In foreclosure soon

[Barbeque]

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.

 

[Lawlar]

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.

 

[T_R_Oglodyte]

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.

 

[SDKath]

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

 

[Wonka]

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.

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?

 

[Icarus]

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

 

[T_R_Oglodyte]

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.

 

[Mydogs2big]

[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.

 

[Icarus]

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

 

[Wonka]

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

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.

 

[cgeidl]

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.

 

[Fern Modena]

[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.

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

 

[LLW]

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.

 

[Lawlar]

Banks Are Making The Problem Worse

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.

 

[ricoba]

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.

 

[Fern Modena]

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

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.

 

[Egret1986]

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

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.

 

[Tom52]

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.

 

[Wonka]

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.

 

[Icarus]

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

 

[LAX Mom]

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.

 

[cgeidl]

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.

 

[ricoba]

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?

 

[grest]

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

 

[bogey21]

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