Pro and Cons of Mortgage Strategic Defaults.

[tonyb]

Hi A.C.

I feel the same way however I am not to business savvy.
Sons feels he will save 72k in two years. Then be able to move whereever he pleases.
Again I question the ethics of this strategy but my home is not 200k underwater so its not an issue for me.
Best regards
CCJ

And then there's this.

 

[countryclubjoe]

Two years? Not sure. Took us almost one. Surely worth it, but stressful and p*ssed us both off, as one could imagine. We have (and had) great , solid, consistent income, no late payments, yet they would not even discuss a refi with us due to the market. We called BS and went for it. I think it was worth it, but like I said, not without penalty. It's on your credit for some time. Not sure exactly how long as I've put the details out of my mind. But that's ok because I have no plans to need credit beyond what I have and need. The system is a scam and they can shove it, if you know what I mean. But I will pay what's owed always to the best of my ability. Again. Good luck. I know I come off as an a$$, but that's a genetic and environmental outcome

Hi ButteMT61-
You did not come off as an A$$ at all. You were simply doing whats best for your family. What I was getting at is,
It just seems easy for folks to jump on the so called moral soap box and throw stones at others until they themselves are faced with a moral dilemna.
I understand that my early post were vague and not all the facts were presented, I have since tried to clear the air and present more info.
Again, I thank you for your time.
Best regards
CCJ

 

[ButteMT61]

Hi ButteMT61-You did not come off as an A$$ at all. You were simply doing whats best for your family. What I was getting at is,It just seems easy for folks to jump on the so called moral soap box and throw stones at others until they themselves are faced with a moral dilemna.I understand that my early post were vague and not all the facts were presented, I have since tried to clear the air and present more info.Again, I thank you for your time.Best regardsCCJ

CCJ,I put my personal stuff in this thread to show that while I have an opinion on the subject - as I understood it from the initial posts - I am on no soapbox, and have my own imperfect life too. My biggest fear is going broke. It used to be dying from the "disease of the day" from googling symptoms that kept me up at night. I don't know if this is yet another dip that we will pull out of or the end. Flip a coin. Things are a mess.

 

[tonyb]

Hi ButteMT61-
...
It just seems easy for folks to jump on the so called moral soap box and throw stones at others until they themselves are faced with a moral dilemna.
I understand that my early post were vague and not all the facts were presented, I have since tried to clear the air and present more info.
Again, I thank you for your time.
Best regards
CCJ

I'm left to assume that you include me among those who would "jump on the so-called moral soapbox and throw stones until they themselves are faced with a moral dilemma."

I said quite some time back that if I found myself $200K underwater, I would consider filing for bankruptcy protection. I imagine that most people of modest means would do the same. But if I considered living rent-free for a couple of years, when I could afford to pay for a roof over my head, just because it would allow me pile up $72K, at which point I could "move wherever (I) please," well, I would hope that the avarice that resides in all human hearts wouldn't convince me that it was an honorable thing to do.

I don't think that it by any means is the worst thing a person might do, and I can see how it might be rationalized, especially considering the shabby behavior of many of our financial institutions. And I can see how a person might be sorely tempted, especially if he's already $200K in the hole on this deal, and especially if he believed he would actually make it all work out that way. But that still wouldn't make it right.

And I sincerely hope that at heart, we all know that.

 

[SHOWSOMECLASS]

Im sorry for stepping on toes here. From my perspective, if he was granted a loan, and agreed to the payments. Why are we discussing the house value and his loan.
If I buy a 1955 Corvette at market value. Later the classic car value bottoms out. What should I do?????????????????????
Leave it to the creditor?
He bought a "Corvette house" and now he must stay the current market until he can break even. The other option is dump his bad investment on the rest of us and we can carry him.
Btw, my credit is killer, and I would love a bigger house, but I refuse to pay the property tax and mortgage.

 

[countryclubjoe]

I'm left to assume that you include me among those who would "jump on the so-called moral soapbox and throw stones until they themselves are faced with a moral dilemma."

I said quite some time back that if I found myself $200K underwater, I would consider filing for bankruptcy protection. I imagine that most people of modest means would do the same. But if I considered living rent-free for a couple of years, when I could afford to pay for a roof over my head, just because it would allow me pile up $72K, at which point I could "move wherever (I) please," well, I would hope that the avarice that resides in all human hearts wouldn't convince me that it was an honorable thing to do.

I don't think that it by any means is the worst thing a person might do, and I can see how it might be rationalized, especially considering the shabby behavior of many of our financial institutions. And I can see how a person might be sorely tempted, especially if he's already $200K in the hole on this deal, and especially if he believed he would actually make it all work out that way. But that still wouldn't make it right.

And I sincerely hope that at heart, we all know that.

Hi Tonyb

Yes I did include you in my moral soap box example, however I will also include myself. Like I mentioned, I was never faced with this scenario.
Your points are noted and I appreciate your time.
Best regards
CCJ

 

[vitanola]

Im sorry for stepping on toes here. From my perspective, if he was granted a loan, and agreed to the payments. Why are we discussing the house value and his loan.
If I buy a 1955 Corvette at market value. Later the classic car value bottoms out. What should I do?????????????????????
Leave it to the creditor?
He bought a "Corvette house" and now he must stay the current market until he can break even. The other option is dump his bad investment on the rest of us and we can carry him.
Btw, my credit is killer, and I would love a bigger house, but I refuse to pay the property tax and mortgage.

"The other option is dump his bad investment on the rest of us and we can carry him."

Well, actually, no.

The other option is to turn the house over to the mortgagee, pursuant to the terms of the mortgage contract. Just as would any large investor.

Was it immoral for Tishman Speyer and Black Rock to default on Peter Cooper Village and Stuyvesant Town, to the tune of $5.4 billion? The Mortgagee, MetLife, received back the security, and are presumably whole per the terms of the contract. There is the small matter of the other investors, brought in by Black Rock,(including the Church of England, Calpers, Calstrs, and the Florida Teacher's pension funds) which seem to be out their entire investments, amounting to 2.2 or 2.5 billion. Just business.

Remember that many of these mortgages were sold with the intention of foreclosure, as admitted by Angelo Mozillo. They were a way t capture the equity in a buyer's down payment, and then capture the appreciation of the property after a few years of property price inflation.

Now, two wrongs don't make a right, but it is odd that so many come down on the underwater home buyers, and yet sere naught wrong with the actions of the large real estate trusts, which do this all of the time.

"The law locks up the man or woman
Who steals the goose from off the common
But leaves the greater felon loose
Who steals the common from off the goose."

 

[Burton]

I have really enjoyed reading these posts and while it can be quite depressing living in a society where it seems some are trying to destroy the very concept of right and wrong, it is uplifiting to read the writings of sensible folk who understand the truth. This is one of the reasons I enjoy the FL as there are many people who appreciate and live by standards which seem to be in decline. Back to the OP and his original post I was wondering how well this type of question would have been received many years ago. My guess is it would never have been asked due to societal shame. No problem with that now!

 

[countryclubjoe]

Hi Burton

Thank you for your reply. The economy has created difficult times for tons of people. I think most people, my Son included, tried to bit off more then they could chew and possibly did not prepare for loss of income, or health issues etc. Does this lack of preparation make the person any less moral or responsible then say a person that thinks he/she is marrying the love of there life only to find out they are marrying a two headed monster? They get a divorce, hence they break a commitment/contract. Do they still have moral character? I think yes.
But this is a great discussion.
Best regards
CCJ

 

[PrettySquareGal]

Tony, when a person says let's be a couple of gentlemen, that is an invitation to end the discourse.

Yet when I tried to do the same with you in this thread, you sent me a patronizing private message. A "gentleman" wouldn't try to bully a gal behind the scenes.

Be a gentleman and don't message me again.

 

[PrettySquareGal]

Don't blame me for that, dude. I've asked to hear your reasoning. I'm all ears.

You are defending plain, unadorned dishonesty. Perhaps there are conditions under which such dishonesty is defensible, but I have a hard time seeing it in this case, based on what we know of it. Living rent-free for two years while piling up something like $72,000 may indeed be a solid financial move, but that in and of itself doesn't forgive it.

tonyb, I've never read your posts before this thread despite that we've both been long term members of the FL. Maybe it's because you stick to the fedora et al posts where I never venture.

I've really enjoyed not just what you have to say in this thread but in the way you present yourself: as a gentleman. People like you are why I originally came to the FL.

 

[kiwilrdg]

then say a person that thinks he/she is marrying the love of there life only to find out they are marrying a two headed monster? They get a divorce, hence they break a commitment/contract. Do they still have moral character? I think yes.

I think this is a moral issue that has a profound impact on the scenario. Since there were two parties involved in the contract and one can no longer be involved there are legal and moral issues that are beyond the cut-and-dry hypethetical issues discussed in thes thread. I would think in a case like that there may be some form of mediation involved to find the best way to get the matter settled. With the possibility that an ex-spouse may get the house with no income, my guess is that the holder of the lein might be happy to get a short sale started rather than waiting two years to get a forclosure.

Living rent-free for two years while piling up something like $72,000 may indeed be a solid financial move, but that in and of itself doesn't forgive it.

But avoiding it may be a good reason for a settlement to be reached.
A good lawyer is essential and since there is finance, real estate, and divorce settlement involved in this case a great lawyer is really what is needed.

 

[Feraud]

Yet when I tried to do the same with you in this thread, you sent me a patronizing private message. A "gentleman" wouldn't try to bully a gal behind the scenes.

Be a gentleman and don't message me again.

Noted for the record.

 

[LizzieMaine]

Now, two wrongs don't make a right, but it is odd that so many come down on the underwater home buyers, and yet sere naught wrong with the actions of the large real estate trusts, which do this all of the time.

"The law locks up the man or woman
Who steals the goose from off the common
But leaves the greater felon loose
Who steals the common from off the goose."

Indeed. When one person steals it's robbery. When many steal, it's commerce. We truly live in the Golden Age of Rationalization.

But the solution isn't "well, they do it so why shouldn't I?" It should be "It's wrong for me to do it, so why exactly are we letting *them* get away with it?" Until we insist on putting morality above the dollar at *all* levels, nothing's going to change except for the worse.

 

[vitanola]

indeed. When one person steals it's robbery. When many steal, it's commerce. We truly live in the golden age of rationalization.

But the solution isn't "well, they do it so why shouldn't i?" it should be "it's wrong for me to do it, so why exactly are we letting *them* get away with it?" until we insist on putting morality above the dollar at *all* levels, nothing's going to change except for the worse.

ABSOLUTELY!

That is precisely the point that I have been trying to make. Please forgive my rather heated, wooly prose.

 

[PrettySquareGal]

Noted for the record.

Thank you.

 

[Noirblack]

Yet when I tried to do the same with you in this thread, you sent me a patronizing private message. A "gentleman" wouldn't try to bully a gal behind the scenes.

Be a gentleman and don't message me again.

I will repeat the message I sent you privately now on the public forum since you brought it up:

"PSG,

I don't want to have a big argument with you in public. However, whereas you say I routinely bait you, in this thread you responded to my comment to TonyB. I did not start a discussion with you. Also, you have done this is at least one other thread.

Please admit at least to yourself the order of events. I did not want to discuss this in public, as it would take away from the topic of the thread.

I will make a deal with you. If you do not respond to a comment I make, I will not respond to you. And then you will not need to accuse me of baiting you."

I sent it to you in private for exactly the reason I stated. I did not want to argue with you on the open forum. I fact, I don't want to argue with you at all. My offer in the private message still stands. I don't even feel comfortable putting this on the open forum, but since you took my post to TonyB as an opportunity to accuse publicly me of bullying, I will publicly defend myself.

 

[PrettySquareGal]

I will repeat the message I sent you privately now on the public forum since you brought it up:

"PSG,

I don't want to have a big argument with you in public. However, whereas you say I routinely bait you, in this thread you responded to my comment to TonyB. I did not start a discussion with you. Also, you have done this is at least one other thread.

Please admit at least to yourself the order of events. I did not want to discuss this in public, as it would take away from the topic of the thread.

I will make a deal with you. If you do not respond to a comment I make, I will not respond to you. And then you will not need to accuse me of baiting you."

I sent it to you in private for exactly the reason I stated. I did not want to argue with you on the open forum. I fact, I don't want to argue with you at all. My offer in the private message still stands. I don't even feel comfortable putting this on the open forum, but since you took my post to TonyB as an opportunity to accuse publicly me of bullying, I will publicly defend myself.

Good for you. Now, leave me alone.

 

[memphislawyer]

Things are similar in Tennessee and yet different. We are a non-judicial foreclosure state, which means that unless the homeowner files a lawsuit (or bankruptcy) to enjoin a foreclosure, this takes place outside of court. The trustee under a deed of trust (think mortgage here) has the power to conduct a sale, usually on courthouse steps, after advertisement and notice.

Yes, there are strategies all around. Some people advise filing suit to make the trustee provide the note, prove all the assignments. Usually, this is going to result in tremendous fees on each side, and the homeowner usually runs out of funds to keep the litigation going. If he has money, why the default on the mortgage in the first place?

Now, remember, the law is not necessarily moral. It is more a tool to restrain bad or evil behavior. What is moral in allowing a 0.08 blood alcohol content, why not 0.05, or 0.10 which is what it was generally before it was lowered, or what about zero tolerance, for after all, don't we teach our kids not to drink and drive, so why any level?

That aside, here is what I worry about. Say the son does this and he is ready 2 years down the road to go buy a new house. You don't know what the availability of credit will look like. Here in Tennessee, we have businesses that buy defaulted loans. Typically, they buy old credit card debt that a bank has charged off and they pay maybe 10 cents on the dollar. They file a ton of lawsuits with collection law firms that do a big volume. What if the bank your son holds a mortgage with decides to jettison this paper? If he gives the house back, or lets them foreclose, there is still that naked promissory note out there that could come back and haunt him. Also, forgiveness of debt, a lot of banks are in turn filing these 1099's with the IRS and causing the homeowner huge tax problems.

For many people, they did get hit by a lot of factors, loan originators telling them to qualify for as big a loan as they can, or advising them to buy as much house as they can since mortgage interest is tax deductible, and not telling them that they are paid on commission, so the bigger the loan, the more money for the originator. When the recession hit, jobs played out and living in a house rent-free would be a means of last resort.

I don't know, I'm not smart enough or risk-averse enough, and plain don't have the stomach or constitution, to game the system like that. I would want to shut my eyes at night and know, not worry.


edit: I went back and reread most of the posts. I wanted to comment on some of them

1) The homeowner son was not really shafted. Sure there was fraud in the mortgage industry, but it is not like anyone went out into the streets and drug this son into their office and made him take out a mortgage. Generally people know when you borrow money, you have to pay it back.

2) It is a contract after all. Contracts are not moral or amoral for the most part, they are just agreements. We are taught in law school that they carry a duty of good faith.

3) The son really is within his legal rights to squat. It is a fact of the mortgage industry that to take the house back requires either judicial action or following the terms of the contract. In Tennessee, you can file an eviction proceeding to get the guy out of the house before foreclosing, but that is rarely, rarely done. Let some big mortgage company hire me and I'd love to test that, because it is a permissible action in the deed of trust. I just don't see it done until AFTER the property is foreclosed on. The mortgage lender is a big boy, with tons of attorneys being hired, and they know that the homeowner can squat. So if they freely lent out money and created this mess, they have to live with it. At the time he bought the house, I am quite sure the son never envisioned this mess - sure, he may think his house may not go up much in value in the short term, but no one really ever thought that, absent lack of repairs, houses would lose the equity to the extent that some have done. So now he is re-evaluating his position. Smart in that respect. Maybe he can squat two years, who knows. In Tennessee, depends on how soon they start foreclosure and most banks don't do it until at least the 4th missed payment. The process can take about 6 weeks from start to finish and then there is the eviction process that takes another 5 weeks or so once the new owner has title and elects to pursue eviction.

3) that juvenile court judge in Cleveland should have known better. Yes, I am told that websites and even the banks themselves tell homeowners they can not refinance a loan that is not in default and to miss a few payments. I have had to file chapter 13 bankruptcies for people that did this. And then the Obama administration set about policies and rules for having the mortgage companies do the refinancings, but one in ten people were successful. In the meantime, homeowners continued to miss the payments, even by agreement with the mortgage company, but few people really set the money aside, and then when the bank said now, they now added more fees and interest to the missed housepayments. Ugly scene and still causing problems. Usually you had to send in tax returns and pay stubs and then the question comes up, well, if you could not pay the note when you were making more money, what makes us feel secure now to refinance it when you are making less money? Some people had to take a wage cut or freeze to keep their position.


4) To the original poster, wow, this is one of those sorts of things that you never think you would ever have to have the talk with a child. Life happens, and the son is just trying to think his way through a bad situation. Not like a lot of others have not. And there is a certain logic in his thinking, but that is adverse to what we think we want to instill in our children - honoring your word, to the good and bad effect of it. You would not want someone to cheat him out of his wages, or his property, so why have him considering to it to someone else. But a breach of contract is that, a breach, and carries no criminal penalties, not like it did in pre-colonial England, with debtor prisons.

 

[tonyb]

Things are similar in Tennessee and yet different. We are a non-judicial foreclosure state, which means that unless the homeowner files a lawsuit (or bankruptcy) to enjoin a foreclosure, this takes place outside of court. The trustee under a deed of trust (think mortgage here) has the power to conduct a sale, usually on courthouse steps, after advertisement and notice.

Yes, there are strategies all around. Some people advise filing suit to make the trustee provide the note, prove all the assignments. Usually, this is going to result in tremendous fees on each side, and the homeowner usually runs out of funds to keep the litigation going. If he has money, why the default on the mortgage in the first place?

Now, remember, the law is not necessarily moral. It is more a tool to restrain bad or evil behavior. What is moral in allowing a 0.08 blood alcohol content, why not 0.05, or 0.10 which is what it was generally before it was lowered, or what about zero tolerance, for after all, don't we teach our kids not to drink and drive, so why any level?

That aside, here is what I worry about. Say the son does this and he is ready 2 years down the road to go buy a new house. You don't know what the availability of credit will look like. Here in Tennessee, we have businesses that buy defaulted loans. Typically, they buy old credit card debt that a bank has charged off and they pay maybe 10 cents on the dollar. They file a ton of lawsuits with collection law firms that do a big volume. What if the bank your son holds a mortgage with decides to jettison this paper? If he gives the house back, or lets them foreclose, there is still that naked promissory note out there that could come back and haunt him. Also, forgiveness of debt, a lot of banks are in turn filing these 1099's with the IRS and causing the homeowner huge tax problems.

For many people, they did get hit by a lot of factors, loan originators telling them to qualify for as big a loan as they can, or advising them to buy as much house as they can since mortgage interest is tax deductible, and not telling them that they are paid on commission, so the bigger the loan, the more money for the originator. When the recession hit, jobs played out and living in a house rent-free would be a means of last resort.

I don't know, I'm not smart enough or risk-averse enough, and plain don't have the stomach or constitution, to game the system like that. I would want to shut my eyes at night and know, not worry.

Oh, what a tangled web we weave, eh?

Thanks for bringing some real knowledge of the law. And thanks for concluding that what it all boils down to is that doing the right thing is still usually the right thing to do.