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

[DisneyBamaFan]

The problem is--the market isn't in a position that it "wont' ever recover"--people will always need places to live and while you may not recoup the entire investment, over time you do pay it down. You'd have to pay rent anyway. So you don't lose all the money.

If the commercial real estate market doesn't improve soon, we may see a banking collapse that makes the last wave look like a sunny day at the beach.

ETA: Funny thing is, people don't hesitate to plop thousands down on a new vehicle and the moment they drive it off the lot, it is worth less than what they owe. But people don't flood the dealer with voluntary repo's b/c of loss in value. To me--a house is no different...

In principle, no - but in practical application they are very different unless we are talking Bentley. The numbers are too different to compare. It is like saying that all investments are equal no matter their value. Clearly we are willing to accept immediate losses on items of lower value. The lower the cost, the more inconsequential the outcome...

 

[Lisa loves Pooh]

During market booms, banks look for ways to foreclose so they can take advantage of market conditions. Well, the shoe is on the other foot, and the same people whose homes they would gladly take under other circumstances are now the bad guys.

Money lending has always been a dirty game...

Banks foreclose on people who pay their bills?

 

[Lisa loves Pooh]

If the commercial real estate market doesn't improve soon, we may see a banking collapse that makes the last wave look like a sunny day at the beach.

In principle, no - but in practical application they are very different unless we are talking Bentley. The numbers are too different to compare. It is like saying that all investments are equal no matter their value. Clearly we are willing to accept immediate losses on items of lower value. The lower the cost, the more inconsequential the outcome...

Not really. No different at all.

There isn't a free place to live anywhere unless one is fortunate to have someone else paying their bills.

Even after a home is paid in full, there are still taxes and insurance to consider.

 

[golfgal]

Imagine this situation. You have a non-recourse loan on your house. Your loan is $400,000 and your home value is $150,000. Your next door neighbor's house was foreclosed on. You buy it for $150,000 with no money down. You walk away from your current house. On the plus side, your mortgage has dropped from $400,000 to $150,000. On the negative side, your credit is hurt and you probably owe about $75,000 in extra taxes. For a lot of people, that looks like a good deal.

I get it-I could just never do it--it IS stealing.

 

[SaraJayne]

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...

Honestly, I still don't get it. So what if you are "upside down" on your mortgage?

Unless you are selling for valid reasons, it doesn't matter whether you are upside down or not. Wait, let me re-phrase that ~ it shouldn't matter whether you are upside down or not.

Our house has actually increased in value over the time we've lived here ~ we still haven't considered moving, even though we'd make money on the sale. We have no reason to move.

I personally feel it's irresponsible to "walk away" from a home that you purchased just b/c you no longer feel it's "worth it".

For the OP, tell your friends that the vast majority of people pay their bills and don't have credit problems.

 

[Lisa loves Pooh]

Imagine this situation. You have a non-recourse loan on your house. Your loan is $400,000 and your home value is $150,000. Your next door neighbor's house was foreclosed on. You buy it for $150,000 with no money down. You walk away from your current house. On the plus side, your mortgage has dropped from $400,000 to $150,000. On the negative side, your credit is hurt and you probably owe about $75,000 in extra taxes. For a lot of people, that looks like a good deal.

Good deal, but it really should not be allowed and if we are not careful, laws will change b/c too many bad folks took advantage of loop holes to escape responsibility b/c they bought at the height and now feel like fools.

B/c of people like that--folks like me and golf gal and radio nate, must deal with the repercussions of greed and take it on the chin.

Sure--we could join in the fun also, but then the idiot who bought the $150,000 house would look like a fool in a few months when his house plumments to $100,000. Then what is he going to do then?

 

[DisneyBamaFan]

Banks foreclose on people who pay their bills?

They try. There are many ways.

 

[DisneyBamaFan]

Not really. No different at all...

Some people live in a world of absolutes. I live in the real world. I have never stolen a penny, nor have I ever taken advantage of another person - but I understand how someone else might do so and not feel bad about it.

 

[DisneyBamaFan]

...I personally feel it's irresponsible to "walk away" from a home that you purchased just b/c you no longer feel it's "worth it".

Is it irresponsible to walk away from a job after the company invests a great deal of money in your training because you no longer feel that you are adequately compensated?

 

[KramBerries]

I get it-I could just never do it--it IS stealing.

I'm not so sure. It depends on the how the deal was written and presented. If there was an implication that the borrower was supposed to pay back the loan and foreclosure was only a remedy for their failing to live up to the contract, I agree. Without having more information about a loan, I wouldn't be too quick to make that sort of judgment. It could be a bit like saying someone is a thief because they called a callable loan.

 

[DisneyBamaFan]

Good deal, but it really should not be allowed and if we are not careful, laws will change b/c too many bad folks took advantage of loop holes to escape responsibility b/c they bought at the height and now feel like fools.

B/c of people like that--folks like me and golf gal and radio nate, must deal with the repercussions of greed and take it on the chin.

Sure--we could join in the fun also, but then the idiot who bought the $150,000 house would look like a fool in a few months when his house plumments to $100,000. Then what is he going to do then?

If you are doing this for everyone else, jump out now because the government estimates that there will be nearly 2 million foreclosures this year.

We all do the best that we can, and we all decide what is best for us using our own criteria...

 

[golfgal]

I'm not so sure. It depends on the how the deal was written and presented. If there was an implication that the borrower was supposed to pay back the loan and foreclosure was only a remedy for their failing to live up to the contract, I agree. Without having more information about a loan, I wouldn't be too quick to make that sort of judgment. It could be a bit like saying someone is a thief because they called a callable loan.

Sorry but you signed an agreement by taking out that loan that you would pay it back, plain and simple. Now, if you lose your job and can't make your payments, that is what the foreclosure process or the short sale process is for, but if you just want a lower house payment, sorry.

Calling a callable loan is NOTHING like what these people are doing. I would love to see a loan contract that allows someone to just walk away from a loan because they don't want it anymore.

 

[DisneyBamaFan]

I'm not so sure. It depends on the how the deal was written and presented. If there was an implication that the borrower was supposed to pay back the loan and foreclosure was only a remedy for their failing to live up to the contract, I agree. Without having more information about a loan, I wouldn't be too quick to make that sort of judgment. It could be a bit like saying someone is a thief because they called a callable loan.

Thanks - I must be getting old because I couldn't think of the name of this type of loan.

In the 70s, banks tried to take advantage of farmers by offering them callable loans for feed and seed. Well, they would call the loan in at times that they knew that farmer could not pay in order to gain the property (for which they held the mortgage). Banks do ugly things...

 

[KramBerries]

Good deal, but it really should not be allowed and if we are not careful, laws will change b/c too many bad folks took advantage of loop holes to escape responsibility b/c they bought at the height and now feel like fools.

I'm not sure I'd make a rule on whether it should or should not be allowed. I think that lenders and borrowers should be able to make recourse and non-recourse loans and the market should price them appropriately. I definitely don't like it when a state like California requires all loans to be non-recourse. I suspect that over time loans in non-recourse states will cost more (because they put the lender at greater risk) and so laws like that will force people to pay more for their mortgages.

Sure--we could join in the fun also, but then the idiot who bought the $150,000 house would look like a fool in a few months when his house plumments to $100,000. Then what is he going to do then?

He'll probably just stay in the house. He would still be better off financially than if he had stayed in the original house.

 

[KramBerries]

Sorry but you signed an agreement by taking out that loan that you would pay it back, plain and simple. Now, if you lose your job and can't make your payments, that is what the foreclosure process or the short sale process is for, but if you just want a lower house payment, sorry.

Calling a callable loan is NOTHING like what these people are doing. I would love to see a loan contract that allows someone to just walk away from a loan because they don't want it anymore.

Like I said, if the loan agreement is written the way you assume, I agree with you on the ethics of the situation. I personally haven't seen many loan agreements. Loans got really funky with balloon payment loans, zero interest loans, and all kinds of other gimmicks. I have no idea what those contracts look like. I'm not going to make a moral judgment on someone's actions until I've read the contract they are accused of violating.

 

[Amy&Dan]

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.

 

[DisneyBamaFan]

...But being in this position has made me rethink a lot things I used to think about people who walked away from mortgages.

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.

Perspective - ever changing perspective...

 

[Lisa loves Pooh]

Is it irresponsible to walk away from a job after the company invests a great deal of money in your training because you no longer feel that you are adequately compensated?

If one signs a contract and fails to honor it, then it would be irresponsible.

While laws permit folks to hand over their home collateral in a few states without recourse, most do not and thus there is recourse and litigation. If you don't want to pay--you will get screwed over royally from being prevented from borrowing money for a long while.

In the work world, most states are right to work--but if you have signed an employment contract and opt to walk, there are repercussions to that decision.

IF it wasn't wrong--there would not be consequences, but for most there are b.c you said you would do something and when you can't or either choose not to, you are SOL and have to pay the piper some way.

 

[Lisa loves Pooh]

If you are doing this for everyone else, jump out now because the government estimates that there will be nearly 2 million foreclosures this year.

We all do the best that we can, and we all decide what is best for us using our own criteria...

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.

 

[DisneyBamaFan]

If one signs a contract and fails to honor it, then it would be irresponsible.

While laws permit folks to hand over their home collateral in a few states without recourse, most do not and thus there is recourse and litigation. If you don't want to pay--you will get screwed over royally from being prevented from borrowing money for a long while.

In the work world, most states are right to work--but if you have signed an employment contract and opt to walk, there are repercussions to that decision.

IF it wasn't wrong--there would not be consequences, but for most there are b.c you said you would do something and when you can't or either choose not to, you are SOL and have to pay the piper some way.

Walking away from a mortgage isn't illegal, just as walking away from a job isn't - even if under contract. Both have repercussions. If one is willing to accept those repercussions, the only moral judgment comes from those who would judge anyway. There is no shortage of that in our society...