get most gov't backed loans for 5 years.
But she should try to do a short sale vs just walking.
So my advice in these situations is if your loan (not what you paid for the house) is 20 percent or so underwater, you don't walk unless you really, really have to. The market is likely to recover before your credit will. Not worth the hassle to try to save a couple of bucks.
If you're 50 percent underwater then yes, your best business decision is to probably shortsale then walk. Not agreeing that it's the moral decision but there's a point where you acknowledge you made a bad business decision and now you have to live with the consequences.
Somewhere in between? If you like the house, you're financially ok and not planning on moving for a while I'd stay put. If the neighborhoods gone to crap, you need to move anyway, taken a big income hit maybe you're better off ripping off the band aid then slowly bleeding to death.
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doxieluvr
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Post by doxieluvr on Feb 9, 2011 9:21:52 GMT -5
Yes, agreed, people making 40k per year buying 460k houses with negative amortization loans is how we got into this mess. Yes, I know that right after a foreclosure I would not be approved for a new mortgage. It only works if you can buy first, which I can. And yes, I did sign a promissory note and now am thinking of not paying because I am upside down and could buy a nicer house for less money. I am a huge fan of creative financing. I have bought several $250k houses on an income of $30k or less. However, I feel like I am morally responsible to pay that mortgage in full. If the bank trusts me with their money, I will hold up my end of the bargain and pay them back with interest, come hell or high water.
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Gardening Grandma
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Post by Gardening Grandma on Feb 9, 2011 11:07:27 GMT -5
The main con to me is that if BF and I split, I would have to sell my half to him or the whole thing to someone else or something, and there would go my planned profit.
Actually, that isn't the main con. The main con is that if you split and he could not afford to buy your half, then you are stuck. And selling in this market can be very tough.
That is exactly what happened to a friend. She and long term BF bought a house together. His credit was so bad that they bought in with only her name on the loan. (Both names on the title). Then they split up. She moved out (because he refused to). She wanted to sell (but they owed more than it was worth) but he wanted to buy her out and refused to sign a quitclaim deed. . Trouble was he did not have the money or the credit. It was in limbo for a couple of years with her losing sleep over wondering what would happen and whether her credit would get trashed. It finally got settled with him refinancing in his name. She did not get a dime.
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flopsy
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Post by flopsy on Feb 9, 2011 11:21:06 GMT -5
if it's not a joke... *sigh*
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TrixAre4Kids
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Post by TrixAre4Kids on Feb 9, 2011 12:00:13 GMT -5
I find OP's idea appalling...But...What would Phil do? Why don't you keep and rent the first house? It sounds like you can afford both of them.
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Gardening Grandma
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Post by Gardening Grandma on Feb 9, 2011 12:05:43 GMT -5
What would Phil do? I find myself asking that question any time a real estate issue comes up....
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Deleted
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Post by Deleted on Feb 9, 2011 12:17:27 GMT -5
Phil has written about being underwater before due to him pulling money out for a refi. But I would be surprised if he was ever more than 10% underwater. To me that's a no brainer; you stay.
But the treatment of a cash out refi is very different than a purchase money loan in both CA and AZ. Want to bet that Phil had other assets to attach if a lender wanted to pursue a deficiency judgment?
Fortunately in the 20+ years DH and I have owned property we've never been underwater (but have had property lose value for a few years). So I can't/won't judge anyone until I've been in their shoes.
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Angel!
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Post by Angel! on Feb 9, 2011 12:24:00 GMT -5
The big question is how much are you underwater on your current house? It would have to be a lot for this to be worth it. Make sure you consider all the potential cons to this choice - bad credit which may affect insurance rates & job offers as well as any future loans. In general Cali is a non-recourse state, but I believe there are some exceptions to this, so verify that the lenders can't come after you.
I think your biggest hurdle would be getting the financing on the new house. You said you had been approved up to 100K, but were they aware of your primary house & that you are underwater? I know lenders are aware of this tactic & financing for a 2nd home is very difficult even if you can easily afford both.
As someone else mentioned - I would consider renting out one of the houses for a while if you can do so without a huge loss.
You can look at this as a business decision & do what is in your best interest considering all the pros & cons.
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Firebird
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Post by Firebird on Feb 9, 2011 12:38:36 GMT -5
I understand the moral outrage, because I used to feel the same way about this kind of action. However, there are several important things to consider in this scenario:
1. You may not like it, but the current laws are set up that there are NOT many legal consequences for this action. It is not the same thing as stealing, no matter how much you want it to be.
2. Going along with #1, your mortgage does make provisions for the idea that at some point, you may not pay your mortgage for whatever reason. They demand a down payment and the house as collateral for the loan. You've already surrendered your down payment. If you walk away from your house and let the bank do their best to sell it to make back the money, you are actually acting within the terms of your contract. You're doing exactly what you promised to do in the event of non-payment.
3. At what point should morality be simply A factor, rather than the DECIDING factor, in a business decision? In other words, you might think this is wrong but do the financial benefits that you and your family will enjoy as a result justify doing something less than morally sound?
4. Do you REALLY think this is wrong? On the last thread like this, a poster came up with an analogy I thought was really smart. Say you had a cell phone contract, $50 per month for the next 12 months, and an early termination fee of $200. Your company offers to pay for your cell phone, but you have to switch to a new provider. Do you keep paying because you "promised" or do you pay the ET fee and get out from under that contract?
Most of us would get out of the contract. And there's not much of a difference, morally, between that and walking away from a mortgage. It's just a question of scale.
Now, it's hard to say what the ethical choice is when the game itself is so unethically rigged. And for what it's worth, I don't believe that it's okay to change your personal ethics to fit what everyone else thinks is okay.
But there is more than one perspective on this situation.
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thinid
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Post by thinid on Feb 9, 2011 12:39:18 GMT -5
If you are thinking about the long-term profit potential why not rent out your current home after you buy the new one? Have someone else pay the first mortgage until the market goes back up and you can sell for a profit. The long-term imapct of a forclosure on your credit, interest rates and insurance premiums could easily overshadow anything you might "save" by walking.
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Plain Old Petunia
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Post by Plain Old Petunia on Feb 9, 2011 12:49:50 GMT -5
Petunia, I actually think we're through the worst of it in many cities but your city may still have another year or two of pain. I can't remember are you in Merced or Modesto? If so it just made Forbe's 10 most miserable cities list. It's on MSN home page. I don't remember your previous post very well. Was DBF going to put down a really big downpayment? I thought I remembered it was odd that the bank would lend you a mortgage at all because of the equity situation e.g. not having at least 20% equity. How far underwater are you? What's the negative CF? (I'm assuming you are already moved in with BF). Last I heard, FNMA, Freddie and I think FHA are not going to give you a loan for 5 years with a foreclosure, especially a strategic foreclosure. I'm in Modesto, and I saw the Forbes list in last Sunday's paper. It's not our first time near the top of that list. I'm a good 50k underwater, perhaps closer to 60k, not counting any selling expenses. If I were to buy another house on my own and keep my current as a rental, my budget would be very tight. I would be looking at 300 per month negative CF ($200 on the PITI, $100 for water, sewer, garbage). And then if my house of cards toppled and I ended up defaulting, I would no longer be defaulting on my primary residence, which would have tax consequences. If I were to do this, I would buy the new home first. No, BF is still living at his place.
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Plain Old Petunia
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Post by Plain Old Petunia on Feb 9, 2011 12:52:35 GMT -5
Sure, do it. The only thing that is important is to be able to make a few bucks. After all, you cant go in and rob a bank directly, there would be consequences for that. Everybody is doing it. It is only business. You have to look out for yourself and your family. The end justifies the means. Btw, keep your eyes open. You may be able to find a richer boyfriend. Then you can this one and have even more money. Greed is good. Petunia, I really hope you were kidding with this post. No, I am not kidding. Certainly I have to look out for myself and my family. If I don't, who will? As to the rest, I'm not contemplating bank robbery or gold-digging.
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Plain Old Petunia
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Post by Plain Old Petunia on Feb 9, 2011 12:56:44 GMT -5
Yes, you could be wrong. Dropping home prices in your area are dropping home prices. The prices may or may not recover. And, what is your "potential profit" anyway? The potential profit of buying a home at a market bottom, then holding for a decade or so to hopefully enjoy a gain.
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whoisjohngalt
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Post by whoisjohngalt on Feb 9, 2011 13:08:30 GMT -5
There is no honor left anymore, nothing is sacred. Not only it has been AGES since we could take people at their word, we can't even trust people after they signed a contract.
We are becoming quite a barbaric society, where anything goes.
Lena
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Plain Old Petunia
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Post by Plain Old Petunia on Feb 9, 2011 13:11:01 GMT -5
Which has me thinking, would I be better off financially to buy such a house and let mine go? So, you believe you can simply just stop paying for your current home and there will be no ramifications to doing so? I thought you owned your home free and clear? Am I remembering wrong? Certainly there are ramifications. I would take a huge credit hit, and I have always taken great care to have perfect payment history. That's a big negative anyway you slice it. I live in a non-recourse state and have not borrowed cash against my home, so the lender cannot pursue me for any deficiency. There would be no tax consequences under the Mortgage Debt Forgiveness Act. The state of California conforms with the federal law so no tax there either.
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doxieluvr
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Post by doxieluvr on Feb 9, 2011 13:13:43 GMT -5
There is no honor left anymore, nothing is sacred. Not only it has been AGES since we could take people at their word, we can't even trust people after they signed a contract. We are becoming quite a barbaric society, where anything goes. Lena Exalted!
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Plain Old Petunia
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Post by Plain Old Petunia on Feb 9, 2011 13:21:06 GMT -5
I believe she's in CA with a purchase money loan. It looks like its a non recourse loan so really crappy credit for 2 years, somewhat crappy credit for another 3 more years, gradually tapering off until it basically disappears in 7. Per my post she won't be able to get most gov't backed loans for 5 years. But she should try to do a short sale vs just walking. So my advice in these situations is if your loan (not what you paid for the house) is 20 percent or so underwater, you don't walk unless you really, really have to. The market is likely to recover before your credit will. Not worth the hassle to try to save a couple of bucks. If you're 50 percent underwater then yes, your best business decision is to probably shortsale then walk. Not agreeing that it's the moral decision but there's a point where you acknowledge you made a bad business decision and now you have to live with the consequences. Somewhere in between? If you like the house, you're financially ok and not planning on moving for a while I'd stay put. If the neighborhoods gone to crap, you need to move anyway, taken a big income hit maybe you're better off ripping off the band aid then slowly bleeding to death. I'm at about 140% LTV. I do like the house, I have put a lot of time and money into it and it is damn cute, if I do say so myself. The neighborhood is fine, but has been changing. A lot of investors have been buying up the foreclosed homes, so more rentals in the neighborhood. That's not necessarily a bad thing, but it might be. I'm not going to leave Modesto until after my 15 yo son is grown. His father lives here too. And maybe not even then. I do think in time I will recover at least some lost equity.
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Angel!
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Post by Angel! on Feb 9, 2011 13:29:11 GMT -5
It isn't about trust or morals, it is about making a business decision. If we could just trust people, then we wouldn't have contracts. Contracts are their to spell out all the terms of the agreement, including the consequences of non-payment. A business would strategically default in a heartbeat, why are people held to different standards?
Consider the Mortgage Bankers Association (a group that tells people not to walk away from their mortgages), they took out a loan of 75 million to purchase an office building for 79 million. Before they ever occupied the building they decided it wasn't worth owning & sold in for 41 million. Although they have refused to comment on who actually took the 34 million dollar loss, I am just sure they didn't take a 34 million dollar hit because it was the moral thing to do.
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Plain Old Petunia
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Post by Plain Old Petunia on Feb 9, 2011 13:31:17 GMT -5
The big question is how much are you underwater on your current house? It would have to be a lot for this to be worth it. Make sure you consider all the potential cons to this choice - bad credit which may affect insurance rates & job offers as well as any future loans. In general Cali is a non-recourse state, but I believe there are some exceptions to this, so verify that the lenders can't come after you. I think your biggest hurdle would be getting the financing on the new house. You said you had been approved up to 100K, but were they aware of your primary house & that you are underwater? I know lenders are aware of this tactic & financing for a 2nd home is very difficult even if you can easily afford both. As someone else mentioned - I would consider renting out one of the houses for a while if you can do so without a huge loss. You can look at this as a business decision & do what is in your best interest considering all the pros & cons. Yes, they were aware. I contacted my current lender, Wells Fargo Home Mortgage and stated plainly that yes, I am upside down. Because I am upside down, no expected rent would be counted as income, I have to be able to make both mortgage payments with no rent at all. If I were buying a home with BF and splitting the property taxes, insurance, maintenance, and utlities, swinging both mortgages would be doable. If I were buying a home by myself and not splitting those costs, swinging both mortgages would be a tight-rope act.
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Angel!
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Post by Angel! on Feb 9, 2011 13:38:10 GMT -5
Honestly, for 50-60K underwater, I don't know if it is worth the trouble. If it was closer to 100K, then the answer would likely be yes, closer to 20K & the answer would be no. You are kind of in the midpoint where I'm not sure if the potential ramifications & the effort this will take is worth it. I think only you can really answer that question. You also need to consider the long term impact of taking money from your IRA.
Also, look at what kind of rate were they willing to give you. You would want a pretty good rate because I'm guessing you would have a tough time refinancing in the next 3-5 years.
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Plain Old Petunia
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Post by Plain Old Petunia on Feb 9, 2011 13:39:01 GMT -5
There is no honor left anymore, nothing is sacred. Not only it has been AGES since we could take people at their word, we can't even trust people after they signed a contract. We are becoming quite a barbaric society, where anything goes. Lena Agreed, you really can't take people at their word, even after they sign a contract. That goes for those sitting on both sides of the table.
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Firebird
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Post by Firebird on Feb 9, 2011 13:43:27 GMT -5
There is no honor left anymore, nothing is sacred. Not only it has been AGES since we could take people at their word, we can't even trust people after they signed a contract. We are becoming quite a barbaric society, where anything goes. Lena Agreed, you really can't take people at their word, even after they sign a contract. That goes for those sitting on both sides of the table. Warren Buffett built a very successful business on a handshake, with a woman who was almost illiterate. That was in 1983. It's important to take context into account. Things don't work that way anymore.
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