Walking away, letting the bank foreclose - ramification?????'s

[DisneyBamaFan]

I'm not...not at all.

I just refuse to throw in the towel when we have the ability to pay. But karma is wonderful and those who feel they are "winning" by turning over properties that are completely affordable to them--will pay the piper one day.

It isn't your best when you renig on a contract through every fault of your own. But when you have tried everything to prevent the loss of your home--then you did your best. Opting to spend teh money elsewhere--stealing stealing stealing stealing and it should be criminalized.

I agree with you in that I would never do this, but I won't judge someone who comes to a different conclusion (even though I know that I am harmed by their decision).

As for karma - if there is such thing, I don't think it cares about banking...

 

[Planogirl]

They try. There are many ways.

Could you explain?

 

[Lisa loves Pooh]

I cannot condone someone doing this per se, but I can see how it could happen and look appealing. I think you can get to point when the logic and morals you have always held by just seem to far away and you just don't care anymore. At least that is what I have noticed with some friends who have walked away from homes and cars and other debts they can no longer pay and know they aren't facing better times anytime soon.

We are upside down on our house (not at all unusual in our area given the way the real estate market inflated so much in the 90's). Not to the extent a lot of people are but enough that if we had to sell we'd have to come to the table with more cash than I care to think about. We just had the misfortune to buy in the last months of a strong real estate market and although we have lived here for eight years and put a lot of money into improving our house (improvements paid with cash thank goodness or we'd be more upside down) we owe more than it was worth. Its scary, for so many years, I felt like our house was our security. And it will be again when its paid off or worth more than we owe. But if I was ten times more upside down than I am, I can't say I'd be all that blase about this whole situation and feel okay with waiting it out since as Bamafan points out, you'd be paying interest on more than you will ever see again.

For now, I don't sit up nights worrying about this or desire to walk away, I love my house, and we have to live somewhere and I know the market will come back. And by today's standards we have a very reasonable mortgage that shouldn't be a problem even given dh's recent pay cut (its all the other bills that I worry about, namely our car and other bills).

But being in this position has made me rethink a lot things I used to think about people who walked away from mortgages. At one time I was aghast when I heard about this, now I don't rush to judgement because I dont' know thier situation but I know mine and its not a pretty place to be.

So to me its for sure not a one size fits all and even people who do this and seem to be irresponsible, well I am not sure that is always the case.

But you were indeed fine buying your home for what you felt it was worth when you bought it right?

With no income change, no lawsuit, no medical issues that have screwed the rest of your finances--simply, your home lost value--

As tempting as it may be to ditch it--

If you can 100% afford your home and have plenty money left over for savings and fun--it is indeed irresponsible.

I'm not saying my family won't come to a decision where we'd have to ditch our home. But as it stands--we make too much money and just b/c we don't like where the home value sits is not a valid enough reason to ditch it. Short of stuffing it into a an IRA where it is not touchable for recourse--we would be robbing from our bank to avoid the responsibility we signed up for.

MANY are doing this. Not everyone in foreclosure, but there are many who are indeed taking their toys to a new house b/c they don't like that their home dropped value.

By their own admission (I have indeed seen interviews...)--they can totally afford their home. They have no excuse other than they feel that the housing market owed them something.

That is irresponsible. Any investment comes with a risk and folks should not be rewarded when they don't like the investment heading south. But people are getting rewarded and it is disgusting.

But hey--they can live with themselves and that is fine.

I chose to honor my obligations until I am forced into being unable to afford them. The bank didn't twist my arm when we accrued this mortgage.

They didn't twist your arm and they didn't twist their arm.

I'm really not seeing how it is okay to screw over the banks regardless of any lending institution's behavior in the past 5 years.

 

[KramBerries]

I left a cell phone carrier once when I was under contract. I paid a penalty, but it was almost certainly less than the profit they would have made if I stayed. Was that stealing?

I'm about to break a 3-year electricity contract because I think that the penalty is less than the amount I'll save on lower energy costs. Is that stealing?

A home loan is a contract with a bank. It can be written in many different ways with many different obligations.

 

[Lisa loves Pooh]

I agree with you in that I would never do this, but I won't judge someone who comes to a different conclusion (even though I know that I am harmed by their decision).

As for karma - if there is such thing, I don't think it cares about banking...

Difficult not to judge others when they seem to be enjoying the fruits of cancelling their contract.....

But as for karma--if there is such a thing--I wasn't referring to the banks.

 

[Lisa loves Pooh]

I left a cell phone carrier once when I was under contract. I paid a penalty, but it was almost certainly less than the profit they would have made if I stayed. Was that stealing?

I'm about to break a 3-year electricity contract because I think that the penalty is less than the amount I'll save on lower energy costs. Is that stealing?

A home loan is a contract with a bank. It can be written in many different ways with many different obligations.

No--

And in a recourse state, the penalty for not fufilling your contract is being sued for the difference. The court will look at your assets and if you have a pile of cash, you'll have to pay or declare bankruptcy. ETA: This is what makes a short sale different from walking away. With a short sale, there is a negotiated attempt to get what you can for the property so the bank is not left completely high and dry. They have to accept the agreement though as you cannot short sale without approval from the lienholder. Much like cancelling that cell phone or electricity contract.

Borrowing money is different than signing up for a service and are apples and oranges.

You haven't utilized any service for which you have not paid.

If you stopped paying your bill without cancelling--even if you later cancelled, you would still be liable for accrued charges. You don't get out of them just b/c you decide it isn't worth it and stop paying.

 

[Amy&Dan]

But you were indeed fine buying your home for what you felt it was worth when you bought it right?

With no income change, no lawsuit, no medical issues that have screwed the rest of your finances--simply, your home lost value--As tempting as it may be to ditch it--If you can 100% afford your home and have plenty money left over for savings and fun--it is indeed irresponsible.

I'm not saying my family won't come to a decision where we'd have to ditch our home. But as it stands--we make too much money and just b/c we don't like where the home value sits is not a valid enough reason to ditch it. Short of stuffing it into a an IRA where it is not touchable for recourse--we would be robbing from our bank to avoid the responsibility we signed up for.

MANY are doing this. Not everyone in foreclosure, but there are many who are indeed taking their toys to a new house b/c they don't like that their home dropped value.

By their own admission (I have indeed seen interviews...)--they can totally afford their home. They have no excuse other than they feel that the housing market owed them something.

That is irresponsible. Any investment comes with a risk and folks should not be rewarded when they don't like the investment heading south. But people are getting rewarded and it is disgusting.

But hey--they can live with themselves and that is fine.

I chose to honor my obligations until I am forced into being unable to afford them. The bank didn't twist my arm when we accrued this mortgage.

They didn't twist your arm and they didn't twist their arm.

I'm really not seeing how it is okay to screw over the banks regardless of any lending institution's behavior in the past 5 years.

Um, excuse me but I NEVER said I was doing this! Yes I was fine buying my house. And yes I will keep paying it until its paid off or until I drop dead at which time my mortgage insurance will cover it. What I am trying to say is that I can see how people have situations that change so much beyond what they ever think possible they just throw in the towel. And yeah it hurts me. One of the reasons I owe more than my house is worth is because so many houses have foreclosed in my area which drives the whole market down. I was just pointing out that not all people who walk away so to speak are walking away without a worry or bit of guilt.

Nobody twisted my arm and I never said they did. In fact we bought this house and at the time we bought a house that was literally tens of thousands of dollars less than what we could have. And thank God we did.

Oh and by the way my income has changed. We currently live on half of what we did 7 years ago. I have had to help my parents when my mom was in the end stages of her life, help dh's dad who was retired and not making it and help my sister who has MS. Your post indicated I haven't had anything go wrong in my life but let me assure you I have and I have still paid my mortgage and I am not about to stop now! I just can see how some people reach the endpoint.

I guess you see my sig and assume "uh oh, she's one of those disboarders who travels to WDW but is going bankrupt or leaving her mortgage to go find a new and better home". You are wrong and I guess I need to go back and figure out how you came to these conclusions.

Sheesh, all I said was being in this situation has made me look at things a bit differently. Not that I was about to walk away from my mortgage for God's sake.

You and I are in the same boat. You said yourself you may have to ditch your house at some point but for now you are not. I am not either. We make too much money for me and my husband to just say "yep, we're done, lets walk away". We are still employed, still able to save a bit and yes we are upside down but no we aren't looking for a way out of our situation because we still love our home and our 100% committed to paying it off. Make sense?

 

[DisneyBamaFan]

Could you explain?

The farmer's callable loans post was an attempt to do so. But there are many improper banking practices, and we have only recently started putting laws in place to protect consumers from banks.

I'll offer another example from my time on Long Island. There were a couple of banks in the 90s that specialized in mortgages for "high risk" borrowers. They would offer mortgages that they knew the borrowers did not understand, and that they knew the borrowers could not afford. Those mortgages had fees and penalties that were almost impossible to avoid. They then let the borrower pay as long as they could before foreclosing and selling the same property again to their next victim - but for more money, as the property continued to appreciate in value by about 20% per year.

This stuff happens all over America every day. Don't feel sorry for the banks, because they don't give a hoot about you...

 

[KramBerries]

No--

And in a recourse state, the penalty for not fufilling your contract is being sued for the difference. The court will look at your assets and if you have a pile of cash, you'll have to pay or declare bankruptcy. ETA: This is what makes a short sale different from walking away. With a short sale, there is a negotiated attempt to get what you can for the property so the bank is not left completely high and dry. They have to accept the agreement though as you cannot short sale without approval from the lienholder. Much like cancelling that cell phone or electricity contract.

Borrowing money is different than signing up for a service and are apples and oranges.

You haven't utilized any service for which you have not paid.

If you stopped paying your bill without cancelling--even if you later cancelled, you would still be liable for accrued charges. You don't get out of them just b/c you decide it isn't worth it and stop paying.

Actually, I did utilize a service for which I didn't pay. In the case of the phone contract, the carrier added capacity to handle my expected calls. In the case of the electric company, the bought futures contracts on energy with the expectation that they would sell it to me. Maybe you don't consider that a service, but it is a cost that they incurred. That's why they added the penalty.

Nevada is a state that allows, to my knowledge, both recourse and non-recourse loans. I would assume that banks offer lower rates on recourse loans. If someone paid extra to have a non-recourse loan, why shouldn't they be able to end the loan contract and pay the penalty? If the bank didn't want to allow that, shouldn't they have written a recourse loan?

Would it be OK if the borrower called the bank and specifically "canceled" their loan agreement?

 

[KramBerries]

Just to be clear, I'm just arguing this from an academic standpoint. I don't think that I would personally walk away from a loan. I'm just not going to be too quick to judge those that do as long as they meet the obligations of the loan contract.

Where I live, we haven't seen a significant housing crisis. Home values have been flat this year, but they typically only rise with inflation anyway. We had one foreclosure in our neighborhood, but that was because the homeowners business failed and they could no longer afford it. We paid off our home loan last year and are now entirely debt free, so no one has to worry about my defaulting on loans.

 

[Amy&Dan]

Just to be clear, I'm just arguing this from an academic standpoint. I don't think that I would personally walk away from a loan. I'm just not going to be too quick to judge those that do as long as they meet the obligations of the loan contract.

That is my point as well. But somehow it was assumed by some I was about to walk out the door of my house and ride off into the sunset.

I just am amazed at how so many people I know have had to do things with their homes (foreclose, short sale) that would have seemed impossible to them a few years ago. I know these people and I see their pain and it makes me realize none of us ever can say for sure "oh I'd never do that". I would never walk away from my mtg. just to get out from it so I could buy something better for cheaper. But I can see how some people do just have to say "I can't do this anymore" and foreclose.

 

[Lisa loves Pooh]

Um, excuse me but I NEVER said I was doing this!

i never said you were.

I apologize if it came across that way, we were all speaking generally about the topic (or so I assumed) and I have not accused anyone here of such matters. All "you's" refered to in any of my posts were meant to be generic and not accusatory of anyone here.

I am keeping on topic to the original discussion of a voluntary surrendor of the home when it is totally not necessary. Struggling to make ends meet is completely different--but you (specifically) made no mention that you were struggling, you simply mentioned that if you were further upside down than you are now, that you would be tempted. For anyone not struggling--generally speaking--if you can afford your home, you can afford your home. (you--generally)

If I ditch my house now--when I can perfectly afford it--that is irresponsble and wrong.

Should we take an income hit that prevents us from paying our home while at the same time being unable to sell it, then I will reflect up on it differently. The topic at hand is not about those who struggle. It's about those who are greedy and don't like that their investment did not work out as planned and want to toss in the towel b/c they can and they don't care and they'll keep their money for other things.

I hope that makes sense.

 

[Amy&Dan]

i never said you were.

I apologize if it came across that way, we were all speaking generally about the topic (or so I assumed) and I have not accused anyone here of such matters. All "you's" refered to in any of my posts were meant to be generic and not accusatory of anyone here.

I am keeping on topic to the original discussion of a voluntary surrendor of the home when it is totally not necessary. Struggling to make ends meet is completely different--but you (specifically) made no mention that you were struggling, you simply mentioned that if you were further upside down than you are now, that you would be tempted. For anyone not struggling--generally speaking--if you can afford your home, you can afford your home. (you--generally)


I hope that makes sense.

Okay, I get it, you had me wondering is all!

This is a touchy subject because so many people have walked away (for good or bad reasons) and every time I see another foreclosure notice go up in my neighborhood, I see my upside down status not changing anytime soon! I used to get disgusted but when our best friends had to short sale and were about to the point they were just going to walk away, it suddenly became real to me that good people get into very bad situations. And I suddenly also realized, omg, one more setback at dh's job and that may be us. Very scary.

When Bama fan mentioned some people being 250K upside down, I thought to myself, "yeah, if I was that upside down, I guess I could see maybe having to walk away".

But of course that amount is hard for me to picture since that's more than what my house is worth anyway let alone more than what I could ever be upside down with!

 

[Lisa loves Pooh]

That is my point as well. But somehow it was assumed by some I was about to walk out the door of my house and ride off into the sunset.

I just am amazed at how so many people I know have had to do things with their homes (foreclose, short sale) that would have seemed impossible to them a few years ago. I know these people and I see their pain and it makes me realize none of us ever can say for sure "oh I'd never do that". I would never walk away from my mtg. just to get out from it so I could buy something better for cheaper. But I can see how some people do just have to say "I can't do this anymore" and foreclose.

It was not assumed by me or anyone else here.

The OP and news stories of this topic are not referring to people who "have to" do these things...

It's about people who don't have to do these things--but want to get out b/c it won't look as bad b/c everyone else is doing it too.

There is no pain--they aren't suffering...by their own admission. This is not about people who can no longer afford their homes.

You may find sympathy for such actions, but I don't.

ETA: Saw your recent post--this was typed and posted about the same time--so was just making sure that you realized that I wasn't talking about you or anyone else forced into the decision. It is certainly not easy and it brings me to tears to contemplate if that will be us in a year or two.

 

[Lisa loves Pooh]

Okay, I get it, you had me wondering is all!

This is a touchy subject because so many people have walked away (for good or bad reasons) and every time I see another foreclosure notice go up in my neighborhood, I see my upside down status not changing anytime soon! I used to get disgusted but when our best friends had to short sale and were about to the point they were just going to walk away, it suddenly became real to me that good people get into very bad situations. And I suddenly also realized, omg, one more setback at dh's job and that may be us. Very scary.

When Bama fan mentioned some people being 250K upside down, I thought to myself, "yeah, if I was that upside down, I guess I could see maybe having to walk away".

But of course that amount is hard for me to picture since that's more than what my house is worth anyway let alone more than what I could ever be upside down with!

I get very carried away with my use of "you" in posting sometimes and forget that it can be taken the wrong way when I wasn't accusing someone.

DH lost his job but did find a new one and we did figure out a way to make things work while carrying this house. Not exactly my idea of going to buy a vacation home of that value...but given it's proximity to the beach, it is what it will be for a while.

Our only beef is that we cannot walk--but even before DH lost his job when we had no notion of moving 50 feet let alone hundreds of miles away, it was just irritating that our bank would do nothing to refinance us--while there are people with much higher loans than us with much more kinder payment terms. We are fixed rate, but we have a 1st and a 2nd, 30 year and 15 year and b/c of the flipping craze that has turned into a foreclosure crisis here...we can do nothing.

I'm perfectly fine with the "price we paid" of $230....I just wish it was set up better.

This is why I can only laugh when our on-line bank account shows that we are preapproved to go out and buy a $50,000 car. An asset that depreciates significantly within the first year or two. But they have no problems lending us money to buy something that will knowingly depreciate. But nothing they can do to consolidate our mortgages b/c there is no collateral.

It just boggles my mind.

Had we had the crystal ball even 18 months ago, we could have refinanced with zero trouble. If only, right?

I don't mind the loan balance--it is the terms and the banks inability to do antyhign about it.

Yet people who decide--you know what, I don't like that my house is no longer worth what I paid--so screw it...well that plummets my home value even further and makes it even more impossible to improve our situation.

But oh well. It will all be okay and I know that my former asset will one day become an asset again.

 

[bumbershoot]

I can understand somewhat. Say you owe $1MM on your home and it is currently only worth $750k. You are upside down $250k. If the market never recovers, that means that you will do far worse than never recover the difference - it also means that you will pay interest on that negative amount. So that $250k is really more than $750k over the lifetime of the loan.

So, eat a $750k loss over 30 years or walk away knowing that you will only have to pay back the principle and that your credit score will recover. In these economic times, no one should just accept a $750k loss without considering the options...

(none of this is against *you*, DBF)

While the numbers might be inflated, I do think that's what the OP's acquaintances are doing.

And to me it just seems people are acting like babies. Wahh, someone else says my house isn't worth as much as I *thought* it was worth when I agreed to pay that amount. When I signed reams of papers of forms explaining exactly what I felt the house was worth, when I agreed that I felt the house was worth what they asked for. Waaaah.


Criminy. Due to our circumstances at the time, we could only buy this one certain car, because we could only get financing for THAT car. Gah. And it's an awful interest rate. The car has only been "worth" about 8K since we bought it, but we signed a loan for something obnoxious like 13K for it.

We've known *since DH signed those papers* that we owed MUCH more than what it was worth. Did we walk away? No. Did we whine and cry and say "but we're under water, we're upside down" and leave the car? No. And now once I make the payment on the 1st we'll only have 3400 or so left on it.

I'm not sure why some people who buy houses don't seem to understand that there's no gold standard for what a house is worth. A house is worth what someone will pay for it. And that will change.

As our car has gotten older, it's "worth" has lowered. So as we've paid it down, we've watched its worth lower too. Painful? Yep! Worth leaving it behind, even though we signed a contract to pay x amount? Nope!

DH and I haven't wanted to buy a house, haven't wanted to deal with upkeep, and definitely haven't had the fundage to buy a house we'd actually want to live in for more than 5 minutes. So...we haven't bought a house! So we haven't ever looked at mortgages or anything like that...but even we know that the worth of a house is only what the next person will pay for it.

So you pay what YOU thought it was worth, and that's just what you do.

Harumph.

 

[kathie859]

Evil banker here...you know me...I'm the one that you talk to when you want to buy a house I crunch the numbers for you and tell you what the payments are going to be. I give you a Good Faith Estimate and a Truth in Lending document so you can compare lenders. I collect your income information and review your purchase contract, title work and appraisal. I tell you to get an inspection even if you don't think you need one. But you know, I never, ever promised your house would increase in value. Nor did I promise that it would always be worth what you paid for it. What I did do, was sit with you at the closing as the attorney reviewed the note where you promise to pay back the money.

And, contrary to what some posters seem to believe, I really hope that you pay back the money. We don't WANT YOUR HOUSE!! We are a bank--we are not realtors. I don't know of any lender who wants to take back a house. Sometimes it is necessary-but it's never the first option. REALLY!

 

[jlmarr]

The NY Times had an interesting article on "strategic defaults" a couple of weeks ago. It makes an interesting point, that "If lenders feared an avalanche of strategic defaults, they would have an incentive to renegotiate loan terms. In theory, this could produce a wave of loan modifications — the very goal the Treasury has been pursuing to end the crisis."

 

[DisneyBamaFan]

...While the numbers might be inflated, I do think that's what the OP's acquaintances are doing.

And to me it just seems people are acting like babies...

Actually, they are acting like responsible adults. They are making financial decisions. The banks knew the risks when they made the loan. The individuals know the repercussions of default. No one is breaking the law...

 

[mamacatnv]

Wow - OP here, so much for no ethics/moral discussions

I myself have a huge issue, I could not sleep at night wondering when/if the bank was at some point going to come after me. I was raised that a good credit rating was a reflection of ones character and that barring unforeseen tragedies I was to protect it at all costs and sacrifice. I know that has changed and I know that the unemployment rates are so high that those ideals are unrealistic and having gone thru a layoff many years ago with DH I can totally sympathize and I have a great deal of compassion for so many in that predicament.

I want to reiterate, that is not what I am talking about here, I am purely talking about those that can and for whatever reason have chosen not to make their house payments.

Yes, we are upside down but not as bad as a lot in our area. If we were, I honestly don't know what we would do. I like to think we would do the right thing, we always do, but until I am in a situation I don't like to try and judge.

I struggle with the decisions my friends have made. Their actions help to make the housing situation worse and ultimately because I do "what is right" I am taking on and paying for some of their decision and that bugs me.

When son graduated from HS 2 years ago, we wanted to sell, move into town and get DD into better schools. Not happening any time soon. So, here we sit watching our neighborhood get emptier and emptier, also watching the demographic change. What was a $350-$400K neighborhood is now a $100K neighborhood and that changes who lives here. The population has affected the schools, the crime rate, the graffiti and the overall look. That might sound snobby, but come on we all buy into the most desirable neighborhood that is in our price range. So, I put DD into a charter school and we drive her into town.....Life goes on

So, now my friends are moving into better neighborhoods and some are buying in what was once the out of reach neighborhoods all because they have chosen to just walk away and let "someone" else deal with the problem.

I see both sides of the argument. I was really curious about the legal ramifications. So, I wonder of they have non-recourse loans. If they don't, given the high foreclosure rates what are the chances the banks will come after them? Again, remember I live in one of the top 3 foreclosure markets in the entire country.