# In foreclosure soon



## cgeidl (Oct 29, 2008)

We are retirees of 10 years and bought several rental investment properties in Arizona. One we put down 20% is now worth about 50% of the original price we paid and $75000 less then the loan amount. The bank will not take a deed in lieu of foreclosure so we are thinking of letting them foreclose. Our credit will go way down for several years but we do not know how low. We have always been in the high 700's and are wondering if this would change our present credit card limits we have had for years.
We are not needing to ever get any more loans so for us it is better than using up our retirement funds to pay for the foreclosure. ANy other tuggers in the foreclosure situation??Pros and cons???


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## Icarus (Oct 29, 2008)

You can't afford to pay the mortgage on the property or you just want to walk away from your debts because your investment lost value?

-David


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## ricoba (Oct 29, 2008)

I am with David, I don't quite understand your dilemma.  

You say you bought several properties, but you are only talking about one in which you are "upside down".

If your  loss is currently only a paper loss, why not simply keep renting the homes out that produce income and wait for the market to hopefully re-adjust, so you are not in so deep?

Either way, it must be stressful, but I am sure there is a better solution than just walking away and ruining a lifetime of good credit.  Good luck.


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## pcgirl54 (Oct 29, 2008)

Are the properties owned individually or in an LLC? In other words how are they titled and financed?


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## isisdave (Oct 30, 2008)

I don't know about Arizona specifically, but because the property is not your residence, foreclosure may not relieve you of your liability for the loan. In other words, you might lose the property, and the lender might be able to sue you for the deficit.

You need a lawyer.


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## Fern Modena (Oct 30, 2008)

Since you own other property (your residence, for one) which is either paid up or current, I'd think it would be very doubtful that your lender would "let you off the hook" in a foreclosure.  I'm guessing this because they wouldn't allow you to deed back in lieu of foreclosure.  If they do foreclose and then sell your house short, they will most likely expect you to make up the difference between the short sale and the loan balance.  

In the end, the least to look forward to is that you'll have to make up the difference, no longer own the property, and have a thrashed credit score.  And if you don't have enough money to make up the deficiency, they could put a lein on your residence or sue you.

You tried to play the speculation market, and lost.  You signed the loans, you're responsible, even if you didn't think of the possibility of this happening.  

Fern


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## JEFF H (Oct 30, 2008)

cgeidl said:


> We are retirees of 10 years and bought several rental investment properties in Arizona.



If you purchased for rental investment I would expect you had it worked out so the rental income provided a positive cash flow.
Are you now having trouble renting the property?
If its renting why not continue with your original plan and wait for the market to rebound befor selling.

You should investigate your options carefully. New programs are likely to be coming soon that  help people who are upside down on mortages and maybe one of these will benefit you.


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## cgeidl (Oct 30, 2008)

*Thank you for all the comments*

The property is in an LLC.Originally three years ago it broke even.We have an eviction of tenant in the property which  we may go to foreclosure.
We have always paid all our bills on time but can not afford the negative cash flow which may persist. We are tired of most of our tenants and planned to be out of all rentals by 70.We have the other two homes up for sale and will lose a bit of our down payments but the bank will be paid off.
We do not plan on obtaining any new loans or getting any new credit cards so we do not think the negative credit report will effect us with our existing cards we have had for years.


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## RahRah (Oct 30, 2008)

Your LLC, I'm assuming, is a single pass-through entity that holds your real estate investments entirely....basically each property you've purchased isn't its own LLC?

That alone is going to subject your other investments you do not walk away from to the liability of the one you're looking to get out from under (which, personally, I don't think you should try to do).

Add to that, it won't just be your credit score that is affected....if the home is foreclosed and then sold at auction, you'll be responsible for any short-fall anyway - so you've not eliminated your indebtedness, just continued it, now without any property attached to the debt.

Add to that, the lender can also then place liens on your other property for the difference, take you to court for the difference, win a judgement that will stay with you until its paid upon the sale of one or more properties, or when you die and your heirs liquidate your estate.

One more add to that - the lender can also cut you a 1099, which creates a whole 'nother headache for you tax wise.

I'm not a lawyer, nor do I play one on TV, but I'd strongly suggest you make an appointment with an attorney, discuss your options and see if there is a way you can do some creative financing to keep the property and pay your debt you took responsibility for.

Perhaps you can offer the house in a rent-to-own option?  

Perhaps you can refinance it and extend your payments out again so if you've paid off some of the loan (say five years) you can refinance it for thirty again, thus lowering your payment obligation each month?

Perhaps you can find a company in the area in need of an executive home and furnish it so they can rent it?

I don't know where it's located, but if it's a tourist spot, you might consider renting it out by the week or month to tourists?  If it's a college town, maybe rent each bedroom seperately to students?

If all else fails, perhaps just keep paying your obligation from the positive cash-flow on your other properties?


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## Lawlar (Oct 30, 2008)

*Don't Make Payments*



cgeidl said:


> The bank will not take a deed in lieu of foreclosure so we are thinking of letting them foreclose. Our credit will go way down for several years but we do not know how low. We have always been in the high 700's and are wondering if this would change our present credit card limits we have had for years.



I disagree with those that believe you should continue making payments.

I helped thousands of people in similar problems in the 1990s.  My advice then (as it would be today if I wasn't retired) is stop making the payments.  The lenders won't deal with you until you are behind in the payments.  

In California lenders normally cannot seek a deficiency judgment against you if you default on a mortgage (there are exceptions to this rule).  The law may be different in AZ (and I believe it is).  So you should consult with an AZ lawyer.  Regardless, in this crisis you will eventually see the government and lenders formulate a plan to give mortgage relief to borrowers to induce them to keep their homes.

My clients were often able to buy another home within 2 years after filing a bankruptcy.  A foreclosure is actually considered worse than a bankruptcy but it is not fatal.

I was in AZ two weeks ago and I couldn't believe the thousands of new homes that were built in the last few years.  New homes for as far as the eyes could see.  My wife's two sons bought homes there in the last few years and they are upside down, big time.  I have advised them to stop making the payments.  This was topic No 1 on the talk radio shows in AZ.  I expect many AZ homeowners are going to stay in their homes, rent free - without making their payments - until the foreclosure process is completed and then they will simply walk away.

You need to consult with a reputable lawyer, with bankruptcy experience, to look at your entire situation.  There is nothing immoral about filing bankruptcy or walking away from a bad deal (and if morals have anything to do with it, our financial institutions are in no position to point fingers - and in the 1990s many of my bankruptcy clients were bankers and real estate brokers - And I wish I could have filed the bankruptcies Donald Trump filed for his businesses.).


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## Holly (Oct 30, 2008)

This kind of thinking is why we are in this mess in the first place.  You have to be kidding?  There is absolutely something morally wrong with walking away from your obligations...our financial institutions are wrong and you are too.




Lawlar said:


> I disagree with those that believe you should continue making payments.
> 
> I helped thousands of people in similar problems in the 1990s.  My advice then (as it would be today if I wasn't retired) is stop making the payments.  The lenders won't deal with you until you are behind in the payments.
> 
> ...


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## RahRah (Oct 30, 2008)

Lawlar - the OP doesn't live in the home, it's not their primary residence....it's an investment property that is rented out, thus if they walk away, their current home is up for grabs by the lender in the foreclosure, in the form of liens and/or judgements, if the sale of the foreclosed property is less than what is owed on the mortgage.

Bankruptcy may protect their primary residence, but it sounds like they have other investment properties other than this one that is upside-down right now - and that means they'll potentially lose those properties if they go for a bankruptcy since they're not off-limits like the primary residence (in some states) - I don't know if the primary residence would be off-limits in a bankruptcy in AZ?

They have more than one investment property they're working with here - and this _one_ is negative right now - not a reason IMO to walk away from the single one not making money....the others sound to be doing fine, so one loser in a portfolio of evens/winners isn't reason to walk away from an obligation freely entered into for investment.


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## RahRah (Oct 30, 2008)

Holly said:


> This kind of thinking is why we are in this mess in the first place.  You have to be kidding?  There is absolutely something morally wrong with walking away from your obligations...our financial institutions are wrong and you are too.



I agree!    :annoyed:


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## Defcon1 (Oct 30, 2008)

*Agree with previous post...*

I am a Banker in California and here it's a single action rule here.    They can opt to take the home by foreclosure or move against you personally trying get your other assets before taking the home - which I have not seen (I am sure some here will pipe up and say it's happened though).  You should consult an attorney to be sure you understand your rights and the creditors rights if you decide to move forward.  

K

ps.. Here, lenders can't go after you for a deficiency except under certain circumstance like fraud.   Mostly the banks take the house and it's over.


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## RahRah (Oct 30, 2008)

Defcon1 said:


> I am a Banker in California and here it's a single action rule here.    They can opt to take the home by foreclosure or move against you personally trying get your other assets before taking the home - which I have not seen (I am sure some here will pipe up and say it's happened though).  You should consult an attorney to be sure you understand your rights and the creditors rights if you decide to move forward.
> 
> K
> 
> ps.. Here, lenders can't go after you for a deficiency except under certain circumstance like fraud.   Mostly the banks take the house and it's over.



Here is the relevant portion of the Arizona Statute discussing deficiency:

Section 33.729. Purchase money mortgage; limitation on liability

A. Except as provided in subsection B, if a mortgage is given to secure the payment of the balance of the purchase price, or to secure a loan to pay all or part of the purchase price, of a parcel of real property of two and one-half acres or less which is limited to and utilized for either a single one-family or single two-family dwelling, the lien of judgment in an action to foreclose such mortgage shall not extend to any other property of the judgment debtor, nor may general execution be issued against the judgment debtor to enforce such judgment, and if the proceeds of the mortgaged real property sold under special execution are insufficient to satisfy the judgment, the judgment may not otherwise be satisfied out of other property of the judgment debtor, notwithstanding any agreement to the contrary. 

B. The balance due on a mortgage foreclosure judgment after sale of the mortgaged property *shall constitute a lien against other property of the judgment debtor*, general execution may be issued thereon, and the *judgment may be otherwise satisfied out of other property of the judgment debtor*, if the court determines, after sale upon special execution and upon written application and such notice to the judgment debtor as the court may require, that the sale price was less than the amount of the judgment because of diminution in the value of such real property while such property was in the ownership, possession, or control of the judgment debtor because of voluntary waste committed or permitted by the judgment debtor, not to exceed the amount of diminution in value as determined by such court.


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## Icarus (Oct 30, 2008)

cgeidl said:


> We have an eviction of tenant in the property which  we may go to foreclosure.



What???



> We have always paid all our bills on time but can not afford the negative cash flow which may persist. We are tired of most of our tenants and planned to be out of all rentals by 70.



Which "may" persist? So you want to walk away from your obligations on investment property because you took some risk and it didn't pay off for you?

And you aren't even sure if and for how long you will be in a negative cash flow situation? Did you think there might be a risk that you might be in a negative cash flow situation if you couldn't keep the property rented all the time? That's a standard risk for any real estate investment, isn't it?

Did you think that since you might not be able to afford the risk that a real estate investment wasn't the right thing to do for you? Did you put the bulk of your investment money in real estate?

Or is it just a matter of not wanting to use your savings which might put a dent in your lifesyle?

-David


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## Egret1986 (Oct 30, 2008)

*Wow, I definitely agree there's something morally wrong.*



Holly said:


> This kind of thinking is why we are in this mess in the first place.  You have to be kidding?  There is absolutely something morally wrong with walking away from your obligations...our financial institutions are wrong and you are too.



I am currently experiencing the fall-out of someone walking away from their obligations and filing bankruptcy.  Maybe some of us are mistaken, but it does sound like the OP is tired of being a landlord and doesn't want to be obligated any more for a risk they took on because when things were flying high in real estate and the economy was good, they thought there was money to be had.  The OP hasn't indicated that their world is crashing in around them, they are about to lose everything and are about to be out on the street.  It just sounds like things aren't working out as planned and they don't want the burden created by THEIR choices.  There used to be a certain stigma about filing for bankruptcy and foreclosure.  Now it just seems like many people and companies feel like, "why not let someone else deal with it; everybody else is doing it." 

As Holly said, "This kind of thinking is why we are in this mess in the first place."    Hello?

If it's just a matter of not wanting to be a landlord anymore and this is putting a crimp in your lifestyle and you're going to have to take a loss on a gamble you made, then I say to you "SUCK IT UP!" (quote from one of my fitness instructors I hear ringing in my head right now).


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## gmarine (Oct 30, 2008)

You need to consult a lawyer. If you think you are just going to walk away and expect the bank to take the hit on the price drop while you continue owning another home(s) and have money in the bank I think you are mistaken. 

And as the others said, this kind of thinking is what has gotten the country in this mess in the first place. Many people who have been upside down on home loans were able to talk away because they have no other assets for the bank to go after. You on the other hand are going to make a nice target for the bank to go after so they can collect the debt. 

One way or the other your going to end up paying for your mistakes, as you should.


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## ricoba (Oct 30, 2008)

While I empathize with your situation, it does appear as Fern point out, you speculated on the housing boom and unfortunately lost at that game. 

As you are well aware, you are not alone in that scenario.

It would appear to be time to rethink and rework your original rental income/housing speculation plan.  While you may have only planned on being in the market for 10 years, and then sell for a profit, that's obviously not going to happen.  Simply walking away in my mind is not the best solution.  Why not come up with some alternatives to continue to generate income from the homes?  Simply not liking the tenants is not a reason to get rid of them. And while you may not have wanted to be landlords in your 70's, right now it seems that this may be your option. 

Best of luck to you.


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## funtime (Oct 30, 2008)

Advice to get an Arizona lawyer that specializes in real estate is a good one so that you will have legal advice prior to taking action. In that respect, a general practitioner is not advised - if the state has a board certification process, get one board certified in real estate.  
 I know what you mean re being tired of your tenants.  I have had my share of bad ones. However, on the bright side, I think that the pool of tenants in terms of quantity and quality is going to be increasing - where are they coming form?  Other foreclosed homes!  Some of these folks really want their kids to stay in the same schools and could be long term tenants that work out well.  So if you decide to keep the property, consider that you may not have as difficult time finding a quality tenant as you think you might have.  Good luck with your situation.


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## ricoba (Oct 30, 2008)

funtime said:


> ....I think that the pool of tenants in terms of quantity and quality is going to be increasing - where are they coming form?  Other foreclosed homes!  Some of these folks really want their kids to stay in the same schools and could be long term tenants that work out well.  So if you decide to keep the property, consider that you may not have as difficult time finding a quality tenant as you think you might have.  Good luck with your situation.



This I think, is a good positive spin on an otherwise very negative circumstance and I think it's good advice.  After all the OP has been given a lot of lemons, and I agree that it's time to start making lemonade!


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## Mydogs2big (Oct 30, 2008)

We bought our investment houses in the early 90's when everyone thought we were really foolish.

We had to pay more than the house cost us for a few years.  The value of our houses stayed stagnant for 10 years, but rents increased because the population grows and no one wanted to buy.  The last few years we doubled the value because any one that had half decent credit was financed into their own house- but our quality of renters decreased.  Now we see better quality renters.

We are looking at the same thing now.  If you own a house that's a couple hundred shy of it's mark, don't worry, rents will be increasing!  Then it's just a matter of time before the houses continue to rise in value. (Remember no one is building now, but the population continues to grow)  Sell then!  Not now because you had a bad renter and the market says your house is worth nothing.  Consider how much it would cost to replace (build) another.

I've always said landlords complain all the way to the bank.  I've done it too.
Like someone else said "Suck it up"


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## rickandcindy23 (Oct 30, 2008)

Our rental property appraised for $195,000 5 years ago, and now it would probably appraise for less than we owe on it, and we put 25% down.  I don't care because we have great renters who are taking care of the place.  They have been there for 18 months, and they want to stay until their kids graduate from school.

Real estate values go up, and they go down.  It's a pattern that repeats itself.  The bubble burst, and it's happened before.  Our house went down in value during the period of high interest rates, before Reagan came into office.  We owed much more than it was worth, and there were foreclosures all around us.  I was just glad we had a fixed 10.5% rate with FHA.  The other folks were paying more.  

I am with the others here  who are asking why you think it should be easy to walk away from your obligations?  We just lost a lot in the stock market, almost everyone did, and we just have to let it build back up again.  Same with the real estate market.  We will sell our rental property when the value goes back up to where it was before.


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## dougp26364 (Oct 30, 2008)

Lawlar said:


> I disagree with those that believe you should continue making payments.
> 
> I helped thousands of people in similar problems in the 1990s.  My advice then (as it would be today if I wasn't retired) is stop making the payments.  The lenders won't deal with you until you are behind in the payments.
> 
> ...



Wow, I received similar advice back in the '80's when my wife quit making payments on our home after we were divorced. It took me over 10 years to rebuild my credit to respectablity and that line about buying anything on credit only two years later has become laughable to me. I was sold the same line of BS and guess what, I couldn't get a loan for a tank of gas for over 7 years. I couldn't buy a car, buy a home and had to take out CC that were very low limits with banks of questionale reputations in order to build up any sort of credit very slowly.

I do not believe this is good advice either for the consumer, the bank or the country.


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## PigsDad (Oct 30, 2008)

Gee, wouldn't it be nice to take out a loan, purchase some stock in some company that you think might be the next Microsoft, and if the stock goes down instead of up, just walk away from the loan?  

This is _*exactly *_what the OP is thinking of doing.  They bought a speculative investment, and instead of paying off for them, it sank in value.

Walking away from that is not a moral issue?  Hardly!!!  

Kurt


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## Barbeque (Oct 30, 2008)

This walk away talk is why this country and the world is in such big DOO DOO.  PAY YOUR BILLS    
I lost in the stock market, my house went down in value.  But I am a man of my word.  I will take care of my obligations as best as I can.  
I have seen people in our town walk away from loans just because the home was not worth what they owed on them   
Some of these people have lots of money way more than I do I think they should be jailed. 
One guy letting his house go back to the bank and buying the nicer house across the street for 60 percent of the price he owed on the original for cash      Not honorable in my book
If they can make the payment they are thieves they signed prommisary notes   not only for a profit.


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## Lawlar (Oct 30, 2008)

*A little compassion*

So I guess some of you disagree with me.  That’s ok.  A couple of thoughts:

I have sat with many clients who were losing everything they had because of a bad economy / divorce/ medical problems/ investments, etc.  They are devastated.  It is a difficult thing to see.  I have compassion for these people [And yes I realize that the OP may have plenty of money and be able to absorb this loss.  On the other hand, since they are retired, it could result in their living in poverty.]

I hope the OP seeks advice from an attorney so that if nothing else they will learn that their social security/pensions/equity in their home is probably protected from creditors’ claims.  They don’t have to worry that they will be living in the streets.  An attorney can frequently negotiate a settlement in these situations that will be fair to both the lender and borrowers.

You free capitalists out there should remember that when a lender gives a loan to a person the lender is also taking a risk.  That is why the creditor is getting a higher rate of interest than by investing the money in CDs.  The real estate market has collapsed so the mortgage lenders are going to have to bear some of the losses.  That is what the lenders bargained for. 

By the way, we taxpayers just agreed to give wall street 750 billion to bail them out from these mortgage loans.  Maybe some of the borrowers could use a little bailout.


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## T_R_Oglodyte (Oct 31, 2008)

Lawlar said:


> You free capitalists out there should remember that when a lender gives a loan to a person the lender is also taking a risk.



Absolutely.  That's why both of them should share the pain, instead of one of them walking away and leaving the other with all of the burden.  It is as unconscionable for the borrower to force the lender to absorb the downside as it is for the lender to force the borrower to bear all of the burden.  

Further it's equitable that the distribution of "pain" if the situation goes sour should in some way reflect the potential rewards the parties might receive if the deal works. When one of the parties in a transaction receives the greater payout if all goes to plan, that party should also assume the biggest risk if the situation goes south.  I use that principle frequently when I negotiate indemnifications and liabilities  in my contracts. If you sign up for the biggest payout,  you should also be prepared to shoulder the biggest portion of the risk.

People started investing in real estate because they saw a chance to put 15% down on a piece of property, then turn around in 5 to 10 years (or less) and double or triple (or even more) the amount of money they put in as a downpayment.  That's about a 20% to 50% rate of return. In the process they were using other people's money to finance the deal, paying the other people 8% or so for the use of their money while they were looking to make much more on their stake in the investment. 

*To put it bluntly, they were playing with other people's money.*  Certainly the banks are not faultless; they were stupid for getting caught up in the bubble and for not maintaining rigorous underwriting standards. Nevertheless, if you grasp the concept that the downside on a project should be allocated in the same manner as the upside, it's clear that the borrowers are the ones who should bear the larger portion of the burden when the loan goes under.


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## SDKath (Oct 31, 2008)

Holly said:


> This kind of thinking is why we are in this mess in the first place.  You have to be kidding?  There is absolutely something morally wrong with walking away from your obligations...our financial institutions are wrong and you are too.



Totally agree.  I mean WTH is this country turning into?????   I keep hearing these CNN talking heads mentioning "predatory lenders" and home buyers being "victims" but I just don't get it.     You buy it, you have to pay for it.  No one forces you to sign on the dotted line.  How is it that all of a sudden people expect to be bailed out?  Or worse, just stop paying and walk away with no responsibility and a hope for little repercussion??

Katherine


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## Wonka (Oct 31, 2008)

Lawlar said:


> So I guess some of you disagree with me.  That’s ok.  A couple of thoughts:
> 
> I have sat with many clients who were losing everything they had because of a bad economy / divorce/ medical problems/ investments, etc.  They are devastated.  It is a difficult thing to see.  I have compassion for these people [And yes I realize that the OP may have plenty of money and be able to absorb this loss.  On the other hand, since they are retired, it could result in their living in poverty.]
> 
> ...



I understand that many home values have dropped more than 20%.  But, isn't the lender's risk reduced by required mortgage insurance when the down payment is lower than 20%?  As such, I would assume many of the mortgages in default are protected by insurance reducing the banks risk, no?


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## Icarus (Oct 31, 2008)

Wonka said:


> I understand that many home values have dropped more than 20%.  But, isn't the lender's risk reduced by required mortgage insurance when the down payment is lower than 20%?  As such, I would assume many of the mortgages in default are protected by insurance reducing the banks risk, no?



Those insurance contracts brought down AIG, and several other financial institutions including Fannie Mae, etc, and even some countries. They were unregulated and trading on those insurance contracts wasn't even reported.

Supposedly, those contracts are in the trillions of dollars as several institutions and hedge funds were trading CDOs without even having mortgages or other loans to protect.

Where have you been that you didn't know this?  I didn't know that we had interplanetary travel. Didn't these news stories make into your copy of "Universe Today"?

All of this contributed to the credit markets drying up as investors really have no idea what the underlying value of the investments are worth anymore. Add to that people that can afford to pay their obligations, but instead choose to try to walk away from them, and where does that leave us?

Mortgage insurance worked well for everybody when the number of defaults was reasonably low.

Anyway, the idea behind mortgage insurance is that it protects the lender, not the borrower. The lenders are obligated to attempt to collect on loans even if those loans are insured. So it's really not pertinent to the OP. Anyway, this was an investment property.

-David


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## T_R_Oglodyte (Oct 31, 2008)

Icarus said:


> Those insurance contracts brought down AIG, and several other financial institutions including Fannie Mae, etc, and even some countries. They were unregulated and trading on those insurance contracts wasn't even reported.



Mortgage insurance was grossly underpriced for the risks assumed by the underwriters.

The underwriters priced PMI as if the risks were similar to life or property insurance.  With those products in any year a certain number of claims can be expected, and while you pay out those claims you still have premiums coming in that don't differ too greatly from what is paid out in claims.  Some years payouts are greater, and some years less, but overall they balance.  That process works when the occurrences of events being insured are largely independent and unrelated.

The underwriters approached PMI the same way.  But they failed to adequately recognize that failures in the mortgage market are not unrelated; because failures are tied to economic conditions the occurrence of individual defaults isn't independent of other defaults; in fact, the higher the default rate the greater the probability that more defaults will occur.

The scheme was fundamentally unstable; the underwriters got caught with payouts that greatly exceeded their ability to pay.  When the insurers were unable to pay off on their policies, the policy holders were forced to mark down the values of their portfolios. Since many of the policy holders were banks and financial institutions, those writedowns deducted directly from capital.  Because their ability to lend is directly tied to their available capital, the lenders were forced to stop making loans and reduce outstanding loan balances wherever they could to restore their capital ratios.

Even if someone was a good credit risk with a good history, it didn't make any difference.  The banks needed to call in loans ad reduce credit balances anywhere they could to restore their capital ratios.  We are in the throes of the ensuing meltdown, and it will continue until there aren't any more writedowns, the banks have absorbed all of the losses, and capital rations are restored.  At that point the banks will be able to start lending again.


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## Mydogs2big (Oct 31, 2008)

[You free capitalists out there should remember that when a lender gives a loan to a person the lender is also taking a risk. That is why the creditor is getting a higher rate of interest than by investing the money in CDs. The real estate market has collapsed so the mortgage lenders are going to have to bear some of the losses. That is what the lenders bargained for.

By the way, we taxpayers just agreed to give wall street 750 billion to bail them out from these mortgage loans. Maybe some of the borrowers could use a little bailout.]

*I don't believe free capitalists would all agree.  Although most pay taxes or gift to charities for the poor and we might even make laws to protect people from losing there own homes or going hungry or cold, (unlike most of the world).

I believe that most free capitalist buy into the "taking responsibility, and evaluating your risks very carefully before putting everything on the line" philosophy.*


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## Icarus (Oct 31, 2008)

Lawlar said:


> By the way, we taxpayers just agreed to give wall street 750 billion to bail them out from these mortgage loans.  Maybe some of the borrowers could use a little bailout.



And as I'm sure you know, they are working on a plan to renegotiate $500B worth of mortgages, with the government taking half the risk and the lenders taking half the risk. The expected cost to taxpayers is $50B and that's included in the $700B bailout cost.

I have a lot of sympathy for people that are in danger of loosing their homes because of the current situation. Mortgage lenders should not be permitted to underwrite mortgages just at the initial teaser rates. That's exactly how we got here. Everybody involved played that game, and it worked for a while.

I have very little sympathy for investors that knowingly took a risk by buying investment property with OPM simply based on the "fact" that real estate always goes up in value. That's basically just greed to expect to be able to walk away when the investment goes bad, but stick around when the investment works.

Are you really saying that both of those cases are the same?

Can I go back to when my 401k account peaked in value and say that I didn't want it to lose the value it has lost and have somebody pay me back what I've lost?

-David


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## Wonka (Oct 31, 2008)

Icarus said:


> Those insurance contracts brought down AIG, and several other financial institutions including Fannie Mae, etc, and even some countries. They were unregulated and trading on those insurance contracts wasn't even reported.
> 
> Supposedly, those contracts are in the trillions of dollars as several institutions and hedge funds were trading CDOs without even having mortgages or other loans to protect.
> 
> ...



Icarus-

*Lighten up!  What's the point of your rude response?  It isn't appreciated.  The smiley doesn't help.*

First, Im' well aware that the PMI insurance was underwritten by AIG, and was the primary reason AIG was going under.  However...I would assume the bailout also means those insurance contracts will be paid.  Is that incorrect? 

I'm also aware AIG issued almost $300 billion of mortgage insurance on European loans.  Many foreigners invested in US real estate because of the low exchange rate and profits.  Will the US bailout money also be used to ensure the insurance is paid to banks in Europe?  Or, does AIG have a different European subsidiary? 

The point I was making is the banks did limit their risk with PMI insurance paid by the borrower in many cases, but that still didn't stop their greed and we're all paying for it now.

Steve's earlier respond described my feelings quite well.


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## cgeidl (Oct 31, 2008)

*Comments were appreciated*

We discussed our situation with an AZ real estate attorney and there will be no deficiency judgment that a bank could acquire.
We have not decided  to do this yet but have tried several times negotiating with the bank non-successfully.The bank suggests short sale but will not agree to a price ahead of listing and it can take 4 or more months to get a response after you receive an offer.Only 5% of the Phoenix homes under a short sale ever get an agreement by the bank
We would not be destitute if we lost the money but it would effect our living style.


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## Fern Modena (Oct 31, 2008)

[cgeidl: You posted here (I believe) in hope of validation for what you were thinking about doing.  I can't do that, and I feel compelled to respond]

_:::Sigh:::_  What ever happened to Personal Responsibility?  I just don't get it.  

I was brought up that if you can't afford something, then you don't purchase it.  We could have purchased a more expensive house.  I would have loved the house across the street, the one with the beautiful view.  But it was quite a bit more expensive, and we didn't want to be saddled with that much more of a payment.  We also had enough money to put 10% down on a string of houses, but we're retired, and I always think "what about tomorrow."  We will never be rich, but we'll be able to meet our obligations.

The bank loaned you money on your promise that you'd pay it back.  That's what the contract you signed says, basically, doesn't it?  Not, you'll pay it back if you feel like it?  And that is what it boils down to.  You just don't feel like it.  You planned on making quick money on the deal, and you didn't.  

You won't be destitute, but it will affect "your living style."  _Excuse me?_  You mean you won't be able to eat out so often, go to Hawaii for a month, travel across the US in a motorhome, etc?  

Sheesh!  You act like all these things are entitlements.  They aren't.  They are things that people do/have who have money to spare.  You shouldn't be let out of a debt easily just so you can have the things/lifestyle you want.

You need to get real.  This isn't a personal residence that you can't afford.  It is an investment that you made.  Nobody held a gun to your head.  Now you need to face up to it, and just ride it out.  

JMHO, of course.




cgeidl said:


> We would not be destitute if we lost the money but it would effect our living style.


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## LLW (Oct 31, 2008)

cgeidl said:


> We are retirees of 10 years and bought several rental investment properties in Arizona. One we put down 20% is now worth about 50% of the original price we paid and $75000 less then the loan amount. The bank will not take a deed in lieu of foreclosure so we are thinking of letting them foreclose. Our credit will go way down for several years but we do not know how low. We have always been in the high 700's and are wondering if this would change our present credit card limits we have had for years.
> We are not needing to ever get any more loans so for us it is better than using up our retirement funds to pay for the foreclosure. ANy other tuggers in the foreclosure situation??Pros and cons???




You wouldn't be asking here if it is clear in your mind that you should walk away. 

You have worked hard all your life, always have been responsible for your commitments and obligations (your high 700 credit score tells me that). You have saved money all your life, never have been extravagant (you don't own the more expensive timeshares). In your retirement you heard that real estate was a good investment for your nest eggs. So you got into it, not knowing that landlording was not a life style for you. Now the economy has turned, and your investment has turned into a nightmare. You have decided what to do with the other 2 houses - sell them at just a little loss. This one you would have to pay $75,000 to get rid of. If you don't, after you evict the current tenant, you would have to go through the renting cycle again, and have to cover a negative cash flow. 

If I were you, I would NOT sacrifice a lifetime of principles for just this one instance. I made the decisions. I would take care of the consequences. You never know what walking away from it would bring. Credit scores are used not just to get credit - they are used for insurance, purchases and many other evaluations nowadays. Besides, foreclosures would bring on collection calls, paperwork, other hassle, guilt, and explanation to friends and family. All for $75,000.

Although it would be hard for me to sell stock at their depressed values or otherwise come up with the $75K, there are other ways to take care of the consequences.

Like others have suggested, I would just ride it out. Real estate values go up and down and up. I would sell it in a few years when I wouldn't have to lose so much. I hate landlording - we got out of it last year. Not a good financial decision at the time, but we were going for peace of mind. In order to keep the house for a few years, you must rent it out. There are realtors who do property management for about 10%, more or less, of the rent. In the meantime, market rent and the quality of tenants will be going up because people who are out of home ownership will need a place to live. The increase in rent might just offset the property management fee. Pay the small negative cash flow for a few years, and sell the house when you can get close to the loan amount on it.

That's what I would do. Good luck.


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## Lawlar (Oct 31, 2008)

*Banks Are Making The Problem Worse*



cgeidl said:


> We discussed our situation with an AZ real estate attorney and there will be no deficiency judgment that a bank could acquire.
> 
> Only 5% of the Phoenix homes under a short sale ever get an agreement by the bank
> We would not be destitute if we lost the money but it would effect our living style.



I know this won't make me popular, but I repeat my opinion that you should stop making the payments and let the bank foreclose.  

In the 1990s housing recession I tried to negotiate with banks to prevent foreclosures.  They wouldn't negotiate.  As a result, 50% of the homes listed for sale in the Los Angeles area were foreclosures.  That drove RE prices down (about 30%).

No reason to risk your retirement savings.  Let the bank take the loss.  You might simply hold possession of the home (collect the rents!) and see if the new president comes up with a bailout for homeowners that will help you.  If not, let the bank take the house after the foreclosure (it will take about a year before they can get possession of the home through the foreclosure process - so enjoy the rents!). Your credit score can be rehabilitated in a few years (and it probably doesn't matter - you will have all those rent monies in your savings account!). 

OK - Now I'm really unpopular with the conservatives on TUG (hopefully not too unpopular).  But I believe any attorney would give this same advice and you are going to see a lot of people in AZ, CA, NV & FL doing just what I am suggesting.  But hey, the CEOs of our now failed financial institutions are enjoying their golden parachutes while Uncle Sam pays the bills.  

Unfortunately, I can't do the same thing - We paid off our mortgage the old fashioned way.


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## ricoba (Oct 31, 2008)

Lawlar said:


> OK - Now I'm really unpopular with the conservatives on TUG (hopefully not too unpopular).  .



I think you are making a big assumption here.  I know for a fact that your bad advice is looked upon poorly by posters here who are not the conservatives you think they are. 

This issue isn't liberal philosophy verses conservative philosophy, it's about morality and and about doing the right thing, even when it's hard to do.


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## Fern Modena (Oct 31, 2008)

I agree with what Rick said here.  Besides, what about the renters in the above scenario?  There are many horror stories in the Vegas area about people who rented in good faith, while the owner pocketed the rents and didn't pay on the loan, ultimately causing the house to go into foreclosure (isn't that what you're saying to do, Lawlar?).  To me, that's unconscionable. 

In this area, anyway, they factor credit scores into insurance premiums.  I had forgotten about it.   

Fern



ricoba said:


> I think you are making a big assumption here.  I know for a fact that your bad advice is looked upon poorly by posters here who are not the conservatives you think they are.
> 
> This issue isn't liberal philosophy verses conservative philosophy, it's about morality and and about doing the right thing, even when it's hard to do.


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## Egret1986 (Oct 31, 2008)

*It sounds like you feel you're entitled to your living style no matter the choices*



cgeidl said:


> We would not be destitute if we lost the money but it would effect our living style.



So someone else should take the loss.  You get to make whatever choices hoping to cash-in and if they don't pan out and your comfort level will be affected, then it's okay to let somebody else take the hit.  There's a lot of that going around.  Take responsibility for the choices YOU made. 

I also purchased a rental property in order to have an investment towards my children's college education when they graduate.  The property couldn't be sold right now or I would also assume a loss.  I am tired of being a landlord and look forward to when values go up and I can sell.  My tenant is struggling in this economy, her employer (Lillian Vernon) went out of business and she lost her long-time job.  She is doing what it takes to get me the rent.  I am fortunate that she is taking care of my property.  I just dropped her rent by $200 per month in order to assist her in being able to pay her rent.  Less rent is better than no rent.  Really bad things are happening to folks everywhere because of the current economy; lots worse than a diminished lifestyle.


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## Tom52 (Oct 31, 2008)

Lawlar said:


> By the way, we taxpayers just agreed to give wall street 750 billion to bail them out from these mortgage loans.  Maybe some of the borrowers could use a little bailout.



What do you mean "We"?  I'm a taxpayer and I guarantee you I never agreed to give anyone a bailout.  As I remember it they didn't even ask permission.  Wake up America, it's time to take responsibility for your own actions.


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## Wonka (Oct 31, 2008)

Egret1986 said:


> So someone else should take the loss.  You get to make whatever choices hoping to cash-in and if they don't pan out and your comfort level will be affected, then it's okay to let somebody else take the hit.  There's a lot of that going around.  Take responsibility for the choices YOU made.
> 
> I also purchased a rental property in order to have an investment towards my children's college education when they graduate.  The property couldn't be sold right now or I would also assume a loss.  I am tired of being a landlord and look forward to when values go up and I can sell.  My tenant is struggling in this economy, her employer (Lillian Vernon) went out of business and she lost her long-time job.  She is doing what it takes to get me the rent.  I am fortunate that she is taking care of my property.  I just dropped her rent by $200 per month in order to assist her in being able to pay her rent.  Less rent is better than no rent.  Really bad things are happening to folks everywhere because of the current economy; lots worse than a diminished lifestyle.



"Less rent is better than no rent".  If only all landlord's were as astute as you. 

 I've watched landlords raise the rents of young professionals in Chicago (which were already far too high) only to have them leave and move somewhere else.  Then, the property sits idle for 6-9 months without a tenant until they reduce the rent to prospective renters to what it was before.  I never could figure out their logic.

In this market, your actions made such good sense.  It helps both parties.


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## Icarus (Nov 1, 2008)

ricoba said:


> I think you are making a big assumption here.  I know for a fact that your bad advice is looked upon poorly by posters here who are not the conservatives you think they are.
> 
> This issue isn't liberal philosophy verses conservative philosophy, it's about morality and and about doing the right thing, even when it's hard to do.



Thanks for saying that, Rick.

-David


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## LAX Mom (Nov 1, 2008)

ricoba said:


> I think you are making a big assumption here.  I know for a fact that your bad advice is looked upon poorly by posters here who are not the conservatives you think they are.
> 
> This issue isn't liberal philosophy verses conservative philosophy, it's about morality and and about doing the right thing, even when it's hard to do.



Also in agreement with Rick's statement.


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## cgeidl (Nov 2, 2008)

*Thanks for all the feedback*

We appreciate all the ideas and opinions. We would agree with the very predominant belief that when you promise to pay a loan you  should pay. The investment we made IMHO was not speculative with 20% down and originally positive cash flow. We have our other two homes for sale for less than we paid for but probably will receive enough to pay off the loans on these two homes.We have held this condo for two years with negative cash flow.
We have tried to get a reduced loan amount, or principal amount from the bank but get no offers. We have decided to let the condo go into foreclosure in the hopes the bank will negotiate something that would make sense to us and we can pay off the loan.
If not we will follow Lawlar's advise.


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## ricoba (Nov 2, 2008)

cgeidl said:


> We appreciate all the ideas and opinions. We would agree with the very predominant belief that when you promise to pay a loan you  should pay. The investment we made IMHO was not speculative with 20% down and originally positive cash flow. We have our other two homes for sale for less than we paid for but probably will receive enough to pay off the loans on these two homes.We have held this condo for two years with negative cash flow.
> We have tried to get a reduced loan amount, or principal amount from the bank but get no offers. We have decided to let the condo go into foreclosure in the hopes the bank will negotiate something that would make sense to us and we can pay off the loan.
> If not we will follow Lawlar's advise.



Why am I not surprised by this?


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## grest (Nov 2, 2008)

A couple of my girlfriends and I bought some rental properties a few years ago when it was looking good for making lots of money.  Needless to say, the property isn't worth as much as we paid for it anymore.  But we wouldn't even think of just not paying it.  It's an obligation, for goodness sake!  You take a chance, you deal with the consequences...
Connie


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## bogey21 (Nov 2, 2008)

gmarine said:


> You need to consult a lawyer. If you think you are just going to walk away and expect the bank to take the hit on the price drop while you continue owning another home(s) and have money in the bank I think you *are* mistaken.



I agree 99%.  I would just substitute the words *may be* for *are*

George


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## mamiecarter (Nov 3, 2008)

*Consult a lawyer then do what's best for you.*

The banks, wall street, the lenders, the developers all do what is best for them. You need to do the same and protect your own interests.


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## Icarus (Nov 3, 2008)

mamiecarter said:


> The banks, wall street, the lenders, the developers all do what is best for them. You need to do the same and protect your own interests.



Yeah, just like Enron did.

Do you know who the lenders are? The lenders are us, through our IRAs, 401ks, pension plans, savings and bonds, and soon as taxpayers.

I guess this is the new American dream. When your investments don't work out, look for a bailout and for other people to take the loss for the risks that you assumed.

Imagine what would happen if everybody with an upside down mortgage simply walked away from their homes and investment properties. I read an article that 1/5 of the nations mortgages are now upside down, and it's expected to go to 1/4.

Frankly, I don't see why the bank should renegotiate their loan with the OP. OP isn't going to be put out on the street like others who have real problems making their mortgage payments on their own homes after they got layed off or hit the adjustment period with their adjustable mortgages. OP simply took on some risk that OP shouldn't have and made a bad investment decision. And now OP is  looking to bail out because OP isn't willing to wait it out until the property goes back up in value. From what OP said, the property had negative cash flow from day 1, so OP must have known that it would have negative cash flow from day 1. So why did OP buy it in the first place if OP couldn't afford the risk? And why should OP be able to just walk away?

OP might be able to get away with it, but IMHO, that doesn't make it morally or ethically correct. Frankly I don't know if the OP can get away with it or not. I'm sure a promissory note was signed with the mortgage, and the rules for investment properties are certainly different than they are for homeowners.

-David


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## PigsDad (Nov 3, 2008)

cgeidl said:


> The investment we made IMHO was not speculative with 20% down and originally positive cash flow.



How can you say that with a straight face?!?  *Any *investment is speculative in nature.  Are you saying you thought you could not lose money when investing in real estate?  If so, you shouldn't have been investing in real estate in the first place!


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## vacationhopeful (Nov 3, 2008)

So how many low cycles in real estate did the OP forget about in their adult lives?

My memory has 1975, 1980, 1984, 1990, etc.


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## Egret1986 (Nov 3, 2008)

*The OP states "100% invested in stocks & real estate for many years.."*



vacationhopeful said:


> So how many low cycles in real estate did the OP forget about in their adult lives?
> 
> My memory has 1975, 1980, 1984, 1990, etc.



The OP simply appears to have a strong sense of entitlement.  I just looked through a couple of the OPs most recent posts to see if any struggles were mentioned.  Nope...."just bought 30 restaurant.com certificates....will buy again"....."any excuse for a celebration..."....spending weeks in Hawaii.:whoopie: 

And guess what, the OP is teaching the next couple of generations that "hey, it's okay to act this way; we're entitled."  

Reminds me of the Mom and Dad with the mini van at the local farmer's strawberry patch with their children last year.  The farmer was charging a reasonable price.  You could fill one of their large buckets with picked strawberries for $8.00.  This Mom and Dad had no shame.  They would fill up a bucket and take it over to their mini van that had a big cooler, dump the berries and go back for more, paying for only one bucket's worth.  

That old sense of entitlement.  Let someone else lose money.  Let someone else pay my share.  What if everyone did that?  Why do prices go up like they do?  Because some folks think it's okay to take from others and continue on their merry way.  They don't even give it a second thought.

The OP didn't start this thread for any other reason than looking for others to support their actions.  It wasn't a case of the OP trying to make a decison to do it or not; just looking for some advice in support of their actions.


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## CatLovers (Nov 3, 2008)

*Consult a legal professional ...*

Consult a legal professional and do what you need to in order to legally protect your interests.  You can pretty much guarantee that all the other parties in this transaction - the banks, the lenders, the lawyers, the developers, whoever else, will do anything they need to protect their interests (and morality or ethicality will have nothing to do with it, only legality).  

There are a lot of people here who don't agree with you, but quite honestly, they don't have to live with the consequences of whatever option you choose.  I have observed that people are sometimes very quick to judge others on a bulletin board and to say things that they would never dream of saying to someone face-to-face, or to someone who (and whose circumstances) they know well.  I have observed that it's also easier to pass judgment on others when it the ultimate outcome doesn't affect you personally.  At the end of the day, do you really care what a few people you have never met (and probably never will) think about actions that you need to take to make the best decision for yourself?  Besides, do you really need validation from people you don't have a relationship with?  Consult expert advice, and then make the best decision for yourself within the limits of the law, and you'll be fine!

Good luck, I hope you come through this with as little heartache as possible.


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## Icarus (Nov 4, 2008)

That's just as ridiculous as the OPs position.

It's not the home they are living in. It's an investment they made. The investment had risks. No investment is guaranteed to make money. And OP said they weren't at risk of bankruptcy, just that it would have some affect on their lifestyle.

-David


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## Fern Modena (Nov 4, 2008)

I wonder if the OP realizes (or even cares) that his insurance company probably runs his credit and takes that into account when they set his premium.  Something about people with lower credit scores filing more claims...

Fern


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## JEFF H (Nov 4, 2008)

I’m with the personal responsibility crowd but have to admit like it or not that Lawlar is giving practical advice for the world we live in.
The Fact is the banking cartel and our government do not act morally, ethically or responsibly. They Control the game and set the rules to play by.
I may just be old-fashioned but I don’t believe that makes it right for us as individuals to do the same.
 I have lived my life being responsible and always trying to do the right thing.
I have lost out at times by not taking advantage of the situation to better my own position. 
I have often questioned my actions for not being the smart thing to do.
Its hard to do the right thing when you see so many around you doing whatever is best for themselves throwing morals and ethics out the window.
In the end all I have is my belief that I need to act responsibly and do the right thing no matter what others do around me. That’s what gives me personal peace of Mind.
I won’t pass judgment on the choices the OP and others make in these situations as only they and God can do that.


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## vacationhopeful (Nov 4, 2008)

CatLovers said:


> There are a lot of people here who don't agree with you, but quite honestly, they don't have to live with the consequences of whatever option you choose.  I have observed that people are sometimes very quick to judge others on a bulletin board and to say things that they would never dream of saying to someone face-to-face, or to someone who (and whose circumstances) they know well.  I have observed that it's also easier to pass judgment on others when it the ultimate outcome doesn't affect you personally



It does affect me .... and everyone else.  And yes, I would say it to your face.  Pay your bills or sell NOW for a lost.  It was an investment (RISK) that you took - not me, other businesses or the US government.  Less grief ??? - foreclosure notices are published in the local newspapers here (just like obituries) and  people read them.

And anyone who has worked for me over the 20+ years I have been in business knows that even in BAD/POOR/ROTTEN/HORRIBLE years of cashflow, I have always PAID my bills.  And those contractors, other business owners, and selfemployed have always been there to help me out because I do the right thing.  I go on vacation because I pay for it after my bills are paid.

I have little heartache in my life - because I don't have to look over my shoulder or am waiting for the ax to fall.

JMHO,


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## dioxide45 (Nov 4, 2008)

Fern Modena said:


> I wonder if the OP realizes (or even cares) that his insurance company probably runs his credit and takes that into account when they set his premium.  Something about people with lower credit scores filing more claims...
> 
> Fern



I beleive they use this model because people with a low FICO score tend to be more likely to file a claim for a small loss while those with a high FICO score are more likely just to pay for a small loss out of pocket.


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## theo (Nov 4, 2008)

*Is this really the best source of input?*



cgeidl said:


> We are retirees of 10 years and bought several rental investment properties in Arizona. One we put down 20% is now worth about 50% of the original price we paid and $75000 less then the loan amount. The bank will not take a deed in lieu of foreclosure so we are thinking of letting them foreclose. Our credit will go way down for several years but we do not know how low. We have always been in the high 700's and are wondering if this would change our present credit card limits we have had for years.
> We are not needing to ever get any more loans so for us it is better than using up our retirement funds to pay for the foreclosure. ANy other tuggers in the foreclosure situation??Pros and cons???



With all due respect, I'd recommend a consultation with an attorney. 
It sounds like a serious enough (and complex enough) situation that personally, I'd want my advice to come from a source other than anonymous screen names on a timeshare bbs. But that's just me...


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## Tia (Nov 4, 2008)

Friend of mine yesterday was telling about another married friend of hers back in Illinois who just got eviction notice _as the landlord has not been paying the mortgage _even though the renters, new parents, have been paying rent. They are suppose to be out in one month! Trouble. Anyone doubt they will get their deposit back?


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## Kevin (Nov 4, 2008)

*There is hope*



Tia said:


> Friend of mine yesterday was telling about another married friend of hers back in Illinois who just got eviction notice _as the landlord has not been paying the mortgage _even though the renters, new parents, have been paying rent. They are suppose to be out in one month! Trouble. Anyone doubt they will get their deposit back?



Hi Tia,

I am a real estate broker who happens work with a lot of foreclosure assets and renters.  Tell your friend to ask for the deposit amount from the mortgage holder.  They will more than likely receive it in the form of a "cash for keys" agreement.  This is a case where the renter sometimes gets the shaft.

Send me a PM if the need direction.

Kevin


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## PigsDad (Nov 4, 2008)

JEFF H said:


> I’m with the personal responsibility crowd but have to admit like it or not that Lawlar is giving practical advice for the world we live in.
> *The Fact is the banking cartel and our government do not act morally, ethically or responsibly. They Control the game and set the rules to play by.*
> I may just be old-fashioned but I don’t believe that makes it right for us as individuals to do the same.
> I have lived my life being responsible and always trying to do the right thing.
> ...


In the OP's case, how _exactly _do you think the "banking cartel" did not act "morally, ethically or responsibly"???  They made the loan in good faith, and now the OP wants to stick the bank with their poor choice of investments, and go on vacationing in Hawaii on yours and my bailout money.  

The only one I see not acting "morally, ethically or responsibly" is the OP in this case.  And yes, I would say it to their face.

Kurt


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## Ken555 (Nov 4, 2008)

This entire thread is indicative of the society we live in, and its influence on our lives. Not only does the next generation have to worry about being ethically and morally bankrupt, but the older generations among us are leading the way down this path. Your actions speak louder than your words.

While I am disheartened by the current financial mess and the apparent reasons for it, personal stories like the OPs simply exacerbate our feelings on the topic. Legality aside, it is obviously wrong to escape responsibility for an investment property which the OP can afford to be rid of in a "normal" process (ie. take a loss and move on, or keep it and wait for values to increase). 

It's sad that many people are suffering due to the economy (we're all affected in some way). Bankruptcy options and legal options exist for many situations to reduce your responsibility and burden others from your poor decisions. I agree with others that if you were having problems meeting your obligations for your primary home this would be a different situation - but an investment property? Ridiculous. 

Live up to your word. Pay your bills. Act responsible. Be an example of what you wish others would do in similar situations.

PS. Go Vote!


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## Jaybee (Nov 4, 2008)

Fern, I definitely agree with you, Steve, David, and all the other "capitalists" who believe in personal responsibility. What ever happened to that, anyway?  We now have a generation who worships instant gratification, and thinks it's some kind of "right".  
It's gratifying to see so many of us here are still clinging to the values that made this country what it is supposed to be.  We all have the right to succeed, but on the other hand, we also have the right to fail. Life generally comes down to a matter of the choices we make, and we should be responsible for making them, win or lose. 
Off my soapbox.  My nurse says it's time to go back to my room. (LOL)  Jean




Fern Modena said:


> I wonder if the OP realizes (or even cares) that his insurance company probably runs his credit and takes that into account when they set his premium.  Something about people with lower credit scores filing more claims...
> 
> Fern


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## IngridN (Nov 4, 2008)

Jaybee said:


> Fern, I definitely agree with you, Steve, David, and all the other "capitalists" who believe in personal responsibility. What ever happened to that, anyway?  We now have a generation who worships instant gratification, and thinks it's some kind of "right".
> It's gratifying to see so many of us here are still clinging to the values that made this country what it is supposed to be.  We all have the right to succeed, but on the other hand, we also have the right to fail. Life generally comes down to a matter of the choices we make, and we should be responsible for making them, win or lose.
> Off my soapbox.  My nurse says it's time to go back to my room. (LOL)  Jean



Well said 

Ingrid


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## Tia (Nov 5, 2008)

Thanks for the info Kevin, will pass it along.  



Kevin said:


> Hi Tia,
> 
> I am a real estate broker who happens work with a lot of foreclosure assets and renters.  Tell your friend to ask for the deposit amount from the mortgage holder.  They will more than likely receive it in the form of a "cash for keys" agreement.  This is a case where the renter sometimes gets the shaft.
> 
> ...


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## mterra (Nov 5, 2008)

I have been reading through this thread from the beginning.  I have a house in TX that I have been trying to sell for 4 1/2 years now.  It is a beautiful house.  Had 2 different renters in it.  Both times they were going to buy, obviously they didn't.  It has been sitting empty more than occupied.  It is incredibly discouraging.  I am almost down to the price I paid for it 10 years ago.  I have been in Alaska for 4 years now and have relied on 3 different realtors who seem to do nothing, in my opinion.  Especially when they do not return phone calls or emails, sorry off the subject.  Anyway, I could not imagine foreclosing.  I never say never.  I continue to hope for some kind of miracle.  I have worked so hard and have always had good credit.  I don't think I can give in.  It is not easy, that is for sure.  I am a single mom with 4 kids and have a house up here too.  Not sure how I do it month to month but since I am still managing I cannot give up.  I realize everyone needs to do what they feel is best for their situation, but think long and hard about the consequences of your actions.  Do you really want to make a drastic change in what you have worked your whole life for?

Just my thoughts and my own experience.

Mary


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## grupp (Nov 5, 2008)

Lawlar said:


> OK - Now I'm really unpopular with the conservatives on TUG (hopefully not too unpopular).  But I believe any attorney would give this same advice and you are going to see a lot of people in AZ, CA, NV & FL doing just what I am suggesting.  But hey, the CEOs of our now failed financial institutions are enjoying their golden parachutes while Uncle Sam pays the bills.
> .



Sorry, but there is no Uncle Sam. The bills are being paid by the TAX PAYERS and we all have to pick up the check for all those who don't pay their debts. 

In my mind there is a difference if someone falls on hard times (losses their job or unexpected medical problems) and can't make their house payments and someone who decides to stop making payments because the value of their property declined. I think we do need to do something to help the first group, but absolutely nothing should be done for the second group. 

Gary


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## Brett (Nov 5, 2008)

This morning's Wall St. Journal had a personal finance article on what to expect if you have real estate in foreclosure. 
http://online.wsj.com/article/SB122583941535198573.html

 Here is one short excerpt -


"In most cases, walking away from a mortgage can knock a top credit score down to the cellar, says Ethan Dornhelm, a senior scientist at Fair Isaac Corp., which sells credit-scoring formulas to credit bureaus.
A person with a stellar credit score from the high 700s to the top score of 850 would see it drop more than 200 points. A person whose credit score is lower may see it fall by fewer points, but still end up with a score in the mid 500s. At that level, reasonably priced new debt, from credit cards to car loans, will be out of reach. In addition, a default could lead landlords and utilities to require more cash up front and even affect your job prospects.
If the borrower continues to pay other debts on time, the score will climb gradually, though it may take three to five years to return to "good" scores, from the mid-600s and up. Scores of 790 or more -- which are rewarded with the lowest interest rates -- won't be attainable for at least seven years, when the default blemish finally disappears, Mr. Dornhelm says.
What's more, *lenders in most states can go after homeowners for an unpaid balance on a mortgage*. That's a real risk, especially if you have other assets."


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## Fitzriley (Nov 5, 2008)

*Save my 401k*



Icarus said:


> And as I'm sure you know, they are working on a plan to renegotiate $500B worth of mortgages, with the government taking half the risk and the lenders taking half the risk. The expected cost to taxpayers is $50B and that's included in the $700B bailout cost.
> 
> I have a lot of sympathy for people that are in danger of loosing their homes because of the current situation. Mortgage lenders should not be permitted to underwrite mortgages just at the initial teaser rates. That's exactly how we got here. Everybody involved played that game, and it worked for a while.
> 
> ...



I love this! Where do I sign up for the save my 401k deal? Maybe the investors who walk away form their mortgages could take some of the extra money they are NOT spending on their debt and shore up my investments???


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## gorevs9 (Nov 5, 2008)

*Where's the line to get my share of the wealth*

[Political comments deleted.-DeniseM Moderator.]


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## jlr10 (Nov 5, 2008)

This is off topic, but only slightly.

I worked where someone took a chance with a lot of money.  Many many peoples security was put in jeopardy on the chance that the economny would pick up.  It didn't and the house of cards came tumbling down and some people may be finacially ruined, as they are left holding the bag for someone else's choices.  I am the lucky one, I got laid off with no final check,  no insurance, no severance, and a resume that includes a tainted business.  But at least I don't have to stick around to clean up the mess and try to explain what happened.  But my life will forever be effected by someone else's choice to take a risk, and then lose.

Yes, the bank may take the loss here if the OP walks away.  But remember that bank is full of hardworking employees who are going to take the immediate hit for people who chose to walk away from their obligations.  So before anyone walks away  they should look at the young people around them who are barely getting by financially.  How will they feel when the others join the ranks of the unemployed just because someone else could walk away from their debt and let the burden fall on someone else.  Yes, some people have to walk away because they can no longer afford to maitain their homes, but to walk away because it might change their lifestyle?... 

Maybe I am a little to close to this one, but I am appalled at the lack of social conscience that people are displaying.

Now you will have to excuse me I have to go find a job.


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## DonM (Nov 6, 2008)

JEFF H said:


> ...Its hard to do the right thing when you see so many around you doing whatever is best for themselves throwing morals and ethics out the window.



If the right thing were easy, then everyone would be doing it and we wouldn't be having this thread!


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## Eric in McLean (Nov 6, 2008)

I know the property is in a LLC.  Was the loan application solely in the name of the LLC?  If so, did you personally guarantee the loan?  The more facts you post about the loan and the ownership structure, the more likely you will receive accurate advice.  Check to see if the loan is "nonrecourse."  I'm guessing that it's not but you never know.


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## Lawlar (Nov 6, 2008)

*No Easy Answers*

The majority of posts on this thread support the “moral” approach of paying one’s debts and not defaulting on an obligation.  I respect that.  I really do.  That is the way I have lived my life (fortunately, I haven’t had a financial crises that demanded other action).  

I have had clients that refused to take my advice when I counseled them to file a bankruptcy.  They continued making their payments even though I could have eliminated their debts.  Good for them.

Then again, I have a friend that came to me for advice ten years ago and I told him to file bankruptcy so that he could protect his home and preserve his retirement accounts. I could have eliminated all his debts and he would have been able to keep his home and his retirement accounts.  He was 60 years old at the time. He just couldn’t do it.  He felt it was immoral.  So he refinanced his mortgage and liquidated his retirement accounts to pay his bills.  Five years later he had to sell his home because he couldn’t make the payments.  He spent his retirement money to stay current on his bills.  He has nothing today.

Our legal system allows us to eliminate or restructure our debts every seven years (a concept found in the Bible).  The reason for this is to encourage people to take risks.  We have a risk economy.  New businesses and new jobs are created when people take economic risks.  But when a new venture fails we don’t put the entrepreneurs in debtors’ prison.  Our system is built on the idea that it is better for the economy to give a new start to people who suffer a setback so that there will be new efforts to create opportunities in this Country.  If people weren’t offered the opportunity to start over the economy would be held down by people who were too burdened with debts to spend or start new ventures.

Businesses take advantage of our bankruptcy laws all the time (e.g. Airlines).  I’ve helped many business owners file bankruptcy (and they kept their homes and retirement accounts).  Needless to say, creditors (especially individuals who cannot afford to lose the money they lent or invested in these businesses) get upset when this happens. 

Interesting statistics:  The average millionaire in this country has been broke 3 to 5 times during his or her lifetime.  The average millionaire has had 10 or 11 businesses.  They keep trying until something works.

The person most likely to have to file a bankruptcy in this country: single mothers.  [By the way, the last Bankruptcy Reform Act made it more difficult for single mothers to file bankruptcy while allowing business owners to file for bankruptcy without the new tougher standards.  Where is the fairness in that?]

One out of five families (20%) with mortgages are upside down.  If home prices go down another 5% there will be another two million families that are upside down.  This is a major problem.  There are no easy solutions.  But no matter what we do we should try to remember that these are real people with serious problems. If we don’t solve this problem it will take a tremendous toll on our economy.


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## Icarus (Nov 6, 2008)

Lawlar,

I don't disagree with anything you said about bankruptcy. Especially the parenthetical part about the changes in the bankruptcy laws. Bankruptcy is just another financial tool, and should be used when its merited.

But, forgive me if I'm wrong, but you didn't tell the OP to file bankruptcy, and bankruptcy was never mentioned as an option for the OP. You told them, IIRC, to stop making payments on their mortgage, and the OP later said they would/could basically walk away from the mortgage. When was bankruptcy suggested as an option to the OP in this thread and why are you mentioning it now?

The issue for from the few facts that we have:

1. The OP can afford it, but made a bad investment that never generated positive cash flow. Not even from day 1 is what the OP said, even though they put 20% down. (OP doesn't think they are using OPM since they put 20% down, but that's another topic.)

2. The OP is not in danger of defaulting on their other debts and can afford this debt as well, however, it will put a crimp in their current lifestyle (which presumably would be a temporary setback because eventually real estate will recover).

3. This isn't the OPs primciple residence and OP is not in danger of being put out on the street. This is an investment property.

4. We don't know if OP signed a promissory note at the time the mortgage was issued. I don't know what the laws are in the state where the property is, or OPs home state, but for every mortgage I've gotten, I've had to sign a promissory note to get the mortgage.

Sure, if OP's liabilities are greater than OPs assets, perhaps bankruptcy is a reasonable option, but if they aren't I don't see why it's being mentioned here.

Just consider what would happen if everybody with an upside down mortgage just walked away from their investment. You think the economy is bad now? Just wait.

Like all other investments, real estate is cyclical. A lot of people seemed to have forgotten that.

-David


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## Eric in McLean (Nov 6, 2008)

I think the OP is asking for legal advice, not "what is the right thing to do under the circumstances."  I agree with the posters about what is the right thing to do.  I'm just trying to provide a little legal analysis that has nothing to do with what is the right thing to do.


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## Lawlar (Nov 6, 2008)

*Walk Away*



Icarus said:


> Lawlar,
> 
> 
> But, forgive me if I'm wrong, but you didn't tell the OP to file bankruptcy, and bankruptcy was never mentioned as an option for the OP. You told them, IIRC, to stop making payments on their mortgage, and the OP later said they would/could basically walk away from the mortgage. When was bankruptcy suggested as an option to the OP in this thread and why are you mentioning it now?
> ...



I realize that the OP may not need to file bankruptcy - but they may need to do that if the bank is able to go after them after foreclosure (a rare occurance) and/or they have other debts.  I'm also giving my thoughts about what others in their position should do and bankruptcy is often part of that process.

I believe anyone who is upside down in a bad investment, and who can walk way, is within their rights to do so.  Why pour good money into a bad investment?  I think this OP should cut their losses and preserve their capital to fund their retirement.

And I have been considering what will happen if a lot of people walk away from their homes.  And it is scary.  But I think that is what is going to happen - the banks are going to own a lot of homes. God help us!


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## Carol C (Nov 6, 2008)

Taxpayers should not have to bail out businesses who took risks and lost...and should not bail out real estate speculators who are in over their heads. I'd be ok with a taxpayer-funded program that would allow OWNER-OCCUPANTS to buy their first homes at, say, 3% down and 3% interest, in distressed regions where foreclosures are extremely high.

We are going to have a taxpayer revolt in this country if the taxpayer-funded bailouts continue. God help us all...we're now becoming a third world country.


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## Big Matt (Nov 6, 2008)

I think this is a good common sense answer.  I'd also advocate longer term notes (40 or 50 years) at these lower rates.   

There is one thing that people may not grasp easily, but it is much more important to have people in a house that they can afford than to have affordable housing programs with people who can't really make the payments.  




Carol C said:


> I'd be ok with a taxpayer-funded program that would allow OWNER-OCCUPANTS to buy their first homes at, say, 3% down and 3% interest, in distressed regions where foreclosures are extremely high.


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## janapur (Nov 7, 2008)

Everyone is coming down pretty hard on the OP and I understand that. However, the bank took just as much "risk" if not more by loaning the money. It is secured by a mortgage on the house so the bank gets the house. That was the agreed upon understanding.

I think what upsets people is the thought that why should I have to endure the effects of this market while someone else can just walk away from their promise? It is also why the government needs to be especially cautious as to how they structure the bailout. It is not fair to allow people to buy back their homes in foreclosure for a lower value (as suggested by one former candidate) while the diligent mortgage payers receive no reward for the sacrifices they've made to keep their mortgages current.

As a realtor, I am finding this market to be surreal. The majority of homes listed in our market are bank owned and we are surrounded by suburban ghost towns, with some newly constructed homes abandoned unfinished. I wonder daily where all of these homeless families are going. Will we see a cultural trend in multi-generations cohabiting much like the farmers in my lineage?

What really gets me is all of the "foreclosure sales" posted on craigslist where people are stripping down the houses before they go back to the bank. This is downright dangereous in MN where copper pipes and furnaces are a necessity. Mold issues have reached unheard of heights.

But back to the legal aspects. . . businesses do it ALL THE TIME. Not that it's right, but the option is there for a reason. 

Someone said fortunes are made during recessions. There must be some people secretly doing a happy dance right now.


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## Lawlar (Nov 7, 2008)

*Happy Feet Turned Sad*



janapur said:


> Someone said fortunes are made during recessions. There must be some people secretly doing a happy dance right now.



I was doing that happy dance!  We sold our Los Angeles Condo at the top of the market.  I figured I could retire here at my wife's home in Santa Barbara.  Maybe I could buy a home in Maui after the RE collapse.  I was soooo smart!

And then I put my retirement money in mutual funds.  And then October 2008 occurred.  Guess who stopped his dancing!  

God obviously has a sense of humor.  Guess I may have to dust off the old resume.


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## Icarus (Nov 7, 2008)

janapur said:


> I think what upsets people is the thought that why should I have to endure the effects of this market while someone else can just walk away from their promise?



I don't think so. Some people try to do the right thing.



> But back to the legal aspects. . . businesses do it ALL THE TIME. Not that it's right, but the option is there for a reason.



Businesses do what? They declare bankruptcy. This was never about bankruptcy.

-David


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## Icarus (Nov 7, 2008)

Lawlar said:


> God obviously has a sense of humor.  Guess I may have to dust off the old resume.



Or could it be Karma?

Guess what will happen to the rest of your retirement funds if everybody just walks away from an upside down mortgage?

I wouldn't wish that on anybody, but there's a bigger picture here.

You aren't the only one who's retirement funds have diminished by a significant amount.

-David


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## Lawlar (Nov 7, 2008)

*Heaven*



Icarus said:


> Or could it be Karma?
> 
> 
> -David



It is probably Karma.  That must be why there aren't too many lawyers in heaven.


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## Icarus (Nov 8, 2008)

Lawlar said:


> That must be why there aren't too many lawyers in heaven.



Well, I certainly didn't mean to imply anything like that, and I wouldn't have said that.

We both know that as a lawyer, you must put your clients interests first. I'm sure you've done that.

-David


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