Walking on your mortgage

[Anonymous]

As to the bankruptcy changes I truly believe it was engineered by the banks and card issuers to help protect their massive profits from their credit card portfolios.

[Anonymous]

Perry – at first you indicated she was close to being underwater. If that is the case she should be very proactive.

Waiting for the market to tumble is a little like sitting at the beach as the water gets sucked out just before the tsunami hits – at the first sign of trouble you head for higher ground.

Frankly, if we experience a market in which values drop by 50% (or whatever number the $300,000 represents) my prognostication is that there won’t be financing to be had. The banks, around the time of the depression, pulled in their reins so much that credit availability (or lack thereof) helped worsen the nation’s housing situation and contributed to the crisis known as the Depression.

[PerryChase]

I think that her equity (down-payment included) is practically gone. If she were to sell now, I’m afraid that she’ll have to bring money to closing.

Well, this girl is my younger brother’s girlfriend so I’m not going to tell her what to do (never do that). She is very stubborn and thinks that she can ride out the downturn. Yeah, if the downturn is mild she’ll be fine. But if the market tanks, she’ll realize her mistake and then do the financially smart thing. I told my brother about the possible options and perhaps he told her.

If it’s as bad as I think it’ll get, she won’t be the only one walking from her loan. I expect SD median to get down to around $350k.

[bgates]

Someone please tell me I’m not the only one on this board who would have a problem breaking a contract like that. If you make an agreement with someone, you have an obligation to see it through. Even if the agreement is with a bank, and even if it costs you money.

[Chrispy]

You’re not the only one. I have to wonder how anyone could seriously think they are entitled/competent to buy another property while they are underwater on the one they are living in.

And, what bank is going to loan them money when the financial documents are presented? This isn’t Costco, where you can take items back that you buy in bulk (after you’ve ripped ’em open) because the smaller, cheaper version just showed up at Vons.

[Daniel]

“Someone please tell me I’m not the only one on this board who would have a problem breaking a contract like that. If you make an agreement with someone, you have an obligation to see it through. Even if the agreement is with a bank, and even if it costs you money.”

I actually don’t see a moral problem here. A mortgage is an asset-backed loan, that is, a loan guaranteed by physical property. The borrower can walk, and in that case the lender takes ownership of the property. Both sides know that (the lender certainly does), and that’s why mortgage rates are higher than risk-free Treasuries. Same for corporate bonds, and any other kind of loans. Default is always a possibility, and the lender compensates for that risk by a higher rate. It’s totally fair game, in my opinion.

That being said, I’m a very pro-business kind of guy, and totally agree with the bankruptcy reform last year. Before that, it was so easy to walk from debts, it was almost an invitation to default.

[PerryChase]

I agree with Daniel.

If a mortgage borrower walks, he’s not actually “breaking” anything. He’s fulfilling the default clause of the contract. That’s why the default clause is there to begin with. It’s up to the borrower to choose to pay or default.

I believe that it’s best to own real estate and declare bankruptcy in Florida. Remember OJ Simpson?

[bgates]

That’s a good point.

[Anonymous]

What lender would let you walk away!!! They foreclose and then seek the balance from the borrower in a civil suit. Don’t be foolish to think that you can walk away with little or no consequences.

[Daniel]

“What lender would let you walk away!!! They foreclose and then seek the balance from the borrower in a civil suit. Don’t be foolish to think that you can walk away with little or no consequences.”

Not true for primary mortgage loans in most states. They are no recourse (i.e. all a lender can do is foreclose and take the property). Second liens are different, I think. If anybody knows for sure what are the default consequences for HELOCs, piggybacks, and so on, please share the info with us. Thanks.

[ocbuyer]

hey gang,

has anyone mentioned (i didn’t see it) if this is a non-recourse loan or not?

if it’s non-recourse, which lots of exotic financing is these days, it’s got harsh language and talks about going after $$ – but it’s actually non-recourse.

it’s worth (if you have a friend that’s a lawyer, that will do a favor) having them look it over to see if it’s non-recourse.

if that’s the case then you can hand it back and walk. that’s it. as far as the moral implications – sellers were just as implicit in these situations as buyers. Further, the “loans” that were given and written are just as morally flawed with balloon payments, and various other twists and turns. what goes around comes around – who knows the conditions and understanding under which she entered contract.

careful to point the finger.

[ocbuyer]

daniel,

just saw your post – 2nd mortgages are often times SOL as well. that’s why they have high interest rates. they are often backed with hard money. some helocs are different esp. if it’s an fdic lender.

there is another facet that hasn’t been discussed. on the high priced homes $2M plus. Lenders will sell off the top half or first position on the note and make back considerable money. The lenders that buy this have first crack at recouping costs via liquidation etc.

hope that helps.

[vcguy_10]

What’s SOL?

[CardiffBaseball]

SOL – think of it as
excrement outta good fortune.. or
Poop outta Luck

[vcguy_10]

Thanks! Isn’t that (S out of luck) redundant? Is there ever any lucky poopie?

[Author]

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