Market Conditions: Chicago Area Homeowners Now Choosing Strategic Default
The Chicago Tribune explored the phenomenom of “strategic default” over the weekend. We already chattered about it a bit over the weekend in one of the other posts but I thought others might want to get into the conversation.
A “strategic default” is where the homeowner still has the means to pay the mortgage but decides to stop paying, and let the property go into foreclosure, even though it will ruin the homeowners credit.
Others have called it “walking away.”
Usually this is done for financial reasons.
Here are a few of the stories:
Likier put almost 20 percent down to purchase a $312,000 townhouse in Westmont in 2006 and lived there until two years ago, when he remarried and bought a home in Chicago Ridge. For a year he rented the townhouse. When a change in rules at the community meant Likier’s days as a landlord would end, he called his lender and asked if he could rework the loan, but he didn’t have enough equity left to refinance the $240,000 mortgage.
Likier, 55, took a long look at his finances and the combined monthly mortgage payments of more than $4,700 and decided last fall that the struggle wasn’t worth it.
He listed the townhouse for $249,000, figuring he would bring $20,000 to the closing table to facilitate a deal. The listing has since dropped to $179,000, which is lower than the unit sold for when it was built in 1999. He stopped paying the mortgage in January and recently was served with foreclosure papers.
Despite the fact that he and his wife are employed and have an annual household income near $150,000, he’s comfortable with his decision.
“I did a lot of soul-searching about whether it was morally the right thing to do,” he said. “I felt there was no moral obligation to make a payment. The contract says it’s a financial obligation, not a moral obligation.
“I was in a boat with a slow leak. It was manageable, but I know I was slowly sinking.”
Lots of Chicago area homeowners are already underwater. According to the article, CoreLogic estimates 25% of Chicago area homeowners are underwater and another 5% have less than 5% equity which, as prices continue to slide in 2011, puts them in danger of being underwater as well.
The decision isn’t made overnight. “You see the house price dropping, you don’t walk away the next day,” said Luigi Zingales, a professor at University of Chicago Booth School of Business who studies strategic defaults. “You hope that the first time the condo next to you sold for half price, that it isn’t going to happen to (you.)”
“Especially in states like Illinois, people held out hope for a little while,” Zingales said. “Maybe they are paying the mortgage a little but when they’re seeing that prices aren’t recovering, they default.
A lot of people strategically default because they want to preserve their retirement savings.”
When a vacation condo in Panama City, Fla., became difficult to rent, Naperville resident Philip Burdi tried to sell it for $90,000 — far less than the $190,000 owed on the mortgage. His lender, doubting Burdi’s financial hardship, wouldn’t approve it.
Burdi stopped paying the two mortgages on the condo in March 2010 and is over the guilt, particularly after he tapped retirement savings to settle the second mortgage debt. He occasionally stays in the condo, and he lets friends and family stay there for free. He has yet to be served with foreclosure.
“I know it’s going to have very dire consequences when the foreclosure happens,” he said. “Millions of Americans are in the same shoes I’m in.”
Some homeowners are getting all their ducks in order before they default by buying new properties and cars. Then, when the foreclosure hits their credit score, it doesn’t have as much of an impact.
Margie Jones prepared for the fallout, getting her finances in order and making any big-ticket purchases. When she and her husband bought a home in El Paso, Texas, they put it in his name only.
The Chicago native endured multiple deployments to Iraq and Kosovo as an Army warrant officer overseeing motor pools. But she no longer can take the financial stress associated with a three-flat in Chicago’s Logan Square neighborhood, a home she still lists as her legal address, and a mortgage she took over from her mother more than five years ago.
Bought in 2002, the building where her mother and two renters live last appraised for less than half its purchase price. Efforts to refinance its two mortgages failed, and the first lien holder wouldn’t approve a loan modification because the lender views Jones, who is now stationed in El Paso, as an investor.
The last time she made a payment on the first mortgage was in February.
“We were barely able to make ends meet,” Jones said. “I told my husband I can’t do this anymore. The day I made the decision to just walk away was one of the better night’s sleeps I had because I wasn’t going to worry about it anymore.”
Jones, who said her credit score was above 700, is still waiting for the decision to catch up with her, but she’s accepting of it. “I can stand to lose a couple hundred points.”
Sinking values prompting homeowners to consider strategic defaults as best business decision [Chicago Tribune, Mary Ellen Podmolik, May 22, 2011]
if people have the financial means its wrong; just like the banks and corporations. In the end this is just sad and an illustration of what can happen if the CS like indexes fall to such levels(below 100/90) as some bears predict.
I do support giving people a second chance; their should be no debtors prison just don’t give them a loan; if you do and you lose it, its an investment you made on them, stupid, no bailout for you.
Regardless of how you feel about it, people are going to continue to strategically default if they are not incented with other options. In other words, streamline the loan modification and short sale processes. Yes there are those who do not deserve it and some who will still default, but if it cuts the numbers down, it would be worth it in the long run.
While I don’t blame people for trying to get away with the same shenanigans as major corporations, they’d best remember they are not in the same category and don’t have the same protections. That is very unfair, but until our population gets angry enough at the special status and protections enjoyed by corporations and the double-standard applied to their misdeeds vs. those of ordinary mortals, to fight back in an organized way, then we are stuck.
I mean, aren’t these individual owners whose examples are provided here going to be liable for the deficiencies remaining after their defaults and foreclosures? Last I heard, Illinois was “recourse” state, which means a lender can go after you for the shortfall if your place sells at foreclosure for less than the loan. That means the lender can attach that deficiency to any other property you might own, and go after any money you have lying around in bank and brokerage accounts, or at least I would think. But perhaps the Likiers, in the first example, would really be better off eating that substantial deficiency than continuing to pay on the place. At least they’ve stopped the bleeding, and they are no more morally remiss than Morgan Stanley was in “handing back the keys” to 5 office buildings in San Francisco.
I suggest that people view the decision to default the same way that corporations do- as a “business” decision that has no moral import one way or the other. They must bear in mind, though, that the consequences for a lone individual debtor out here could be a lot different, and a lot more damaging to the borrower involved, than those made by a corporation, whose officers and shareholders are protected from individual liability.
“Rationalizing immoral unethical behavior” should be the title of this article. It is the same as the whore/slut who claims that he/she slept with so many people because he/she is more beautiful than most.
Nice graphic showing the shadow inventory…today’s NYTimes.
As Lenders Hold Homes in Foreclosure, Sales Are Hurt
http://www.nytimes.com/2011/05/23/business/economy/23glut.html?_r=1&hp
Laura, good analysis. Clio, go back to bed.
1) Developers do this all the time.
2) If you search, and I was very surprised to read this, banks in IL are apparently not going after people for judgements – which means that this will likely grow in prevalence.
So Laura’s analysis is wrong.
When you sign your mortgage documents, you are making a contract with the lender, that you will pay as long as you occupy or make use of the mortgaged property, and that when you do not pay, that you will be foreclosed. So if you move out and default, you are in no way committing a moral violation- you have merely broken a contract.
Now, if you default and continue to “squat” on the property- that is a different issue. You really are stealing at this point.
You should accept that there will be consequences, like a deficiency judgment from which the only escape is bankruptcy, which might be enough to stop me in my tracks. I would reason that if I’m going to have to pay anyway, I might as well stay…..depending on how likely it was that I’d be confronting an even steeper loss down the road.
I can really sympathize with people who are tired of doing the “moral” thing to their own steep loss and the increase of financial predators who are backstopped and guaranteed against the consequences of their own greed, sloppiness, malfeasance and criminality by an alphabet soup of government incentives and programs designed to line their back pockets and impoverish the gullible population. I sit here largely broke and financially crippled today because I have too often done the “moral” thing and “accepted responsibility” for the benefit of unscrupulous scum who will do whatever it takes to evade responsibility for their mistakes and deliberate criminal actions.
Think like a business, people, keeping in mind, of course, that you are up against people with much more firepower than you, who have a massive advantage over you financially and legally. Do what you can, but make sure it is doable and won’t cause you worse problems than you already have, which a “strategic default” just might (or might not) do.
Illinois banks may or may not actually be going after people for deficiencies, but they COULD. Just because they haven’t so far, doesn’t mean they won’t begin, especially when they actually have to start booking the prodigious losses from the properties now languishing in the “shadow” REO inventory, which is about 20x the size of the number of foreclosures visible on the market.
Make very sure you know and can accept whatever consequences are possible, that’s all.
Arguing morals or ethics should call into question the morality of a bank offering a mortgage to anyone who clearly doesn’t understand the product. Additionally, the concept of home ownership really fits for about 20% of the people that actually own homes. If people are “strategically defaulting” at least it puts me at ease knowing that they won’t be able to get another mortgage in the future. Buy with cash, or buy a place that you plan to live in for 10+ years.
I just finished going through the foreclosure process. With the first mortgagee, I agreed to a consent foreclosure, where I gave them the keys in exchange for them waiving the deficiency. With the second mortgagee, I settled for 30 cents on the dollar.
I avoided bankruptcy. My credit rating has fallen from 790 to 640.
I estimated the deficiency to be about $125k based on where we had the unit priced before the foreclosure.
Laura’s right about the COULD vs WILL distinction. I offer another subtlety- lien holders have zero political cover to go after low income defaulters for deficiencies, they’re already trying to keep their heads down. High income defaulters have more significant legal resources, reducing the likely recovery on those amounts. Many high income defaulters own their properties through LLPs and have no personal liability. Chasing deficiencies will not happen in meaningful size.
However, anecdotally, a major mortgage servicer began sending notices to delinquent borrowers that they would be personally liable for deficiencies — the cure rate in response to those letters was 30%. So scare tactics work.
I’ve noticed, not only in the comments of this blog, but from reputable journalists, a fundamental misunderstanding about the administration of delinquent or defaulted mortgages. First, the majority of mortgages are not held by a ‘bank’. Trusts (securitizations) hold the mortgages. You might have multiple parties with partial (often tranched) ownership in the trust. These parties might be banks, pension funds, hedge funds, insurance companies, REITs, Fannie/Freddie or the US Treasury. These trusts may be guaranteed by Fannie/Freddie/Ginnie. Some securities might be insured by a monoline, like AIG or Ambac. Generally, ownership of an individual loan is so convoluted that talking about ‘the bank’ as the decision maker shows a fundamental misunderstanding. The real action/decision comes from the mortgage servicer. In most cases, servicers do not own the loan BUT they generally don’t need to ask permission from the ultimate lien holder to do anything (modify, foreclose, evict, etc…). They have a contractual obligation to act in the lien holder’s best interest, period, governed by a PSA . Even in the case where the servicer owns the loan (aka, Bank of America or Chase), we’re talking about different groups working in different parts of the the country.
In order to make predictions about modifications and foreclosures, we need to think about servicers – their incentives and resources. Talking about ‘the bank’ is just barking up the wrong tree. Even if they own the mortgage, they really aren’t involved.
More people should strategically default!
that would mean more free cash to consume goods, more goods will need to be made, new people will be need to make more goods, now you will have more people with jobs and more free cash flowing buying up even more goods.
hey its a short term outlook/gain, but hey have we operated any other way the past 30 years?
wait did i read that correctly 495 days until the foreclosure eviction? or was that just the filing of foreclosure?
so if my neighbor stops paying it will be 2 1/2 years before it will hit the market? *excluding the obligatory short sale listing
“On average, the time to process a mortgage foreclosure, from the first default notice to a bank repossessing a home, was 494 days ”
something tells me that the law of averages works out as: low income defaulters get hit sooner, high income defaulters are closer to the 494 mark 😀
Groove: yes.
Actually, Icarus, it’s the other way around. In the really depressed areas, the banks simply do not want another house that once sold for $200k that they have to resell for $20k. So they wait and wait and wait.
It’s like that one poster who is STILL living in the bank owned unit in Rogers Park. The bank has yet to kick him out and has yet to even re-list the property (although they HAVE taken it.)
So the foreclosures I’m seeing taking 2 years are in the distress buildings and distressed areas- not the other way around.
Mr. Likier’s story above is a good warning to condo associations who ban rentals. It can kill resale values.
My friend’s landlord was recently faced with the same issue. Their condo association banned new rentals. Now the owner is selling the condo he bought for $350k at $199k. (not a short sale-apparently he can take the loss).
If it was ‘rentable’, my friend would have made an offer, and I bet it would list higher than $199k.
BTW, his rent was about $1600. It’s a nice condo (in a not awesome area).
Good NY Times analysis of the foreclosure situation (that is linked to above in the thread.)
“All told, they own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.
In Atlanta, lenders are repossessing eight homes for each distressed home they sell, according to March data from RealtyTrac. In Minneapolis, they are bringing in at least six foreclosed homes for each they sell, and in once-hot markets like Chicago and Miami, the ratio still hovers close to two to one.”
Thanks for the info, Frank. Good luck.
Yes Frank, thanks for sharing. If you don’t mind, could you share how long the process took? Did they attempt to try and talk you out of it every step of the way?
Frank, sincere question here: how do you feel about your foreclosure?
why is everyone treating “frank” with such kindness and respect? Why should we wish him “good luck”? Because he underwent a foreclosure? Why should we “thank him for sharing”? Come on you morons – this “frank” person and people like him are the reason we are in this mess – but all you idiots can do is “thank him” and wish him “good luck” – THIS is what is wrong with the world.
clio,
look at the big picture, it wont matter our increased tax dollars will either go to frank’s bank or frank. who cares where it goes it will all end up benefiting the 1% of our society anyways. the gap will get bigger and the revolution will come.
not much to do to change the uneven scale, so as the young-ins say just “get mine”
I have a hard time seeing anything immoral about being unable to pay one’s mortgage or exercising one’s rights to do otherwise when continuing to pay the mortgage is less financially attractive than the expected value of the alternatives. So, the morality police should give it a rest, no one cares that you think the laws don’t match your morals in this situation, and I doubt you’re going to be able to shame someone into holding on to an underwater property simply because you are shrieking that doing otherwise is immoral. Defaulting on a mortgage, even when you don’t have to, is not stealing. Stealing has a definition, and this ain’t it.
I might not agree with every aspect of the bailout or how it was handled, and I’m sure that I would have done things differently, but there was more to it than a desire to protect big business. It was about a desire to protect the American economy and the American people. The effects of another major bank failing would have been devastating. It’s easy to look back and say that we didn’t need to do what we did, but you only have that option because we did do what we did, and stop things after Bear and Lehman. If we hadn’t, things would have gotten a lot worse. Who knows how McCain could have screwed it all up, he probably would have tried to invade Iran and North Korea to fix the economy.
“THIS is what is wrong with the world.”
also “mr. i have been educated at all the top schools”, do some comparative thinking and explain why franks contract is any different that a business doing a bankruptcy restructure thingy?
I take an overly simplistic view of what happened to the RE market over the last few years.
In my opinion, the person who bought solely for shelter purposes (as opposed to those who bought as a source of income/investment) will continue to make their payments and live in their home with little to no interest in what their home is now ‘worth’, or what they would stand to make/lose if they were to sell their home. Should they simply put blinders on and not think about what is happening in the RE market? In a way they are really left with no option, right?
For those who bought ONLY to make a profit, there was no promise from anyone that the $250k you signed for would magically turn into an asset worth $350k.
This was the chance you took…no one forced you to make this purchase, so why should there be any way of being relieved of your debt? The RE game was viewed as that…a game where there was going to be a winner in the end. Now that this is not the case and many people are ‘losing’ money, there is outrage about how and why this all came about.
In the end all buyers took a huge risk and it ended up not working out in their favor. So who should be held responsible for the action? That’s right, the buyer who went into this process seeing only dollar signs instead of seeing a home that they could see themselves living in for the rest of their lives.
Sad reality, but how else do you view it without losing your mind?
I know plenty of people who made the decision to purchase their home…to live the “American dream” (btw, does no one use this term anymore?)…and now that they owe more than their home is ‘worth’, they bite the bullet and remain responsible for their own financial decision…continuing to make their monthly mortgage payments.
When in our history did anyone receive a promise of making money by investing their money as they chose to do? It just never happened nor will it ever. They took a chance hoping to make some money from a resale and when that didn’t happen they simply walk away from it. Pack up your toys and go home pouting.
And this is not a moral issue?
The place has been on the market on and off since 08. But it was 9 months from when I stopped paying until judgment. I was not living there and the bank holding the second mortgage was not the same as the service on the first. I think that is why it went rather quickly. Both banks called me on a daily basis trying to resolve it.
I think foreclosure was the only option though because there was a large special assessment that killed a few deals that I had over the 3 year period.
I certainly am not proud of handling it this way. I made a bad decision to buy it in 2004 with an 80/20 loan. When we had the property on the market for 80k less than I owed and no one looked at it, this really became the only option. I lost my renter because of work being done on the building, and even with the renter I was losing $750/month. It was not sustainable.
So I worked it out in the only way possible and managed to avoid bankruptcy. I may still have a tax issue next April depending on what the bank sells it for. But I think the loss I will take on the property should offset the forgiven debt income.
Honestly, it’s totally tempting to walk away. I can understand the temptation. With this market, it’s getting to the point where better properties are available for less than we owe on our mortgage. And, we have the cash to buy one, in full. Or, if we found something that was a little bit out of reach we could borrow from a family member. And, we know prices on the places we like will be going back up. Additionally, there have been at least three foreclosures on our small street (one on them was most probably a walk-away) and they’ve pushed prices way down. We would be LUCKY to sell our place anywhere close to what we owe on the mortgage, especially when you figure in the amount of time it will take to sell it (probably at least a year), broker fees, etc. We are completely underwater and we are in a starter place, ready for the next place, tempted by this amazing dip in prices and sitting on something we can’t sell. We pay cash for cars, we have no consumer debt – we’re perfect candidates for a walk-away, I think. I can’t imagine we would, but tell me why we shouldn’t.
“But I think the loss I will take on the property should offset the forgiven debt income.”
I thought they temporarily stopped taxing people on that in the Mortgage Forgiveness Debt Relief Act, no?
“We pay cash for cars, we have no consumer debt – we’re perfect candidates for a walk-away, I think. I can’t imagine we would, but tell me why we shouldn’t.”
Well, you could sell your current place at a loss, and bring cash to the closing. You have cash to buy the new place, so you could use some of that to make up the difference between your mortgage and what you sell it for. Sounds like it’s not a huge gap, because you indicate there is a chance you could sell it for what you owe.
“…this “frank” person and people like him are the reason we are in this mess – but all you idiots can do is “thank him” and wish him “good luck” – THIS is what is wrong with the world.”
Silly boy.
What is ‘wrong with the world’ is the belief that everyone is entitled to making all the money they can…Greed pure and simple.
While I might not agree with walking away from one’s debt, I would not withold compassion and a thank you for sharing a story that others are able to learn from.
The more you share YOUR wisdom clio, the more we learn about how greed has shaped…ruined your life. You drive your lambo and seriously think that you are the reason people are able to smile at your life and they are able to receive some joy at your good fortune?
Shallowness at it’s best!
I think most walk aways have already happened. Prices have been going down for the last 5 years…most became underwater years ago. Why would you wait so long if you were going to walk away? Makes more sense to do it early than to pay on a property for another 3 years then walk….you’ve wasted payments for 3 years.
“I felt there was no moral obligation to make a payment. The contract says it’s a financial obligation, not a moral obligation.”
lol… at least call it what it is. There is one thing in life that never seize to amaze me is how hypocritical people are.
Strategic defaults are a big enough problem that banks have to take it into account when borrowers are getting new mortgages. “Buy and bail” is getting to be pretty common.
It used to be that you could buy a new property and claim rental income on old home by producing a lease. What is happening now is the buyers are producing fake leases so they don’t have to qualify for both mortgages. Then after the new home purchase is closed, they let the old home go into foreclosure. At that point, they don’t care as they probably won’t need credit or a new home for the next decade.
In order to prevent that from happening, you now have to qualify for BOTH mortgages unless you have a down payment of 30% or can show with a bank ordered appraisal that you have at least 30% equity in the old property.
My friend in Atlanta has been in a short sale process for over 4 months. While it’s a steal of a deal, she’ll eventually get tired of the bank’s delay tactics and walk. I think she’ll be able to pick up the same property once it hits foreclosure. The sad thing is that she is paying nearly 35% in cash and yet she had trouble financing the rest becuase most brokers told her that small amount wasn’t worth their time and effort. So, you are damned if you buy something you can’t afford, and you’re damned if you put down a chunk of cash and buy something you can pay off in 5 years.
This is the lunacy that has driven the size of loans the past few years. Greed of lenders has pushed the exorbitant loan sizes as much as buyer stupidity.
“The more you share YOUR wisdom clio, the more we learn about how greed has shaped…ruined your life”
uhhh – I pay for everything I own and I take responsibility for my debts – but that isn’t rewarded – no, as westloopelo states, it is considered “greedy”. Just remember, bosses, employers and people “in the know” understand how the common man thinks and, believe me, a foreclosure is a sign of poor judgement/character flaw – and rightfully so…..
I don’t have compassion for these people – I save my compassion for people with medical illnesses (who truly didn’t do anything to deserve the pain they experience).
“In order to prevent that from happening, you now have to qualify for BOTH mortgages unless you have a down payment of 30% or can show with a bank ordered appraisal that you have at least 30% equity in the old property.”
so for those who waited to buy and bail, looks like you missed your boat.
@Russ — could you please answer the question i posted on your blog?
I have mixed feelings about strategic defaults. On one hand, there has to be a moral obligation to pay the mortgage. The desire to pay the mortgage is a big assumption in residential mortgage underwriting hence the lower rates, longer term loans, etc. If we remove that aspect, then everyone might as well just get commercial loans which are in fact just business contracts with much less favorable terms and then everyone can just play by the rules of the contract.
On the other hand, banks (and their associated investors in MBS), really have shot themselves in the foot for their poor treatment of consumers. I get calls all the time from people who just want to refinance to take advantage of lower rates and cannot – they have great credit, good incomes, etc. They just don’t have the equity required these days so they can’t get a mortgage. You also get the people who may have been laid off and making an effort to stay current but can’t get any kind of temporary assistance. It is no wonder people are just saying screw it. The banks want them to be morally obligated, but yet want to take a “it’s business, not personal” approach to the situation at hand. It is lopsided and many borrowers have figured that out.
groove, if you start a company with your own money (no loans) and then declare bankruptcy, you are still personally liable for the losses and while it is true that if you get a loan and set up your business correctly, you won’t be liable for the losses – just remember that it is next to impossible to get a loan without some personal collateral and the banks WILL come after that collateral if you declare bankruptcy. This false notion of businesses declaring bankruptcy and owners easily walking away is false.
“Many high income defaulters own their properties through LLPs”
Cite, please.
I’ve not heard or seen of a single individual (or couple) owning a individual residential unit, whether for occupancy or rental, thru an LLP. Some LLCs, sure, but that’s by far the exception, too, for non-investment property.
I have compassion for some folks that fall into financial hardship, especially ones that were tricked by subprime mortgages and so on, but honestly there are some people that were just greedy and wanted more than they could afford to keep up with Joneses. I am not sure why everyone is attacking Clio for his opinion. Is it because it is Clio who is saying it, or you all think it is ok to be financially irresponsible?
Icarus… I didn’t see it.
“In order to prevent that from happening, you now have to qualify for BOTH mortgages unless you have a down payment of 30% or can show with a bank ordered appraisal that you have at least 30% equity in the old property.”
Russ – So if you have a down payment of 30% for the new home does the bank disregard the monthly expense on the old property when determining if you qualify for a loan?
and sorry I should have said “CEASE to amaze me”
“I think most walk aways have already happened. Prices have been going down for the last 5 years…most became underwater years ago.”
You overestimate the number of leaders among the sheeple. Critical mass isn’t achieved until everyone knows someone who is doing it. That’s how it “worked” with the bloodletting of the accidental landlords. It all looks right on schedule to me.
Clio, you should really stick to what you know, and not speculate about what you don’t know based on how you think that things should be.
In Illinois, it’s generally quite hard to pierce the veil absent extreme carelessness, intermingling or fraud. Whether a business has a loan or not is not particularly relevant to that analysis. I’m not sure, but I think that the applicable case law is still Pederson.
Clio,
russ took a nail out and a hammer and gave a wallop (sp) on the head of said nail.
“The banks want them to be morally obligated, but yet want to take a “it’s business, not personal” approach to the situation at hand. It is lopsided and many borrowers have figured that out.”
its just business, not a some sociological moral duty, its not like JP Morgan’s board is sitting in a room going “awe man frank fell on hard times lets help him out by deferring 6 months of payments and putting it on the back end to give him time to get back on his feet. we should do this as its the moral thing to do”
no JP Morgan runs some analytics and says NO GO FRANK the numbers dont add up in our(banks) favor, our computer tells us the risk is larger than the reward. so your shyte out of luck you signed the contrat frank you knew what you were getting into so pay up.
hmmm were is the moral obligation from our *bailed out banks?
so frank is just making it a level playing field.
GO FRANK GO!!!
“so frank is just making it a level playing field. ”
Yay Russ and Groove…but not so fast.
Banks have figured out that the Franks of the world have caught on to the double standard and while they haven’t done much to speed up loan modifications or short sales, they have done everything they can to make it harder for the Franks to walk away without reprecussions.
@Chris: Yes, if you show that you have a 12 month lease (and rental deposit to go along with it). The issue is that it is very easy to fake a lease so in order to prevent that, fannie/freddie won’t take them without the down payment or demonstration of 30% equity in the old home. The people who are going to “buy and bail” are not going to walk away from 30% equity.
However, I believe Wells Fargo indicated that up to 50% of new mortgage holders bailed on their rental property within a year when there was no equity in that home after closing on the new home.
“up to 50% of new mortgage holders bailed on their rental property within a year when there was no equity in that home after closing on the new home.”
Surprised it’s that low.
yeah we should all feel morally obligated to pay our mortgages while JPM takes on excessive risk, sends the american economy into a recession, cries about not having enough money, gets a balance sheet bailout, then gets acess to free money from the fed, and then makes 19 billion dollars of profit a year later?
anyone have a tissue?
“I get calls all the time from people who just want to refinance to take advantage of lower rates and cannot – they have great credit, good incomes, etc. They just don’t have the equity required these days so they can’t get a mortgage.”
Lend them your money then. They don’t have sufficient collateral, which is a huge indicator of future willingness (not just ability) to pay.
At least you have been consistent in your position on pushing zero equity/no down loans since the bubble.
I don’t have a problem with people who walk away and pay the difference between what they owe and what the bank gets for the place (which is what we had to do). It’s when there is a loss to the bank and the homeowner walks away from that too, expecting the bank (and therefore the rest of us) to pick it up for them, when they are more than capable of paying it back but just don’t think they should.
I think that if the homeowners were made to take on the difference as a long term debt we would have had much less distress to the market, less people would have considered it and we’d have much fewer fire sales bringing down prices. In the country we sold our home at a loss in (the market distress was due to 9/11, not the credit crisis), you can’t just walk away, and the market has remained pretty stable throughout this whole thing.
“I thought they temporarily stopped taxing people on that in the Mortgage Forgiveness Debt Relief Act, no?”
It is not my primary residence. I have not lived there since 2009.
The problem with free market mentality in this place is that, for some reason it got equated to no regulations and hence the mess we are in now. Just because banks acted irresponsible (even immoral) does not mean we have to all become irresponsible and mess up to get back at them. This is such a third world mentality and never works. People are angry with their inefficient governments hence evade taxes, vandalize public property and think they are getting even. Now good luck fixing anything that way.
A bank’s moral obligation is to it’s shareholders.
“they have done everything they can to make it harder for the Franks to walk away without reprecussions”
Icccccarus,
and they should make it difficult. “walking away” shouldnt be a phrase attached to the default it sounds too easy.
in the end it wont matter the little guy has no representation and will always get screwed, the trick is to hide the screwing or make it feel like they wanted it and less like rape.
And the government’s moral obligation is to its citizens but some how the extreme right has managed to argue constantly that government should not regulate. The propaganda machine has made it such that any mention of regulation equates you being a communist!
“A bank’s moral obligation is to it’s shareholders.”
Which many violate regularly by giving out-sized pay to marginally competent management.
come on anon, every proxy I have received in the last year has been to approve or disaprove the year’s executive compensation package
I always hit disapprove
not that anything ever gets accomplished with my small amount of shares but at least I feel better
its kind of like the state of IL legislature voting themselves raises this year… yeah they totally deserved it!
These are arms length contracts – the bank is not your friend. The decision of whether to walk away should therefore be a business decision, not a moral one. If it makes financial sense to breach a contract, a business would breach it. Homeowners should do the same.
whatever, walking away should be easy and guess what? It is really easy. You just walk away – that’s it!
99% of the time the first mortgage company WILL NOT come after you for a deficiency. Yes you heard that correctly, they will not do it. There are some nuances (investor properties, size of the bank, etc) but in generally for residential property the banks will NOT pursue a deficiency against the borrower on a first mortgage.
The second mortgage is a different story. The second mortgage companies vary by bank/servicer/trust etc. Those can generally be settled for pennies on the dollar. The mortgagees for the most part have learned after considerable expense and frustration that going after borrowers on 2nd’s is pretty pointless. They’ll call you and harass you, maybe a letter or two. but live in your property during the foreclosure for years, save up a little dough and offer it to the second mortgage company.
After a foreclosure you can still get a car, albeit at a higher interest rate; your credit cards will still be open; You will have a difficult time getting a mortgage, but, so what. renting won’t be that difficult either (although they make it out to be) because if landlords turned away anyone with a foreclosure on their credit report they would have no tenants. They’re more concerned with income – do you make enough money to pay rent? the foreclosures are practically irrelevant to them except that it sends more business their way. Most foreclosure defendants are future renters so that’s good for business!
I speak on these topics with authority and from professional experience.
@Anon, I’ m sure it will be if it isn’t already.
G, I have never “pushed” any mortgage product. I don’t necessarily disagree that equity is a part of risk management. My point is simply there are a large number of home owners who have been paying their mortgages for years and have say 6%+ rates on say a 30 year fixed loan but now have higher LTVs or under water. They still have great jobs, perfect credit, etc. Many want to refi to 15 or 20 year terms.
You would think the existing lenders would allow it since they already have the loan as it would lower the risk. The value is the value, whether these people refinance or not. Lowering their payment or getting their principle paid down only makes things better. Fannie/Freddie have the HARP refinances but they didn’t go as good as they should due to overlays. Good in theory, but the execution was lacking.
anon (tfo) – the through-llc ownership is much more common for investor properties or non-primary homes. i’m just giving one example of barriers to deficiency judgments against sophisticated borrowers.
i want to weigh in on the morality question. if you stop paying your cable bill, what happens? they shut off your service and send a collection agency after you. but is it immoral? cable company provides a service. in the same way, the mortgage company provides a service, they lend you money and take the ‘second’ risk of loss, after your equity risk. they get paid for this risk.
in an effort to support home prices, home improvement, home speculation, refinancing, etc… the housing industry, to include NAR, mortgage originators, politicians and even Home Depot have waged a multi-decade psychological campaign to convince Americans that home ownership transcends the logical framework of any other financial or life decision. to be fair, nearly every industry attempts the same thing. however, when I say ‘the American dream’, nobody thinks I’m talking about getting DirecTV or a Cadillac. the housing industry succeeding in convincing us, among other things, that home prices will magically and indefinitely outpace wage earners’ ability to pay for those houses. even in this downturn, people still believe this nonsense.
Russ said:
“The desire to pay the mortgage is a big assumption in residential mortgage underwriting hence the lower rates”
This just shows the effectiveness of this campaign. Mortgage rates have nothing to do with assumptions about desires. Treasuries + premium for prepayment risk determine conforming (fannie/freddie/ginnie) rates. Non-agency are benchmarked off those rates.
““they have done everything they can to make it harder for the Franks to walk away without reprecussions”
Icccccarus,
and they should make it difficult. “walking away” shouldnt be a phrase attached to the default it sounds too easy.
in the end it wont matter the little guy has no representation and will always get screwed, the trick is to hide the screwing or make it feel like they wanted it and less like rape.”
There certainly were ramifications: attorneys fees, settlement with the second mortgagee, association dues during the foreclosure, opportunity cost between the substantial difference between what it would have cost to rent for 6 years as opposed to buying this condo, difficulty buying a car.
I just weighed these costs against the $750/month loss I was taking and the fact that the property was six figures underwater and made the only rational decision there was
“Now, if you default and continue to “squat” on the property- that is a different issue. You really are stealing at this point. ”
Not in the eyes of the law, Laura, and we are a nation of laws. You steal from a 7-11 and get caught you get arrested. You squat you don’t get arrested. You should leave your personal opinions regarding morality out of this as they are of little consequence. Instead we should focus on the facts at hand and how our legal system reacts.
“the world they think is run by laws /
the world is run by men /
who use laws as tools…”
-Kweli
p.s. actual squatters who scare landowners are arrested all the time, and typically face the full, violent force of the law
I used to read this blog everyday but the wrangling among the so called experts here and the constant battle to see who is the smartest has become very tiresome. Between that and the very limited parts of the city covered I seldom read this blog now.
I wonder if others think the same way.
“I might not agree with every aspect of the bailout or how it was handled, and I’m sure that I would have done things differently, but there was more to it than a desire to protect big business. It was about a desire to protect the American economy and the American people. The effects of another major bank failing would have been devastating.”
No sorry. I’m not sure how the effects of another major bank failing would’ve been devastating. Oh you mean temporarily devastating to 401k balances because when a wall street bank goes boom! their trading desks start to get frantic because the traders themselves are worried about their own jobs in the future? Surely.
And that’s how Wall Street now controls America: the 401k threat. So all of the middle class aspiring rich fall in line and will support their demands when the S hits the fan. All people like you know is that lower 401k = bad so do whatever it takes to get that back up.
Now we have a sick financial system and an economy overloaded on financial services which was prevented from returning to it’s natural equilibrium in 2008 and a global financial system loaded up on net risk (in aggregate risk can’t be hedged out).
@ Oldman, Sabrina often covers properties from all around the city and you can ask her to cover some neighborhoods of interest to you and she usually does.
“I wonder if others think the same way.”
hey two weeks ago we got our first galewood post in one year how is that limited?
“the through-llc ownership is much more common for investor properties or non-primary homes.”
Yes, I was being a PITA pedant–LLCs, not LLPs–and, also, the distinction between what is, or was, legitimately a loan for a primary residence and an investment property (or fraudulently claimed primary)–traditionally, investment props came with higher interest and lower LTVs to account for *exactly* this increased risk.
The non-existent (and sometimes, reverse) underwriting of the bubble allowed many borrowers to claim primary on multiple properties and get the preferential loan terms on what was really an investment property. Those folks, in a “just” world, would be treated as the criminals they are and have to deal with a conviction for a financial crime on their record forever.
If the lender with full knowledge decided to lend on primary terms for an investment property, that’s on the lender, tho.
On this topic Mr. Likier is exercising his free walk-away option. I think the bank would be foolish to not pursue this deficiency, especially given that in this particular instance Mr. Likier is on record admitting that this default is voluntary.
Just as it is possible for him to default it is also possible for the bank to pursue the deficiency. If they choose not to follow this course then that’s a bad decision the bank made.
oh an oldman complaining… THATS new
“On this topic Mr. Likier is exercising his free walk-away option. I think the bank would be foolish to not pursue this deficiency, especially given that in this particular instance Mr. Likier is on record admitting that this default is voluntary.”
Yeah, I don’t understand why anyone would go on record for an article like that, unless they had negotiated a deal like Frank did, with a deed in lieu and settlement of the 2d, both with a full a final release, subject only to not filing bankruptcy within a certain period.
ok.. I sign the banks contract – a group that spends 100’s of millions a year on lawyers – unamended, accept their terms and consequences, and then uphold the contract, how is that immoral.
Never ever ever in all my years around banks has a contract been on a table and the word moral was used.
Hell, i stated my preference for I/O loans… That way no false pretense b/w me and the bank as to what we are doing. Both sides are about the rates. That is what they wanted. If they can’t figure out how to manage their risk after back to backing me on an interest rate play. Oh wait… It had risk… Oh! Fuck ’em.
“If they can’t figure out how to manage their risk after back to backing me on an interest rate play …”
Then the head of the resi lending group should be fired “for cause”?
“You would think the existing lenders would allow it since they already have the loan as it would lower the risk. The value is the value, whether these people refinance or not. Lowering their payment or getting their principle paid down only makes things better.”
Russ, Why isn’t it better for the lenders to continue receiving the payments at the higher interest rate from your “perfect” borrowers with imperfect collateral? Besides, it looks like you are now adding principal pay downs to your refi argument – which I don’t disagree with since that would create equity. If they don’t have 20% equity they can bring the difference to the refi closing and get that better rate. But, you seemed to be advocating for new zero equity (no down payment) loans, just like you appeared to do during their heyday.
the banks wrote this risk. They were aware of this risk. Putting down insurance because you are under 20 percent is proof of this awareness of risk. The risk and damage needs to stay where it should have stayed all along, with those that mispriced it and made the bad bets. financial evolution….
“Yeah, I don’t understand why anyone would go on record for an article like that,”
The general public is stupid. Those who bought during the peak of the bubble at peak valuations and are now deeply underwater, are likely as dumb or dumber than the general public. In the end it will be Mr. Likier’s bankers who probably pay a steep price, though. Banks really should’ve managed their risk better.
For cause!!! Hell no!!!! Nice walk out package.. He might have a wife and 2 teenage girlfriends to feed.
I’m torn on this issue as I have battled with this decision myself.
Wife and I bought a house in the burbs in 2005. We were your typical naive 28 year-olds starting out a family. However we were financially responsible enough and put 10% down and only bought 2 1/2 times our income plus payed extra to the mortgage each month.
Flash forward to 2008, most of our neighbors have no business owning the house they do, they are extremely over leverged and used some funny type of sub-prime loan. We also have a couple Frank’s, including one next door who had his renters booted by HOA, forgot to turn the water off, and all the pipes burst. “Frank” is now walking and 1/3 our neighbors are squatting.
The lenders and their lax lending practices put these jackasses in my neighborhood and now my equity is being crushed because of it. Should they not shoulder some of the blame????
Meanwhile the governemnt is helping the squatters refinance their loans, several got loan reductions, even though everyone knows it’s inevitable that they will stop paying the mortgage again. Can any of the responsible owners refinance/get forgiveness on their underwater balance? It’s downright infuriating and paying the mortgage made me feel like the biggest sucker on the block.
We ended up biting the bullet, putting the house on the market, selling for a 60k loss plus closing costs in 2009 before the squatters houses were foreclosed upon. We talk to people from there every now and then, that loss would be at least double now and that whole micro-community is in a complete financial/mental depression.
I think of the responsible owners with their blinders on dutifully paying their mortgage on their sinking assett and I just cringe?? They are good, risk averse people that just want to do right by their family. Unknowing pawns in a higly leveraged/high risk investment game that have found themselves six-figures in debt. I certainly wouldn’t find fault with these people in walking.
“For cause!!! Hell no!!!! Nice walk out package”
But then they’re breaching their moral duty to the shareholders!! Dude who hired (and anyone who promoted) the dude who was too stupid to properly manage risk should be fired too, also for cause–’cause they’re all too stupid.
And if he hasn’t done the personal risk management to be able to feed his two teenage girlfriends, that’s just more cause.
“In the end it will be Mr. Likier’s bankers who probably pay a steep price, though.”
Pay a steep price in alimony when their wives find out about the teenage girlfriends? Otherwise, I ain’t seeing it.
Morally wrong? please, banks and corporate America have no problem discharging bad investments, why not regular people? I’m glad people are doing this, about time. Ruin your credit score, who cares.
people are OBSESSED with their credit score, otherwise more people would be doing this, and prices overall would decline due to the much needed decrease in credit
honestly anon good chance up and down everyone might go… That is always a game unto itself. But people who take risk are generally accepting of termination for poor performance but not ultimate responsibility for mismanagement -mistake- bad bets- u *could* be sending out a *real* bad message to those who you need to continie to take risks and who interpret every little thing.
Second… What’s a shareholder..the guy under the bondholder?
Thirdly.. I thought for two 18 yr olds the court doesnt award alimony. Just the judge stands up and applauds.
“Second… What’s a shareholder..the guy under the bondholder?”
Depends whether the company in question is HQ’d in Detroit or somewhere else. Sometimes, the bondholders come in behind the janitors.
Anyway, I was just addressing the “moral duty” concept in its entirety. Ain’t about morality, no matter how much any one here might like it to be.
“people are OBSESSED with their credit score, otherwise more people would be doing this, and prices overall would decline due to the much needed decrease in credit”
Mine is pretty good last I checked but the funny thing is I’ve never cared much about it–I check every few years out of curiosity and it’s free. I guess the times I’ve stiffed creditors just don’t show up because they amounts have been too small for them to bother.
I’d gladly trash my FICO score for a lump sum on the order of 20k+..I don’t need the approval of credit score companies and don’t want to generally be dependent on credit.
Would probably trash the score for less than 20k if it weren’t such a paperwork shuffle and having my cell phone ring off the hook from the toothless dogs that are collections firms.
Buyer: “please, banks and corporate America have no problem discharging bad investments, why not regular people?”
Banks and businesses get to play by different rules than us. See, they provide benefits to society like jobs. Regular folks (except for the management of the aforementioned businesses) don’t provide bupkiss. Therefore, businesses get to strategically break their contracts with few repercussions while individuals have a moral obligation to uphold their end of agreements no matter what. This isn’t just the way the world works, it is the only correct and just system. If you think otherwise, you are an idiot.
And if you are an individual and strategically default on a loan, you are either a) not a real man, b) a sociopath, or c) some kind of a whore…try not to think about it too hard. The important thing to consider: you don’t want to be considered the scum of the earth by the lahmbo-driving community, do you? I can’t imagine a worse fate…
on the topic though, when you think about why so little has been done to prosecute. Beyond simply being told not to. Think of a person internal who has *discretion* to assume valuations and place bets, externally produced systems to capture risk, systems approved by external audits…. Where does one start….
Bob: “I’d gladly trash my FICO score for a lump sum on the order of 20k+..I don’t need the approval of credit score companies and don’t want to generally be dependent on credit.”
You have to admit, though, that this is not a tenable solution for most Americans. Granted, I’m pretty sure a good chunk of people that can’t pay cash shouldn’t be buying home at all, though that is certainly not all of them. And sure, those that do leverage themselves, should be aware of and responsible (in a reasonable manner) for the risks they take. But my point is that there is a sizable chunk of responsible, thoughtful people out there for whom a loan is the only realistic path towards home ownership.
“The important thing to consider: you don’t want to be considered the scum of the earth by the lahmbo-driving community, do you? I can’t imagine a worse fate…”
I don’t think these strategic defaulters understand what repercussions their decision might have on them being able to caddy for clio going forward.
“when you think about why so little has been done to prosecute. Beyond simply being told not to.”
Well, yeah, because, with a few narrow, Blodget-esque, exceptions, at the big banks it was systemic. Plus, then you get into the (relatively) petty fraud of the lying on the mortgage apps to claim occupancy or fantasy income.
So, you’re left with bankers who didn’t learn the lessons of Henry’s ML team–and who should be fined and banned, just on principle–and the little gangs of straw-buyers, realtors, mortgage brokers and title agents who took advantage of the see-no-evil underwriting to run dozens of *wholly* fraudulent transactions, encumbering 50 $100k bubble props with 5x or more debt and splitting the proceeds.
And everyone else just gets to split the check.
“there is a sizable chunk of responsible, thoughtful people out there for whom a loan is the only realistic path towards home ownership.”
You mean, like 90% of them?
I’m actually having trouble following the ebb and flow of your sarcasm today, tft.
“But my point is that there is a sizable chunk of responsible, thoughtful people out there for whom a loan is the only realistic path towards home ownership.”
That’s true. But when you look at the policy decisions of our government over…oh…the past 20 years you realize people that bought in the 2004-2008 timeframe were sold a bad bag of goods.
Run a regression of the 10-year: that’s a pretty definitive downward slope. Look at how W’s “home ownership society” impacted loosening lending standards to bilk more people into home loanership. Read Chuck Prince’s WSJ quote when he talked about dancing until the music stopped.
It seems along every step of the way Washington stepped in to keep the bubble going for as long as possible as much as possible. And now in retrospect it appears all of that economic growth over the past decade was phantom growth: growth from an asset bubble because our economy has no other way to grow at that pace with all of the outsourcing, free trade & offshoring.
The credit bubble was the rich’s way to fool the middle class into thinking their standard of living hadn’t been on a downward trajectory for the past two decades. Now the curtain isn’t hiding Mr. Wizard anymore.
“It seems along every step of the way Washington stepped in to keep the bubble going for as long as possible as much as possible.”
Dunno if you’ve ever looked at it when I’ve mentioned it before, but check out how Georgia tried–in 2003–to put the brakes on questionable lending, but the OCC exempted National Banks from the effect of the law, so they repealed it, to avoid putting state banks at a disadvantage. I really believe that–had the OCC (and other fed regulators) gone the total opposite way and said “hey that’s a good idea, all Natl Banks are subject to that rule nationwide” the bubble would have stopped inflating then, in late-03, before the worst of the damage was done. I’d think that most of the country would be substantially recovered by now, had the peak been in late-03/early-04.
“You mean, like 90% of them?
I’m actually having trouble following the ebb and flow of your sarcasm today, tft.”
Sorry. That wasn’t meant to be sarcastic. I really have no good guess at the percentage of non-cash-paying buyers that “should” be buying a home. My point is just that *some* percentage of them are taking a logical, calculated risk in getting their loan and that in the long term, it makes sense for them. Bob was saying that credit wasn’t an issue for him and my counter is essentially, “what about the rest of us?” Mortgages and large credit lines aren’t a universal evil in responsible hands…
“I really have no good guess at the percentage of non-cash-paying buyers that “should” be buying a home.”
Depends which 1.00 you’re looking at. It’s easily the *vast* majority of people who are “responsible enough” to buy a home who can’t buy one for straight cash.
If you’re instead looking at what % of people who don’t have a DP of X% toward a house are “responsible” that’s obviously much lower.
But even if you just pegged it as “who can pay cash for the *median-priced* home in [metro/city/neighborhood] most people, even in the responsible set, would still *need* a mortgage to afford it.
Anon(tfo), the Supreme Court sided with the banks in Waters vs Wachovia ruling which basically said FDIC banks don’t have to follow state lending laws. The TBTF banks have been great about hamstringing their competition while getting themselves exempt through lobbying…
They support all kinds of anti-predatory lending laws and new regulations as long as it doesn’t apply to them.
“FDIC banks don’t have to follow state lending laws”
I know. But OCC could have said “yeah, you do, and, in fact, that’s the new standard for National Banks, everywhere, not just Georgia”.
Basically, I’m suggesting that, somehow, the Georgia legislature was the first govt. body to note the problem and, b/c of the OCC, the only one to try.
Russ,
I got one for you, i was planting tomatoes sunday and had the tape player rocking.
“i used to sell mix tapes but now i am a emmmceee i got the rhymes and beats”
guys, a quick question: how can I check the mortgage amount on a property? I recall HD and others checking that and I think it is from a public data base, right?
ccrd.info
get the PIN from cookcountyassessor.com
The Nonce…
You see how the right totally flipped out over Common going to White House? That was some funny stuff right there… Common a gangster rapper. LOL. Lyrics completely over their heads…OMG, he said My UZI weighs a ton!
thanks HD!
Base and Afloat.
“The Nonce…
You see how the right totally flipped out over Common going to White House? That was some funny stuff right there… Common a gangster rapper. LOL. Lyrics completely over their heads…OMG, he said My UZI weighs a ton!”
good catch on the name, it slipped me and had to google it last night.
yep the right has been off the rocker as of late, just trying to find something that is not there.
and people making fun of me for voting green party. it just gives me a reason/right to laugh at both sides.
and common sense a gangsta hahaha, and another hahahaha he got kicked out of a graff crew (UAC) because he didnt “bomb” enough.
at most common in his early days was a bit anti-whitey but a gansta.
“LOL. Lyrics completely over their heads”
can you imagine if he dropped a peetee we stroke alter-ego verse, it would be WAY over thier gray bald heads.
*btw to many different rumors to know why he really got the boot from UAC/J4F/DTE/CAR
homedelete,
Your posts are the most insightful.
Suppose you’re in a situation where a credit union had your original mortgage. You paid off the original mortgage by getting a HELOC from the same credit union, to whom you still make the payments on the remaining $15K you owe on the property, and could easily pay that off now if you wanted.
You no longer want the property, don’t want to invest the time in selling it. The credit union still offers you a draw against that HELOC that is probably $50K more than you could sell the property for.
Also, You can no longer rent the unit, because the Association voted the building “no rental”. The Board turned you down for a “hardship exception” because you weren’t on a “fixed income” like many of the older residents who live there.
Would it be significantly MORE dangerous to take the full draw of the HELOC, and then walk away? Or is it likely that in Frank’s case, the CU would settle for pennies on the dollar of the eventual loss at time of sale?
“But even if you just pegged it as “who can pay cash for the *median-priced* home in [metro/city/neighborhood] most people, even in the responsible set, would still *need* a mortgage to afford it.”
Removing financing totally (even private market financing) would cause property values to crash. Same thing with healthcare, higher education, etc.
But just removing government subsidies on financing would cause the value of the goods to fall quite a bit as well.
Real estate, higher education and healthcare were not able to justify their price inflation off of higher wages alone (higher wages have been stagnant for most): it was due to the government backstopping financing so more and more debt could be piled on (and in the case of student loans making them non-dischargable, which is absurd).
“Would it be significantly MORE dangerous to take the full draw of the HELOC, and then walk away?”
If it’s done in a short enough amount of time to raise eyebrows you could run afoul of fraud claims. Then the judge orders the money back.
If you’re going to play that angle better to do it a few years ahead of defaulting and funnel the money out of traceable accounts over time making it look like increased consumption.
I’ve found some people who have been through bitter divorces who know all about this strategy. (They can be the most generous people in the world taking the whole bar out to the strip club).
“yep the right has been off the rocker as of late, just trying to find something that is not there.”
Recently I saw an Ann Coulter twitter and it was so un-PC I thought it had to be a fake Ann C. But on clicking on her profile it appeared legit and she is tweeting all kinds of Dan-like stuff. Still might be an AC imposter, but given the shilling of her books I’m not so sure–looks legit. It’s the era of say some more crazy sh_t than the last person to sell some books.
And there’s still no R viable candidate that I see yet.
The worry is the Obama voters come out again and side with the D ticket in 2012 more out of kneejerk reaction than anything, giving him another D congress.
That’s really how the majority of Democrats get elected to congress these days anyway: they ride off the coattails of a democrat presidential candidate.
Brian: The CU is one of those nuances, they’re more likely to come after you for $15,000 a deficiency other banks – because it’s not really a bank, it’s a credit union. Settling with them depends. Some credit Unions are more aggressive than others.
But your question about emptying the HELOC and then defaulting. That would raise a few eyebrows and you would probably have a fraud lawsuit against you in the near future in Law Division of Cook County. So I’m not going to encourage you to defraud the credit union.
The best bet is to sell. You apparently only owe $15,000 so just sell the damn thing in a firesale and get it over with as quickly as possible.
HD, the CCRD website returns quite a few thing, for instance for pin: 17-22-110-135-1125, I see an original $600K mortgage in 2008 but then there is one for $417K in 2009 (I assumed they lowered the other one below Jumbo), but there are also ton of releases and liens. What are those?
this conversion makes me sick, pay what you owe
Flo: “this conversion makes me sick, pay what you owe
”
Make everyone play by the same rules and I’ll agree with you. Corporations and business interests have so successfully gamed the system and directed money and rules in their favor that they’ve effectively changed our culture. Greed is good, dontcha know. So should anyone be surprised that individuals stand up and say, “why not me?”
I didn’t get in over my head and I’m financially conservative enough where I probably never will. But I can’t blame the folks who are for playing the system to their advantage. That’s the American way, apparently. You don’t like it? I suggest changing the system and culture from the top. The best kind of trickle down…
If it is financially wise for me to do something, I will do it. Forget what is right/wrong. The corporations clearly have. This is all out financial/class warfare. There is no such thing as right or wrong. It is every person for themselves.
For those who think its “morally wrong” to default on a mortgage: it isn’t 1950 anymore. Its no longer a moral decision, but purely a business one. The bondholders who hold the commercial paper that your mortgage became certainly are not making moral decisions regarding residential mortgages; why should you?
because dickweeds, the likelihood is that the taxpayer will eventually wind up paying for it
Thanks for remembering me. Yep, I’m STILL here – the renter who got foreclosed on. And I’m still living it up: rent free, mortgage free, equity free, and loving it. I’m in a modern 3/2 with elevator and amenities. Best yet, those shady “bank” affiliates/carnival workers haven’t even bothered me since I think February, and they really didn’t have much to say then either. I think the foreclosure started in Nov’09 but who’s counting anymore. Every month that goes by is cake. And all I had to do was just fall for it when the realtor said “oh don’t worry this rental won’t be foreclosed on, the owner is stable and wealthy”. I actually believed her, but in the end it didn’t hurt me, it’s been a blessing. When a foreclosure comes down you don’t want to be the bank or the “owner” you want to be the sucker that the owner rented to at the last second just to get your security deposit and run, because then you are in for a nice treat of rent free living. And all the extra cash I’m saving I can invest, perhaps 5-10 years from now I’ll start buying up distressed property for cash at probably a 25-50% haircut from todays levels, by then not every average person will be devoted to the myth of magically appreciating realestate. Financial history books will have a chapter about it.
To all you people in non-gz condos, wake up, practically EVERYTHING sold between ’04-’09 will eventually be foreclosed. The sooner you stop paying the better off you are. It is simply money down the drain. If you think you are morally obligated to pay you are quaint and naive. If a friend or family member does you a favor and spots you money out of their own goodwill, THEN you are morally obligated. The banks weren’t doing you any favors. They were rolling the dice taking a gamble that they could enrich themselves handsomely off you. There gambles didn’t turn out as planned but they got bailed out nonetheless. You’re a fool to help them turn a loosing bet into a winning one with money from your pocket. You signed the purchase documents in ink not in blood.
I’m starting to wonder though, about the not so nice units out there, will they eventually trade hands just for back taxes? Banks don’t want them, original buyers don’t want them, HOAs non-existent, but taxes still accrue. Perhaps the future of the non-gz chicago condo market is that anyone willing to pay back and current taxes becomes the new owner.
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“Actually, Icarus, it’s the other way around. In the really depressed areas, the banks simply do not want another house that once sold for $200k that they have to resell for $20k. So they wait and wait and wait.
It’s like that one poster who is STILL living in the bank owned unit in Rogers Park. The bank has yet to kick him out and has yet to even re-list the property (although they HAVE taken it.)
So the foreclosures I’m seeing taking 2 years are in the distress buildings and distressed areas- not the other way around.”
i swear.. It’s a contract. Abide by terms or accept consequences… Nothin more to it than that. People just don’t realize they paid a premium for the banks to write these terms. Utilize what is legally yours!
“To all you people in non-gz condos, wake up, practically EVERYTHING sold between ‘04-’09 will eventually be foreclosed. The sooner you stop paying the better off you are. It is simply money down the drain. If you think you are morally obligated to pay you are quaint and naive.”
Thanks for chiming in again Brad F. Please do let us know when the bank decides it wants to sell the condo and you have to move out.
But I actually agree with your assessment that just all the condos will be foreclosed on or sell as a distress sale outside the GZ at some point. We’re already seeing this. Once the foreclosures start to take over a building- the whole building goes under- especially in Rogers Park, Uptown, parts of Edgewater, and Albany Park.
It will take years to play out.
Units I thought were “deals” 2 years ago for like $60,000 are now selling for $30,000 in many of these neighborhoods.
I eagerly await the sale for back taxes of condos in Edgewater and Rogers Park. I don’t see them on the multilist, but I know they’re there, in the shadows. I walk past the empty and half-empty buildings and wonder why I never see them listed for sale.
I have already seen many decent units for $60K or less and I expect I will see more places I can practically pay cash for. I’ve waited this long; I can wait longer.
Sonies: “because dickweeds, the likelihood is that the taxpayer will eventually wind up paying for it”
The government has been irresponsibly encouraging home ownership for decades. They’ve been giving business and corporate interests what they want for even longer (deregulation, cheap money, get-out-of-jail-free cards, etc.) What in the world did you expect?
This isn’t a problem that came up over night and given that it is a problem largely caused by government influence and corruption, who in the world do you think was going to pay the bill? I know a lot of people here feel like they were more responsible than the average joe and shouldn’t be held accountable. Sorry folks, but that’s how governments work.
We wrote a check through sh*$%y policy and now we have to pay it. I can’t blame the schmuck stuck in an underwater house any more than I can blame the banks who wrote bad mortgages. They are both going to use the system to their advantage when possible (or should, anyway). You want to fix the problem? Fix the *real* problem: reform government, institute more sensible policies and stop the shenanigans on ALL levels.
It makes no sense to pile on some dude with a bad mortgage, trying to stick him with the guilt of a system that has utterly failed. As dumb as that guy might have been, he didn’t cause this problem and inventing some moral code for him to follow that really only serves to prop up mortgage writers and the NAR is as selfish a justification as I’ve ever seen. That guy was sold on the American Dream, just like millions of others.
“any more than I can blame the banks who wrote bad mortgages”
What about the huge number of technically illegal or fraud-based mortgages? I think we can blame them for those, and strip *all* of that out, and I think we’d have taken 10% off the peak nationally and a lot more in certain markets.
Tax-paying property owners are paying through the nose for foreclosed properties that are severely in arrears on property taxes. The city and/or county should shorten the delinquency period allowed and start foreclosing all properties that are delinquent on taxes for more than a year, and sell them for back taxes to get them back to paying status and lighten the load on paying property owners.
“The city and/or county should shorten the delinquency period allowed and start foreclosing all properties that are delinquent on taxes for more than a year, and sell them for back taxes to get them back to paying status and lighten the load on paying property owners.”
Then those props would all get re-assessed at FMV and the burden would *still* be shifted toward the current tax-payers; it’s sort of a lose-lose situation.
I just negotiated a short sale with my bank. They said, “We’ll accept this offer but we’re retaining our rights to pursue the deficiency.” I wanted to say, “go to foreclosure then, what is the difference to me?” but after much arm twisting from my lawyer I offered $1,000 and they accepted.
Blah blah blah deficiency judgment. 1,000 in the hand is worth 64,000 in the bush.
Miumiu, I can explain the details on that pin number for the OMP property for you, just e-mail me at vera_perner@yahoo.com. You will be able to read ccrd.info easily:))
@ Laura Louzader: “I have already seen many decent units for $60K or less and I expect I will see more places I can practically pay cash for. I’ve waited this long; I can wait longer.”
What’s going to happen to the neighborhoods in this case, in terms of crime, trash on the streets, etc.?