Pro and Cons of Mortgage Strategic Defaults.

[Big Bertie]

My grandparents posted back the keys to their house, through the office door of the building society that had arranged their mortgage, in 1936 - my grandpa had over-estimated his earning capacity, during the depth of the 1930s slump. I think doing that caused a lot of anguish for them. Eventually the Second World War started, he joined the navy and died at Anzio - he was blown up by a German shell. Of course I can't reasonably suggest there was any connection between these events.

 

[sheeplady]

But does it undermine the system if he defaults? First, the mortgage agreement allows for him to default. The bank will take the house at its convenience in this event.

Second, the bank can better afford the loss than this individual. Even if the bank can take the loss as some type of tax write-off what is the impact of this house on the US taxpayers? Even if it was a million dollar tax write-off for the bank, this would work out to less than a penny per tax payer. Doesn't that make more sense than to hang what might be a huge financial albatross around this young man's neck? Why force him into a financial holw that he can never get out of?

Wow, that is some twisted logic when we know nothing about his bank. The big banks might be able to afford it because they got bailed out, but the small ones didn't. And the idea that defaulting on a loan isn't a huge albatross around his neck- and could be much much worse for the young man and cost him not just money but more than money- is very misguided.

 

[countryclubjoe]

Hi Folks

Thanks again for everyone's replies. Because of Hurricane Sandy my Son and I were unable to get together Sunday as scheduled.
The original subject seems moot after experieceing the devastation of the storm.
Best regards
CCJ

 

[Feraud]

It became worse when there was ~12 TV shows glorifying it. Made me wanna puke. Especially when they tore down historical homes or butchered them to become modern ****! A sad time in home history for this country.

It reminds me of how much Americans hate history.

 

[ButteMT61]

It reminds me of how much Americans hate history.

Not all of us...

 

[countryclubjoe]

Not in my family. My great-grandparents, grandparents, and mother all owned one house in their lives. My great grandparents and grandparents died in their houses, and my mother intends to in hers. The idea of "flipping" or treating a home as an investment to be cashed in is completely alien to our way of thinking. Pity that isn't the way "normal people" think.

Hi LizzieMaine
Thank you for your reply.
I truly envy you and the perfect world in which you live.
Best regards
CCJ

 

[LizzieMaine]

Not perfect, just responsible.

 

[vitanola]

Now, we see that the consenesus here is not that "a contract is a contract", but that the Mortgagor entity is morally obligated to fully perform. All well and good. I would personally agree.

I do note, however an utter lack of indignation at the non-performance of the Mortgagors Tishman, Speyer & Co., Simons, The Vornado Realty Trust, The Mortgage Banker's Association, Eichner Development Trust, The Trump Companies (FOUR TIMES, in 1991, 1992, 2004, and 2009), and thestrategic banckruptcies to offload pension obligations, in the manner of Continental Airlines, LTV Steel, AMR Corp, Avis Industrial, American Pad & Paper, and thousands of other firms.

What is sauce for the goose should be sauce for the gander. If default is immoral (and I spcertainly believe it to be so) then it should not be countinanced in either the individual or coprorate sector, but if one condones it in one sector then it is the most blatant hypocracy to object to it in the other.


In fact, I do consider many common modern business practices to be utterly morally repugnant, and so have ordered my personal affairs so that I need neither countenance nor abet such behavior, a considerable personal cost, I might note. On the other hand, I find it difficult to judge individuals who, while engaging with our modern political economy, find that they are told to play by different rules than those offered to the well connected, and find those Mrs. Grundies who offer lectures in morality while simultaneously apologising for the malefactors of great wealth contemptible.

I suspect that Miss Maine is not to be numbered among those apologists, severe though might be her mien.


In point of information. I have, so far, owned seven homes, all of which have been purchased for realtively small sums with cash and restored over time out of current income. I am not nor have I ever been a Mortgagor, though I curently hold two mortgages for purchasers of homes which I formerly owned.

 

[PrettySquareGal]

Hi LizzieMaine
Thank you for your reply.
I truly envy you and the perfect world in which you live.
Best regards
CCJ

Working class Maine is far from a "perfect world."

 

[PrettySquareGal]

Not perfect, just responsible.

Right.

 

[Noirblack]

He chose to crawl into the hole by borrowing the money. He did not buy the house from the bank. He should not have tied the albatross around his neck unless he was ready to pay for it.

The owner realizes the capital gain on the sale of a property, the same is true on a loss. Otherwise the borrower did not live up to his obligations. He may only cost the taxpayers less than a penny each but I do not want to pay a penney for every person who does not want to pay back money that they borrowed.

And the bank risked the money by lending it to him. It is noteworthy that you think the bank should not have any risk. What a world that would be if there was no risk.

Look, the bank fully knows that any deal can go bad. I am surprised that there is so much pro-bank sentiment.

 

[LizzieMaine]

For what it's worth, I was forced to sell the only house I've ever owned when I got divorced and then ran into some expensive medical problems with no insurance to cover them. I could have tried to game the system but I'd rather have a clean conscience -- which is something that no downward slope of the market can ever take away from me.

The issue here for a lot of us isn't what is or isn't financially advantageous in these circumstances or those circumstances. It's one of basic values. Personally, I'd like very much to see a Farmers Holiday Association-type rebellion rise up and completely throw over the whole filthy racket, but nickel-and-dime chiseling and "sticking it to the Man" accomplishes absolutely nothing. We need a genuine revolution, not a bunch of schoolkids snickering because they stole a quarter out of a payphone slot.

 

[ButteMT61]

This thread just makes me sad. A few glimmers of hope, but sad.

 

[tonyb]

Now, we see that the consenesus here is not that "a contract is a contract", but that the Mortgagor entity is morally obligated to fully perform. All well and good. I would personally agree.

I do note, however an utter lack of indignation at the non-performance of the Mortgagors Tishman, Speyer & Co., Simons, The Vornado Realty Trust, The Mortgage Banker's Association, Eichner Development Trust, The Trump Companies (FOUR TIMES, in 1991, 1992, 2004, and 2009), and thestrategic banckruptcies to offload pension obligations, in the manner of Continental Airlines, LTV Steel, AMR Corp, Avis Industrial, American Pad & Paper, and thousands of other firms.

What is sauce for the goose should be sauce for the gander. If default is immoral (and I spcertainly believe it to be so) then it should not be countinanced in either the individual or coprorate sector, but if one condones it in one sector then it is the most blatant hypocracy to object to it in the other.


In fact, I do consider many common modern business practices to be utterly morally repugnant, and so have ordered my personal affairs so that I need neither countenance nor abet such behavior, a considerable personal cost, I might note. On the other hand, I find it difficult to judge individuals who, while engaging with our modern political economy, find that they are told to play by different rules than those offered to the well connected, and find those Mrs. Grundies who offer lectures in morality while simultaneously apologising for the malefactors of great wealth contemptible.

I suspect that Miss Maine is not to be numbered among those apologists, severe though might be her mien.


In point of information. I have, so far, owned seven homes, all of which have been purchased for realtively small sums with cash and restored over time out of current income. I am not nor have I ever been a Mortgagor, though I curently hold two mortgages for purchasers of homes which I formerly owned.

Speaking only for myself ...

I got plenty of indignation for the money changers. And I find it embarrassing that we make a person of some importance out of so shameless a fraudster as Donald Trump, to cite one of the more glaring examples.

So no, there's no lack of indignation, utter or otherwise, in this quarter.

 

[Noirblack]

Wow, that is some twisted logic when we know nothing about his bank. The big banks might be able to afford it because they got bailed out, but the small ones didn't. And the idea that defaulting on a loan isn't a huge albatross around his neck- and could be much much worse for the young man and cost him not just money but more than money- is very misguided.

But by the same token, we don't know enough about the young man's situation, so isn't it twisted logic to condemn him without knowing more? Does he owe a million on a house now worth zilch? Or does he owe $550k on a house worth $500k? If it is the first scenario, I would urge him to get out of it. If it is the second scenario, I would urge him to stay in in. Even in the first scenario he can only do it if, in the state he lives, he is absolved from the debt. Not all states do this.

I am only pointing out that the speed and willingness to condemn the young man without full knowledge of the facts is astounding.

 

[tonyb]

But by the same token, we don't know enough about the young man's situation, so isn't it twisted logic to condemn him without knowing more? Does he owe a million on a house now worth zilch? Or does he owe $550k on a house worth $500k? If it is the first scenario, I would urge him to get out of it. If it is the second scenario, I would urge him to stay in in. Even in the first scenario he can only do it if, in the state he lives, he is absolved from the debt. Not all states do this.

I am only pointing out that the speed and willingness to condemn the young man without full knowledge of the facts is astounding.

The OP tell us that the person in question hopes to live rent free for upwards of two full years, and to pile up something like 72 grand by so doing. He also suggests, in the third or fourth post on the first page, that the property in question is underwater by something like 200K.

Would I file for bankruptcy protection over a $200K hole? Maybe I would. But then, my wife and I lived in a place we really didn't wish to be for a couple of years while waiting for the housing market to crash, which even someone so lacking in savvy as myself strongly suspected would happen. (My suspicions were quite conspicuously confirmed.) This fellow, on the other hand, is looking to live in what it is probably safe to assume is a pretty decent crib, rent free, while he amasses enough dough to buy into something else.

Smart move financially? It very well may be. But that doesn't make it smell any better.

 

[Noirblack]

The OP tell us that the person in question hopes to live rent free for upwards of two full years, and to pile up something like 72 grand by so doing. He also suggests, in the third or fourth post on the first page, that the property in question is underwater by something like 200K.

Would I file for bankruptcy protection over a $200K hole? Maybe I would. But then, my wife and I lived in a place we really didn't wish to be for a couple of years while waiting for the housing market to crash, which even someone so lacking in savvy as myself strongly suspected would happen. (My suspicions were quite conspicuously confirmed.) This fellow, on the other hand, is looking to live in what it is probably safe to assume is a pretty decent crib, rent free, while he amasses enough dough to buy into something else.

Smart move financially? It very well may be. But that doesn't make it smell any better.

Knowing it is $200k underwater isn't enough? Does he owe a million on a house worth $800k? Then stay in it because the value of the home will very likely come up so that it makes sense financially. Does he owe $300k on a house worth $100k? Then there is no financial reason to stay with the house.

Again, there may be more than just financial factors at play. We don't know all the factors driving this young fellow.

 

[sheeplady]

But by the same token, we don't know enough about the young man's situation, so isn't it twisted logic to condemn him without knowing more? Does he owe a million on a house now worth zilch? Or does he owe $550k on a house worth $500k? If it is the first scenario, I would urge him to get out of it. If it is the second scenario, I would urge him to stay in in. Even in the first scenario he can only do it if, in the state he lives, he is absolved from the debt. Not all states do this.

I am only pointing out that the speed and willingness to condemn the young man without full knowledge of the facts is astounding.

Go back and look at what I wrote. I never condemned him. In fact, if you look carefully I am strongly advocating that he get himself a lawyer and then another lawyer and another. Suggesting that a strategic default is not just a magic solution with no consequences. The idea that he can just "walk away" without serious ramifications (even if he lives in a state where he can walk away from the original debt) is extremely short sighted. People who believe that foreclosing on a home is the "smart" thing to do and will have no serious ramifications are selling people a tale. And personally, it's as large of a tale, if not larger than the mortgage in the first place.

The young man's credit will be ruined for a period of 7 years. He could lose his job because of this, if they require frequent credit checks at his position. (We know he works at a casino, and if he handles money, those types of jobs often do.) He could be unable to find work with a bad credit score. He could be unable to find housing (even to rent). If he had children (he doesn't) this could be used against him in a custody hearing. It is unlikely that he could get a loan within those 7 years- which has ramifications for him going for further education or training (financial aid), getting a car (important to drive to work), and paying his bills (he will likely lose his credit cards or at least have the limits significantly reduced). We are talking about things that are *so much more important than money.* Being homeless and jobless could happen, and anybody who says that is worth even escaping $500,000 in debt is giving really bad advice in this economy. He needs to know how likely that is to happen, and that means speaking with a darn good lawyer.

Even with all the deceptive practices that many banks do, they would rather have a paying mortgage holder than a defaulting one. That's a fact. And if you believe the industry is so incredibly rotten, what makes you seriously believe that they allow people to "just walk away" with no ramifications? The banks will and do stick it to people who default to the fullest extent they can. And anybody who jumps up and says "there are laws against that kind of behavior!" has absolutely no idea how little power a homeless jobless person has to actually do something about them being violated.

 

[tonyb]

Knowing it is $200k underwater isn't enough? Does he owe a million on a house worth $800k? Then stay in it because the value of the home will very likely come up so that it makes sense financially. Does he owe $300k on a house worth $100k? Then there is no financial reason to stay with the house.

Again, there may be more than just financial factors at play. We don't know all the factors driving this young fellow.

Well, judging from what few particulars the OP has given us -- the son hopes to save $72,000 over a couple of years by not paying the mortgage, or rent -- it looks like the nut is something on the order of three grand a month. So it's doubtful it was ever a million dollar property. Seems likelier it was a $400K property that's now worth half that. And that would be a very difficult situation for most people.

Yeah, I know, that's assuming quite a bit. But what we aren't assuming is that the fellow hopes to keep a roof over his head for upwards of two years without paying so much as a dime for it.

You're right, we don't know all the factors at play in this particular situation. But I do know that I've had dealings with people who clawed and scratched their way out of financial holes, and I've had dealings with people who repeatedly walked away from real estate contracts and filed for bankruptcy protection, and while I readily acknowledge there is such a thing as bad luck, and that some people come into the game with considerably greater advantages than others (I hold in particular disdain people born on third base telling the rest of us how to hit a ball), I have a great deal more respect for those in the former category. It seems that those in the latter category are aways running into bad luck, you know.

 

[Noirblack]

Go back and look at what I wrote...

Fair enough