Instead, Countywide et al, made a bunch of bad loans to people who couldn’t afford them causing them to foreclose. Now Countrywide et al is dumping these units back on the market at reduced prices because they have to get rid of them.
No, they are dumping them on the market at those prices because that is what they are worth now. The value is what it will sell for currently.
Units in concrete buildings are now trading near replacement costs.
Another definition of what an item is worth.. its replacement cost.
It is not as if I am getting a free ride. My $100,000+ downpayment is already gone. Also, the bank will be getting $50,000+ in upgrades (lighting, built in cabinets, flooring, etc.)
Neither is the bank.. because they loaned you more money to buy the place than they will get back on foreclosure. They also did not get to live in the place in the meantime.
At this point, I would be glad to sign a Deed in Lieu of Foreclosure if they wanted to save the time and money of an actual forclosure. I don’t know the advantages/disadvantes of doing this.
If you don’t have a second or HELOC, this could be done. It does have the ability to get you out from under quickly. I think the bank will want to offer you ‘generous’ terms on a refi, or second which would end up being recourse. If the only money is a purchase money loan, then don’t do any refi or HELOCs. Keep it non-recourse. It gives you a bargaining chip.
Very simple math. I may decide that it is not worth losing $6,000 a month (Mortgage, Taxes, HOA) for the next 7 years ($504,000 total) while not gaining any equity (and probably losing more).
One question to ask here.. is the loan amortizing or I/O? What is the equivalent rent for same type of location or for place that you could live in?
I am not going to continue to fund a bad investment indefinitely especially whin I know that the peak of bad loans won’t happen until March 2008.
There are going to be two peaks… one in 2008.. a pause of about 1.5 years and then the Option ARMS start to hit.
@sd gal If you borrowed 100% financing with 500k. You walk away from 500k mortgage, then lender sell the property for 350k. The loss of 150k will be considered as income for the year’s tax return for you. You will be responsible for income tax of 150k which will be around 40-50k?
Not if it is original purchase money loan (1st mortgage on purchase). These are non-recourse in California.
What about 2nd mortgage? Can I walk away from it too? Or they would come after my other asset?
2nds are recourse in California. They can come after you. If they feel they can’t get anything from you, they can 1099 you for loan loss forgiveness which gets taxed at income rates for the equivalent $$.
