Should I Walk? Hmmm

[Lex Luthor]

In AZ there are plenty of Republicans willing to reduce property taxes. And a "temporary tax" is exactly what a "school override" is. The voters in the school district basically vote on whether or not they want to re-new it every two-years. It keeps being voted down. A bond override for roads/stadiums, etc can last for many years. Anyways, enough said by me on this particular nuance.

[Firebird]

Regarding all the comments about devaluing neighboring properties if your house forecloses. They are correct. However, your neighbors are more likely to understand and empathize with your predicament. I still regularly meet with my old neighbors who haven't defaulted, and have in fact even become better friends with some of them after the default (not because of it, just saying that they don't seem to hold it against me the way some posters on this board think they might).

Sure... but will they let you watch their cat? ;D (Just being snarky here.)

[Lex Luthor]

LOL. Yes, but mostly they want us to watch their dogs!

[sil]

Comps are interesting. If the comps in my area average $150,000 and I sell my house for $149,000 then I am driving the value of my neighbors' homes downward. If the comps in my area average $150,000 and I sell my house for $151,000 then I am driving the value of my neighbors' homes upwards.

It doesnt really matter that my home, and my neighbors almost identical home were worth $335,000 in 2005. When we got a short sale accepted that was $2000 above the average comps (but within the range for similar homes) it actually improved the value of our neighbors' homes.

[skubikky]

I know this comment is late in the game and might have been covered.

Does it make sense to rent out your current home for a CF of a few hundred(require tenant to pay water, trash etc.). Rent a place for yourself and your son. Hang onto your cash and don't further expose yourself to a crummy RE market.

Forgo owning a home for now. The risk that the RE market there will continue to slide seems reasonably high. Especially with the fact that your son will be graduating in a few years and you might decide to move or relocate. Who knows?

This way you don't have to do a short-sale or walk away. You maintain your credit and someone else, for the most part, is paying the mortgage on the albatross.
Maybe I'm oversimplifying it but JMHO.

[Lex Luthor]

Lex,

I really am not attacking you personally and I hope you will not take it so. There just seems to be this widespread trend in thinking that people are entitled to have everything they do turn out profitably. And if it doesnt, just walk away and leave someone else holding the bag.

My Ethics would probably not be much more flexible in personal life. I once wrote a check for $100,000 to cover a debt incurred by my husband despite my not being legally obligated to pay it.

I dont come from money and work for every penny I have and it took me several years of working parttime jobs in addition to my regular fulltime job to recovr that money. I would do it over again though if need be.

I absolutely would not expect anyone to do something I am not willing to do myself.

I don't feel attacked. Did you ever have the opportunity to read my original thread from the other board? Then you might know what a real attack looks like.

I posted this decision awhile back to have a real discussion about what happened and I fully expect people to disagree and question what we decided. So the fact that you do that, is not at all like an "attack".

What I can tell you is that for three years part-time jobs were worked to repay $20k in cc debt that my spouse brought into our marriage. I suppose that I personally didn't have a legal obligation to repay it, but we did it together. Before the default we both had credit scores approaching 750 to 800-ish which means we also paid all our bills on time, for a long time.

Now, if you are telling me that you re-paid a $100k debt for an EX-husband, I'd have to ask if it was repaid to a relative. I could see doing that. But if you re-paid that debt to an entity to which you had no obligation, on behalf of an EX and then you worked part-time jobs to repay it, well....I'm pretty sure I could never do that for an Ex.

A relative once told us that he re-paid $100k in cc debt that was the result of a 10-year cocaine addiction and that he learned a real life lesson from it. All I could do was stare at him.

So, did Grandma set the house on fire or what?

[seriousthistime]

Lex, I am familiar with the law professor's opinions you cite as well as professorial research as a whole. Blech. His articles have crossed my desk and maybe you, and others, have acted on such principles. The whole field of law and economics is arguably social irresponsible when it comes down to the individual. Do some research. In fact, academic research is based on the idea that you carve out a novel principle and churn it into tenure and full professorship. I am not saying that is what Prof. White did. I am saying that is what professors do. You can come to your own conclusions. It worked for you and it may also work for Petunia. Gaming the system is not new. The nuances are ... because there's always a new field to churn.

The cell phone early termination fee is an example of liquidated damages. Foreclosures are not an example of liquidated damages. Any comparison of the two is like comparing apples and oranges.

[Lex Luthor]

as they say karma can (and usually does) finds a way to make things even.

You know what's amusing about this... If I had stayed in that house I would now be $125k or about 65% underwater and paying 2 to 3X the current going rate for housing in this area. Seems like no matter what I chose Karma was bound to have a good laugh.

[Lex Luthor]

The cell phone early termination fee is an example of liquidated damages. Foreclosures are not an example of liquidated damages. Any comparison of the two is like comparing apples and oranges.

So, explain to me why they aren't comparable "promises"?

[joebanker]

Anyone who defaults on a mortgage on purpose is an idiot. I had one fool do this on a commercial property we had financed. He though it wouldn't affect him at all. WRONG!!!!! We went after him with a vengeance. First we only bid 80% of the appraised value (this is industry standard) of the property at the foreclosure sale. He thought no big deal till he realized we expected him to pay the difference between what the bank bid and what he owed. Boy was he upset about that number. Then when he didn't pay we sued him for the deficiency balance, accrued interest at the default rate of 18%, attorney fees, and all other fees including a 10% penalty on the entire balance because he defaulted on the mortgage. You think he filed bankruptcy? Well he couldn't as he had to many assets. We got paid when we levied against a stock account he had. And on top of everything his credit was ruined with a foreclosure and a judgment. My advice is do not do this as you would be sued by the mortgage company on the deficiency and depending on state law you could end up owing a lot more. If you want a new house sell yours first and then get what you want.

JoeBanker

[Angel!]

Feb 16, 2011 18:07:47 GMT -5 @joebanker said:

Anyone who defaults on a mortgage on purpose is an idiot.

I would change this statement to: "Anyone who defaults on a mortgage on purpose without first determining the consequences & talking to a lawyer is an idiot."

[Firebird]

Feb 15, 2011 22:06:53 GMT -5 Lex Luthor said:

as they say karma can (and usually does) finds a way to make things even.

You know what's amusing about this... If I had stayed in that house I would now be $125k or about 65% underwater and paying 2 to 3X the current going rate for housing in this area. Seems like no matter what I chose Karma was bound to have a good laugh.

Lex, how much do you think your old house is worth now?

[Lex Luthor]

I would change this statement to: "Anyone who defaults on a mortgage on purpose without first determining the consequences & talking to a lawyer is an idiot."

Much better!

Lex, how much do you think your old house is worth now?

There are two recent sales for $90k for the same house. And three listings around the same price. So....somewhere around $90 to $95k. The new one is probably somewhere around $75k to $80k.

ETA: The old one was purchased for ~$240k and the new one for ~$100k.

[seriousthistime]

The cell phone early termination fee is an example of liquidated damages. Foreclosures are not an example of liquidated damages. Any comparison of the two is like comparing apples and oranges.

So, explain to me why they aren't comparable "promises"?

Actually, even Brent White says they are not comparable. He says that though one is more substantial (i.e., not comparable in all respects), they are no different in principle. Think of liquidated damages as a sort of "get out of jail free" card. I contract with my cell phone company to let me do that, if I pay a fee that, up front, they agree will compensate them for the loss of my business and make them whole. In principle, the foreclosure clause in your mortgage is supposed to restore the bank to its original position. I don't think your strategic default made the bank whole. In fact, it sounds like the bank took a bath.

If we are going to game the system with strategic defaults, maybe banks should game the system as well. How about if property prices increase by X amount over a period of years, they get a share of your profit? Yeah, in those white-hot real estate markets that turned stone cold, how many homeowners would have agreed to that?

JoeBanker!

[Lex Luthor]

Actually, even Brent White says they are not comparable. He says that though one is more substantial (i.e., not comparable in all respects), they are no different in principle. Think of liquidated damages as a sort of "get out of jail free" card. I contract with my cell phone company to let me do that, if I pay a fee that, up front, they agree will compensate them for the loss of my business and make them whole. In principle, the foreclosure clause in your mortgage is supposed to restore the bank to its original position. I don't think your strategic default made the bank whole. In fact, it sounds like the bank took a bath.

Agreed. I'm not saying a goose (mortgage contract) is a duck (cell contract), but I am saying they are both birds (contracts); they are comparable in principle.

I actually contracted with the mortgage company to pay PMI when I didn't put 20% down. During the period I owned the home, I paid the bank about $60k in Principle and Interest, they received about $110k or so after the sale (commissions, fees, etc were deducted from the $125k it was sold for), plus they get 20%-25% of the value of the insured amount, so maybe $50k or more. That's a total of about $220k on a loan of $228k. The bath the bank took wasn't terrible, but it probably didn't make them whole either....though it may have depending on the insurance money they received. And this is exactly why the banks won't negotiate with homeowners that are underwater, they are more likely to optimize their return by foreclosing or doing a short-sale than by modifying a mortgage. Don't be fooled into thinking that the bankers aren't being made whole from this situation.

How about if property prices increase by X amount over a period of years, they get a share of your profit? Yeah, in those white-hot real estate markets that turned stone cold, how many homeowners would have agreed to that?

Actually, this is exactly what Mr. White agreed with from the rebuttal that was submitted on his paper. If homeowners are being asked to act morally/ethically, then so too should the bankers. Here is the quote:

I would favor a world where all actors, both corporate and individual, were legally required to act in socially responsible ways. In such a world, institutional lenders—who bear a much greater share of the responsibility for the housing crisis than the average underwater homeowner—would be required to take responsibility for their actions by writing down at least part of the principal on underwater mortgages. In fact, that’s why I agree with Zingales and his colleague Eric Posner that it’s time to force banks to write down underwater mortgages. Zingales and Posner propose that lenders be required to give underwater homeowners the option of resetting their mortgages to the current value of their houses in exchange for giving the lender 50 percent of the house’s future appreciation. Enough with guilt-tripping underwater homeowners into holding on to their homes. Instead, let’s focus on equitable and practical solutions to the negative-equity crisis. The Zingales/Posner proposal would be a great start.

[cheapgenes]

Just because you've been pre-approved for $100,000 doesn't mean that the underwriters won't make you pay more down on your first loan before getting a new loan. We were going to put more down on the new house. Instead we were told to pay more on the old house, and they would give us a bigger loan on the new house. The banks want you to have about 30% equity in each house. That way, if you walk, you lose.
Pre-approved means nothing. Getting a loan isn't as easy as it used to be.

[seriousthistime]

Actually, this is exactly what Mr. White agreed with from the rebuttal that was submitted on his paper. If homeowners are being asked to act morally/ethically, then so too should the bankers.

Umm, no, not exactly and not even close. White was talking about writing down the principal on underwater properties in exchange for a cut of appreciation. He endorses a plan to see how things are going, now, and alter the original contract. I am talking about, when the house was first purchased, whether buyers would have agreed to give the banks a share of the appreciation in the property. Many, many buyers bought at crazy prices because they figured they could only make money and if they wanted to buy a house, they had to jump in the market right then while they still could afford it. I don't think buyers in the areas we are talking about, that seemed poised only to appreciate, would have agreed to split the appreciation with the bank.

[Deleted]

Joe Banker,

I know you know the difference between recourse and non recourse loans so I have to wonder why you posted your "story". To intimidate? No wonder we have folks like Prof White so popular!

For those who are wondering, understand that the trade off between "recourse" and "non recourse" is often a 1 year redemption period.

[Plain Old Petunia]

Bonnap, I too thought that Joe Banker's comments were intended to "stir the pot". He is talking about a commercial property. If he is a business person, then he surely must be aware that commercial properties and primary residences are not at all the same thing.

[Deleted]

He says he's a lender so he definitely knows the difference.

But a commercial loan isn't always a recourse loan. We inherited a half interest in a commercial property located in the Inland Empire (Norco, CA). It was purchased on behalf of a family trust (hence the subsequent inheritance). The seller carry back was a non recourse loan. It was a little frustrating because the Trust wouldn't allow a refi because all the commercial bank loans were recourse. I didn't think it was that much of a risk because the loan to value ratio was 50%. But the Trustees wouldn't let us (understand that our NW exceeded the assets of the Trust ). Although they claimed the concern was for the corpus of the Trust it was really their own backsides they were covering (Trustees can be on the hook PERSONALLY if they fail their fiduciary duty). Boy was I happy selling that property!

[achelois]

Lex

The money I repaid was not to a relative, but to an older couple the ex had talked into "investing" in a real estate scheme.

I did not do it for the ex, but for myself and for the other couple.