San Diego Housing Bubble News and Analysis

It is one thing to make a cold, calculated gamble that the credit hit is worth the credit hit and underwater-ness.

It is another thing to intentionally trash a house.

At that point - it's not "their" house anymore - it's the banks. They've stopped paying. Yet they are going to "trash" it. That is vandalism.

I'm with TG on this. What they are doing may be legal. But it isn't ethical.

Depends on what they mean by "trash the kitchen" as to whether it's legal or not as well.

Leaving a mess - legal
Selling the fridge/microwave - legal
Removing countertops, cabinets, sink, oven, and other built-ins - NOT legal.

Built-in's are considered to be part of the value of the house, and thus part of the collateral that the bank has an interest in.

Of course, banks have enough to deal with right now, and I suspect petty vandalism on the part of previous owners ranks pretty low on what they will go after people for, but they could do so (and have done so, even recently), and the law is on their side on this one.

What about spraypainting the cabinets and floors. Legal, but not ethical, IMO.

I believe in living by the letter of contracts.

But I don't believe in being destructive, especially when being destructive does not bring any benefit to me.

For example, when I leave my hotel room, I turn off all the lights and the A/C. I don't believe in being destructive and causing other people to lose money when there's no benefit to anyone.

Now, living for free in the house as long a possible and stringing along the bank would be very beneficial to the homeowner. That, I would recommend. The bank took the risk, they always knew that default was a possibility. And they can always exercise their right to foreclose promptly.

Two comments:

1) You reap what you sow
2) Your friend is an extortionist.

The first comment is for the banks and the attitudes that have become common in our society. It's fascinating to me that so many people argue that if the bank will lose less money on a deal they should take it. What about the example you set? What about the people that hear of this and will want that deal also?

Unfortunately, whether we like it or not, market places demand that we hold people accountable and punish them for irresponsible decisions. If we don't then the market will punish us collectively. (See current financial crisis if you're having a hard time with that last sentence.)

And here's the tremendous irony, experts from everywhere are collectively arguing that we need to put aside the need to hold people and companies responsible for the public good! Yet examples abound of how you fail to hold one person or one company accountable and this only makes the situation worse.

So the way I see it, banks offering to change the terms of the loan and failing to foreclose are only making the situation worse. (As your story so aptly demonstrates when your friend is advising others to follow in his footsteps.) And so it is, you do reap what you sow.

As to your friend. There really is no other word for what he's proposing regarding the kitchen. It's extortion, plain and simple. He probably has rationalized to himself that it's okay because the bank doesn't really care. True, banks don't have feelings, they are companies, not people. But he's still demanding payment for not destroying something that belongs to someone else. And that my friends is extortion.

XBoxBoy

In the end, both parties are going to get what they deserve. Bank/lender/investor gets a nice loss for the lender's poor underwriting, and your friend gets a tarnished credit record.

Perhaps there lies the lesson.

If everyone demands a deals, the banks will learn from it and not repeat the same mistakes again in the future. That would be to our collective benefit.

If homeowners lose their asses, perhaps the next generation will be more careful before signing-up for "lifetime opportunities".

Remember, early humans living in the jungle would warn their kids "don't touch that snake, don't eat that berry." The kids who wouldn't listen didn't live to adulthood to have their own progeny.

Staying free in the house for 1 year to 18 months seems like the program now. Would any of us have thought this could ever happen? It's like America has become bizzaro world.

The only people getting screwed are the ones who pay their rent or their mortgage as they don't get to enjoy the luxury of an extra $2000-$5000 per month to play with. But they will share equally in the higher taxes that will pay for this largess.

Do you doubt that there will be a foreclosure forgiveness policy adpoted by banks after the dust settles?

It's funny that you really don't hear that much about it either. You'd think tens of thousands of CA mortgage holders living absolutely free for that long a period, unhassled, would be a popular nightly news topic introduced with dramatic music and attention getting footage of perps leaving $1 million dollar homes that they have not made a payment on in 16 months.

Now people are figuring ways to extend the free ride:
http://www.latimes.com/business/la-fi-co...

Can this end well?

This bailout BS needs to end.

Your friend got in over his head. He made a bad investment decision. Period full stop

If he intentionally damages someone else's property (the bank's house, my car, the 7-11) then he is committing a crime.

What is the moral of this story? Life is hard so pay me not to be a criminal?

Free rent, cash for key is all something for nothing. Your friend wants something for nothing.

Tell him it's over there next to the unicorn, the lucky charm's pot of gold and his ethics and everything else that doesn't really exist.

Staying free in the house for 1 year to 18 months seems like the program now. Would any of us have thought this could ever happen? It's like America has become bizzaro world.

The only people getting screwed are the ones who pay their rent or their mortgage as they don't get to enjoy the luxury of an extra $2000-$5000 per month to play with. But they will share equally in the higher taxes that will pay for this largess.

Do you doubt that there will be a foreclosure forgiveness policy adpoted by banks after the dust settles?

It's funny that you really don't hear that much about it either. You'd think tens of thousands of CA mortgage holders living absolutely free for that long a period, unhassled, would be a popular nightly news topic introduced with dramatic music and attention getting footage of perps leaving $1 million dollar homes that they have not made a payment on in 16 months.

Can this end well?

No, this won't end well b/c those of us who pay our way / don't screw over banks, debts are getting fed up. When we leave it will be just the old, the super-rich and the scammers left.

Sure their financial planner gave them that advice. Huh? All of the actual financial advice I can see coming from one. But are we really supposed to believe he told them to "trash the kitchen"? Please.

I don't understand why anyone would even think about trashing the kitchen of the home they are walking away from. What's the point? Are they trying to punish the bank because they can't pay their own mortgage? Just seems like a scum bag move. Why not just burn the whole damn thing down?

I was under the impression that engaging in blackmail is still a crime.

The sort of thing makes me want to throw up.

Frankly, doing a calculation and deciding to stop paying the mortgage is a scum bag move. These people need to be taken out back and beaten.

I know several people who think this way - they're upside down so fuck it, I'm not paying anymore. One of them even has a rental unit that he's collecting rent on but not paying the mortgage. It makes me sick. Another acquaintance lost a business, got foreclosed on, then ran out and bought a brand new Range Rover. The sense of entitlement is breath-taking.

Oops, the car is dented, I'll stop making payments. Oops, my wife has cancer, time for a divorce.

What has this world come to?

Let me tell you all one thing pretty clear:
The OP's friend would come out of all these unscathed with a big laugh for sure. I say these by observing the way things are going on these days.

Since when does a bank decide how long your credit is affected?

All the bank does is report the default to the credit agencies. The credit agencies decide how long the default affects your credit score.

Wow, why trash the kitchen? That is overkill and once again demonstrating that nothing is of value. Why break something just because it is not yours?

I too leave hotel rooms with lights and AC turned off. Perhaps, Brian, you and I grew up in homes that valued conservation.

What a wasteful attitude. Disgusting. (Although, I don't believe a financial planner actually recommended this...)

In the immortal words of Bon Scott, "Its criminal, there aught to be a law"

Channeling the other thread, to me this is a classic case where there really should be a series of laws to make this sort of behavior illegal and punishable severely. For example:

A professional financial adviser giving advice that constitutes both blackmail and robbery/arson, should be illegal and his license to practice revoked, and he should be on the hook for some of the damages his advice causes the bank. Maybe even prison time... that would put a stop to that sort of advice.

Taking said advice, or performing those acts on your own, should also be a crime. A simple law which states that removing permanent fixtures from a property that is foreclosed upon within, oh lets say 2 or 3 years, is robbery. Deliberately causing damage to said property is arson. Both scenarios are punishable as any other robbery or arson - prison time.

That would put a stop to this nonsense right quick.

Its a real shame that people are so damn unethical that they will willingly screw someone who actually stuck their neck out to help them at one time. So much so that, like Bon Scott said, there aught to be a law.

Banks extort money from people.

They extort 28% APR from you while paying 2% to account holders.

XBoxBoy, well said.

Those who think that the damage to society from people engaging in these money-for-nothing schemes is concentrated on rich fat bankers who deserve it should think again - most of the damage will be paid for, through govt intervention, by other taxpayers and savers (using future inflation as a silent but very effective tax on savers). Banks are already almost all insolvent. Any additional losses caused by this kind of unethical (but legal) behavior will have to be made up for by the government, who will take it from some of us.

As for the "threat" about trashing the kitchen: I am sure the FA was smart enough to phrase it more subtly while still communicating very effectively how much power the homeowner had to reduce the value of the collateral in a way that would make it impractical for the bank to prosecute.

He should go to jail.

Thanks for all the feedback. I've obviously touched a nerve. I'm glad that others agree this crosses the line. For those who endorse dumping loans and enjoying the free ride, I would argue that even that pushes the envelope of what is acceptable and makes this kind of thinking more common. If one really abides by the contract, shouldn't you move out of the house as soon as you stop paying your mortgage instead of trying to milk the free ride as long as it will last before someone forces you out? Personally, I liked TG's ethics summary.

When I heard my friend's plan and questioned her ethics, I got jumped on by several others in the room who were in a similar situation and also hoping to abandon their mortgages, though hopefully without the vandalism. These days, unethical behavior feels like the newly accepted status quo. Such behavior is emboldened by the lack of consequences that seems inevitable when so many people do the same thing. Reminds me of the looters during the Watts riots.

The other thing that drives this is the seemingly insurmountably large sums involved relative to annual income. It makes people feel like a few years of bad credit is minor relative to the time it would take to pay back the amounts of debt involved. While the piggs saw it coming, most simply couldn't imagine prices declining so dramatically. 3 yrs ago, many first time home buyers bought a starter condo that they thought they could trade up from in a few years. Now they are stuck with a home they have outgrown and they realize they have made the worst financial decision of their life. They are desperate for a way out. Society, Bush then Obama, whoever, now says it's okay to foreclose and we'll help you through it. The removal of consequences is interpreted by many as an implicit endorsement of what was once unacceptable behavior.

Despite all this, I can accept that there may be extreme cases where such genuine hardship is encountered that society is right to show compassion and even clemency. However, current policies are way too broad and far too easily abused.

So we slide down the slippery slope.

And this is why so many of us were warning about moral hazard in the pre-bailout days.

By bailing out anyone who is underwater or took on more debt than they could afford, the govt absolutely opened up the box for everyone else to demand a bailout, too. The home "owners" have the banks over a barrel, and they're seizing this rare opportunity to collectively make demands (principal reductions, forebearance, interest rate reductions, etc.) that they wouldn't normally be able to make.

I fault the govt 100% for the mess they've created. What they should have done is stand behind the original FDIC and SIPC insurance, and let the chips fall where they may. Since they're bailing out the fat cats, they will be forced to bail out everyone below them, too.

Though we've always paid all of our bills on time (or sooner), and never stolen from anybody, I'd feel like a chump if we were paying the original terms of our mortgage. Unfortunately, we rent, so we don't get any freebies. See..only renters get evicted if they don't pay.

I'm going to throw up after reading this. These dirtbags make me sick.

Good point for this thread! How many people are actually getting a feeling of revenge/satisfaction from sticking it to the bankers?

How many of us are both sick and mad at these freeloading bums and at the same time, enjoy seeing the working stiff, stiff the bankers?

Fight Club type debt destruction reset only with mortgages blowing up; not credit card company buildings?

On a related point, I paid off my Bank of Amerika credit card balance last month in full because they hiked my interest rate to the moon (after being a card holder since 1990 with ZERO lates). Today I opened my bill and they were asking for more interest $$ even though I paid before the due date. I call BofA and they say, "oops our bad, we'll take that off". Conniving Assholes!

They get all the tax payer funded dollars they like, at zero % interest so they can play like they are solvant and we get the shaft.

The problem with acting on these impulses to "stick it to the bank" is that puts you in the same category as the bank... I don't want to sink that low.

Trash the kitchen? I vaguely remember reading somewhere that some guy mowed down his whole house, claiming he was going to remodel, but ran out of money. This was after the NOD and threat of foreclosure. I haven't heard anything more of that, but I'm thinking he got away w/it. I mean, think about this. If you want to remodel your kitchen, you don't have to ask the bank's permission.

Perhaps legal. Not ethical. Gosh. Are we disputing the lack of ethics after this whole bubble seemed based on it?

While there is a lot of blame to be said for banks relaxing leading standards, one forgets that most mortgage applicants are hardly "victims". No one forced them at gunpoint to take cheap credit and spend beyond their means. It's pretty simple...If you don't like the terms of your credit, don't take the credit. Some people just want to have one's cake and eat it too.

As far as trashing the place...By all means, go for it. The people get to make it difficult for the banks and the banks get to put a ding on people's credit. Mutual relationship....Now as a prospective landlord of additional property, this is exactly why I would never rent to someone with spotty credit. If you think some people are willing to trash a place to get out of a contract, just imagine what they'll do as a tenant... If the collective landlords would simply refuse to rent to folks with spotty credit, it probably would make people think twice about things. Unfortunately, there are probably some knife catchers who need their properties rented, and will just about rent to anyone.

I agree, they probably should have left the banks fail and insure the deposits, even the ones above the FDIC limits. Those deposits would then get moved wherever the depositor decides. This would have the effect of recapitalizing the surviving banks, and maybe the gov't could provide additional capitalization if necessary. And the "toxic assets" of the failed banks would be liquidated at auction. So the market could figure out a value for them, instead of the current case where they're hidden away in the balance sheets with some bullshit valuation. (Still waiting for THAT shoe to drop.)

I think it would have cost us a lot less money, and left us with a stronger banking system. And we'd have a few more unemployed idiot bankers.