Will honest people start doing dirty/crooked things to bail out of their houses

[23109VC]

Here is a question I have wondered about.

Suppose a homeowner buys a house during the peak of the real estate cycle for $500,000. They do 100% financing – so there is no equity.

Say the house now is only worth $250,000. So now this person has a house that they could buy for half what they owe.

Suppose this person has the $$ now, due to increased earnings, whatever – to BUY another house. the same type of house for $250k. with a corresponding mortage that is a lot lower.

once they get the NEW house purchased, at the new bottom of the barrel price – they just stop paying on the old house and walk away. and let the bank foreclose on it. the bank is left holding the $250,000 loss.

Can the bank sue the person for the loss or are they basically free and clear of tha thuge loss?

the reason I ask is that I honestly wonder what is going to happen when even the “honest” people who have money, and CAN make their payments see their “house/investment” suddenly worth half what they paid…their monthly payment seems now “HUGE” compared to what a new person buys for, and they get pissed…and would rather find some scam way to get out of paying….by buying anothe rhouse at the newer/cheaper prices and then just dumping the old one.

i mean in a perfect world you jsut sit tight, ride it out, and wait for prices to come back. but peple are not honest, and they are crooked. and it would not suprise me to find people who ordinarily would be honest, doing things that are crooked and/or fraudulent…

[JWM in SD]

Cash and time vs. Debt and Stucco Box.

Who wins and who loses???

Take a wild guess……….

[JWM in SD]

Cash and time vs. Debt and Stucco Box.

Who wins and who loses???

Take a wild guess……….

[HLS]

In CA, in general, when you get foreclosed on, IF you still have your original “purchase money loan” it is NON recourse debt, which means the debt is secured by the property and nothing more.
You will not get a 1099-C nor a deficiency judgment, nor owe any income tax for debt relief.

Your credit score will suffer. It will rise over time and it will stay on your credit report for 7 years.

IF your loan is a REFI loan, you will have issues to deal with. That is RECOURSE debt. See IRS guidelines for details.

[HLS]

In CA, in general, when you get foreclosed on, IF you still have your original “purchase money loan” it is NON recourse debt, which means the debt is secured by the property and nothing more.
You will not get a 1099-C nor a deficiency judgment, nor owe any income tax for debt relief.

Your credit score will suffer. It will rise over time and it will stay on your credit report for 7 years.

IF your loan is a REFI loan, you will have issues to deal with. That is RECOURSE debt. See IRS guidelines for details.

[patientlywaiting]

” Can the bank sue the person for the loss or are they basically free and clear of tha thuge loss? ”

No, the bank can’t sue if the mortgage was as non-recourse purchase loan. But they can sue if the house was refinanced. That prevents owners from refinancing and walking away with equity money leaving the bank to hold the bag.

I don’t remember the exact code section but it’s a left-over from the depression era.

What does it have to do with honesty? A contract is a contract. What does it say? The bank will treat you per the letter of the contract. You might as well do the same to them.

What you say is a good idea but most buyers have refinanced a few times, so they are out of luck.

[patientlywaiting]

” Can the bank sue the person for the loss or are they basically free and clear of tha thuge loss? ”

No, the bank can’t sue if the mortgage was as non-recourse purchase loan. But they can sue if the house was refinanced. That prevents owners from refinancing and walking away with equity money leaving the bank to hold the bag.

I don’t remember the exact code section but it’s a left-over from the depression era.

What does it have to do with honesty? A contract is a contract. What does it say? The bank will treat you per the letter of the contract. You might as well do the same to them.

What you say is a good idea but most buyers have refinanced a few times, so they are out of luck.

[golfproz]

That was common practice in the last crash, at least in the IE. I had at least a half dozen people on my street do that in the early 90’s. When the builders started selling new homes at 40%-50% off they all bought new bigger homes that cost way less than the ones they were living in. Then they just let the old ones go back to the bank. There credit was toast for a few years, but really, how much does that matter if you have a home and a few credit cards already. You’re gonna get hit with higher rates if you buy a car but other than that there are few problems.

It’s would not surprise me to see it happen again.

[golfproz]

That was common practice in the last crash, at least in the IE. I had at least a half dozen people on my street do that in the early 90’s. When the builders started selling new homes at 40%-50% off they all bought new bigger homes that cost way less than the ones they were living in. Then they just let the old ones go back to the bank. There credit was toast for a few years, but really, how much does that matter if you have a home and a few credit cards already. You’re gonna get hit with higher rates if you buy a car but other than that there are few problems.

It’s would not surprise me to see it happen again.

[kewp]

HLS hit the nail on the head; this is precisely why the crash is going to snowball. It would be financial suicide *not* to toss your keys for these people.

Heck, an even better course of action is to just stop paying your mortgage and wait for the bank to evict you. Threaten that you will declare bankruptcy and sue the bank for predatory lending if they don’t pay you to move out.

The banks are on the ropes and are going to have so many repos that I would not be surprised if you could live rent/mortgage free for a year or more until they kick you out.

[kewp]

HLS hit the nail on the head; this is precisely why the crash is going to snowball. It would be financial suicide *not* to toss your keys for these people.

Heck, an even better course of action is to just stop paying your mortgage and wait for the bank to evict you. Threaten that you will declare bankruptcy and sue the bank for predatory lending if they don’t pay you to move out.

The banks are on the ropes and are going to have so many repos that I would not be surprised if you could live rent/mortgage free for a year or more until they kick you out.

[HLS]

When this mess is over in a few years, I bet that the tax code involving non-recourse debt gets changed for the next time around….
Along with a few other things.

[HLS]

When this mess is over in a few years, I bet that the tax code involving non-recourse debt gets changed for the next time around….
Along with a few other things.

[bsrsharma]

Reminds me of the saying: “If you borrow a Million $, the bank owns you; If you borrow a Billion $, you own the Bank”. Collectively, the borrowers own the banks now and can do pretty much what they want.

[bsrsharma]

Reminds me of the saying: “If you borrow a Million $, the bank owns you; If you borrow a Billion $, you own the Bank”. Collectively, the borrowers own the banks now and can do pretty much what they want.

[Author]

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