Mortgage too much? Join the crowd, walk away

[Brad Johnson]

If you keep your nose clean for two years after the bankruptcy is fully discharged you can qualify FHA.

[Scout26]

A pox on both your houses.

Both sides assume some risk in the transaction.

Thats why the lender (generally) wants to see proof of income, prior tax returns, an appraisal of the property, etc, etc, etc.   There is no guarantee that they'll get their money back.  In Illinois most contracts limit the lender to extent of their "secured interest" (basically the property).

The buyer isn't walking away "scot-free".  They've lost whatever they've in paid mortgage payments, lost their place to live, destroyed their credit rating, etc.  In some/many cases it's because they've lost their job.  (Yes, there are the dirtbags that were "dumb in a no stupid zone").  

Banks shouldn't get bailouts, buyers do get hammered on their credit report.  And Barney Frank, Chris Dodd, et al, should be (Can't think of a punishment severe enough that still meets APS niceity rules).
      

[Headless Thompson Gunner]

And Barney Frank, Chris Dodd, et al, should be (Can't think of a punishment severe enough that still meets APS niceity rules).
     

Amen to that.

[sanglant]

Banks shouldn't get bailouts, buyers do get hammered on their credit report.  And Barney Frank, Chris Dodd, et al, should be (Can't think of a punishment severe enough that still meets APS niceity rules).

hmm, life imprisonment, the dome out of that pauly shore movie.





together!

edit" extra "the"

[Laurent du Var]

Maybe I am getting this wrong - but I can not see why you couldn't walk away from your mortgage :
wiki :
"In all but a few states, a mortgage creates a lien on the title to the mortgaged property. Foreclosure of that lien almost always requires a judicial proceeding declaring the debt to be due and in default and ordering a sale of the property to pay the debt."
So we are not speaking of a loan of money which you could spend how you saw fit. Instead they buy a house in your name keep the title until you've payed up for 30 years as if any of those houses would last that long without having to be rebuilt and taxed. To me it looks just like you payed rent to a bank as substitute to being a  landlord.
Now for whatever reason,  but you could guess it is the fault of banks what with bubbles, bail outs, 30% subprime credit cards
and what not, you have a case of negative equity and maybe just now you lose your job - it happens, right - how would you not walk away from it - what would be the options?

I understand the moral obligation to repay a loan of a certain value with a fixed interest rate which you need to build a business - and only then starts the added value of a loan. But if they just finance a house as if it was a car or a flatscreen   
possibly without a down payment,  then why not walk away?

Maybe a wrong example but would you continue paying into your 401k knowing that when you'll reach retirement age
the return would be minus 40 % of what you had contributed?
 

[PTK]

Because, short and simply, it's wrong to walk out on a financial obligation.

[Laurent du Var]

Because, short and simply, it's wrong to walk out on a financial obligation.

Yes, it is.
But they don't give you money, they give you a house, so there is only a financial obligation as long as you use said house.
You turn in the keys and stop paying, they reposess the house. That is what mortgage means and should be fair enough.

Then there are short sales which is basically the same thing  as walking out if I got it right. You sell the place
for an inferior price than the (virtual) amount borrowed, give the money to the bank and they accept the loss which ought to be 20 % less important then the amount obtained after a foreclosure. Doing that on an inniative from the bank confirms
the right to walk away from a bad deal, doesn't it?

[dogmush]

You gave your word to pay them the money.  Not pay them the money or give them the house.  Taking the house is the bank's only way to try and recoup the losses, but it never equals the total amount of money you gave your word to pay.

Walking out doesn't make the bank whole, and it means your word is no good.

It also says a fair bit about your honor.

[Jamisjockey]

Yes, it is.
But they don't give you money, they give you a house, so there is only a financial obligation as long as you use said house.
You turn in the keys and stop paying, they reposess the house. That is what mortgage means and should be fair enough.
Then there are short sales which is basically the same thing  as walking out if I got it right. You sell the place
for an inferior price than the (virtual) amount borrowed, give the money to the bank and they accept the loss which ought to be 20 % less important then the amount obtained after a foreclosure. Doing that on an inniative from the bank confirms
the right to walk away from a bad deal, doesn't it?

They are not the same thing.  A short sale is negotiated with the bank ahead of time.  Both parties have a chance to say "no" to the deal.  And a short sale will sell for more than a forclosure. 
If you're desperate, you do what you have to do.  But if you enter into a financial agreement with another party, and just 'walk away', you should have to pay the piper.  The bank invested XXX amount of dollars into purchasing the house for you.  You walk away, saying 'screw the bank'.  Bank comes after you.  Color me unsympathetic.  Especially when there are a number of options that can be negotiated with a bank, rather than just walking away from the house.
Your statement "But they don't give you money, they give you a house, so there is only a financial obligation as long as you use said house." disturbs me.  Not using the house doesnt negate the financial agreement you've entered into with another party.  By your logic (or lack thereof), you can really walk away from any financial obligation if you're no longer using it.  That is just wrong.

[Scout26]

No one would be complaining if the housing market was soaring and the banks were making huge gains.  There were still foreclosures during the boom times and banks were then able to "flip" houses for more then what was originally financed.

I'm not advocating walking away, but if the bank won't work with you, that may be your only option. 

The major problem is that the .gov created this mess, and now won't let the marekt correct itself as they keep meddling with it.

[MillCreek]

And yet, for all the people who think that a residential mortgage is a moral or honor obligation, do you really think that banks and commercial lenders feel the same way about the debt that they walk away from?

[Jamisjockey]

No one would be complaining if the housing market was soaring and the banks were making huge gains.  There were still foreclosures during the boom times and banks were then able to "flip" houses for more then what was originally financed.

I'm not advocating walking away, but if the bank won't work with you, that may be your only option. 

The major problem is that the .gov created this mess, and now won't let the marekt correct itself as they keep meddling with it.

Banks and idiot consumers and the .gov all combined to make the mess.  NINJA loans?  ARMs that inflate to double digit intrest rates?  People cashing out the equity to buy as many toys as they can?  Buying several houses, in hopes of flipping them and getting rich quick?  And the list goes on and on.  
When you buy a car, it loses value as soon as you leave the lot.  But, you continue to make payments on it, out of obligation.
Obviously, when THSTF and you lose a job, income, etc, you do what you have to do.  But there is a piper to be paid for one's actions.  Nothing in life is free.

[brimic]

Justice might be served when currency destroying inflation sets in?
Walked away from that $200,000 bank note? Tomorow that $200,000 might buy you a pack of gum in today's money.

[Brad Johnson]

But they don't give you money, they give you a house, so there is only a financial obligation as long as you use said house.

Incorrect.  They loaned you money for the purpose of purchasing a home.  They secured the loan by placing a lien against the home.  If you stop paying and the remaining value in the home does not satisfy their remaining interest (money which agreed to repay), they have every right to come after you for the difference.

Having a financial obligation for only as long as the home is used is the definition of a month-to-month (no contract) rental.

Brad

[lupinus]

But they don't give you money, they give you a house, so there is only a financial obligation as long as you use said house.

No, they loan you money with the agreement you will use it to buy a house and that they will then place a lien on that house to use as collateral should you not pay back the money. Does the loan paperwork state a money amount with interest? Or does it state after X number of money paid to the bank you get a house?

You are buying a house with a loan from the bank, not moving into a house on a rent to own basis which is a completely different arrangement. Were you in a house on a rent to own basis your argument holds true.

[Tallpine]

Walking away just because the current market value is less than your loan balance doesn't seem right to me, nor particularly smart.

OTOH, if you lose your job and don't have the money to make payments, there isn't really any choice, is there?

Home/land values are holding steady or rising around here.  I've got at least $100K equity.

[Jamisjockey]

Incorrect.  They loaned you money for the purpose of purchasing a home.  They secured the loan by placing a lien against the home.  If you stop paying and the remaining value in the home does not satisfy their remaining interest (money which agreed to repay), they have every right to come after you for the difference.

Having a financial obligation for only as long as the home is used is the definition of a month-to-month (no contract) rental.

Brad

This.  Just because nobody lays a stack of greenbacks in your sweaty little palm doesn't make it un-money. 

[Laurent du Var]

If there is no down payment from the buyer and you pay a monthly sum to the bank
which is via a lien owning your home for the next 25 or 30 years knowing that the value
is way less already now then when you bought it the day before yesterday  - than how is that not rent? The ratio is 22 years of rent money vs the value of the home at the moment. Something is not adding up here. I don't know anything about the longevity of a  light frame construction building but how will homes built today look like in 30 years? Those McMansions don't look so sturdy.  

Unless you are into speculation or a criminal schnorrer you buy a house as your home and you sign a lending contract with your bank with the one intention of "going long" and nothing else, meaning that one day you'll own your home and it should have increased its value by then. Your signature is nothing else than a promise of good will because you have no clue what or when something good or negative will have an impact in your life down the road - like losing your job/income or getting hit by a Toyota. So far only politicians get to borrow from the future.   

Now here is what the bank does: give you 400 000 virtual bucks for a 300 000 $ house
without a down payment. One housing bubble, financial crisis and lost income later
they reposess the house because you can't make the payments anymore. They now have
you owing them 400 000 minus the payments you have already made (to  them!)
and they have the house. I would call that short selling. If you can swing it, do the
short sale (confusing, isn't it?) in agreement with the bank which may be difficult since you're in financial trouble already and you have no leverage. And if you have to : well just walk away - they'll be fine what with the bail out and all.  Let us see how full of honour
the banks are paying back their 700 billion debt to you.    

This.  Just because nobody lays a stack of greenbacks in your sweaty little palm doesn't make it un-money. 

Yes it does. They give you a house - and want money in return if possible way more than the house is worth. They are landlords, and not the clever ones. 

[Brad Johnson]

Now here is what the bank does: give you 400 000 virtual bucks for a 300 000 $ house
without a down payment.

Incorrect. 

No lender will loan $400k on a house that appraises for only $300k.  They will loan you only the amount for which the property will appraise becauase doing otherwise grossly jeopardizes their ability to recover their investment should you default.

This.  Just because nobody lays a stack of greenbacks in your sweaty little palm doesn't make it un-money. 

Yes it does. They give you a house - and want money in return if possible way more than the house is worth. They are landlords, and not the clever ones. 

Incorrect.

They don't "give" you anything.  They loan you money for the express intent and purpose of purchasing a home based on 1) your PROVEN ability to repay (based on what you earn, what you owe, and your financial history) and 2) the value of the property as determined by an independent appraisal at the time of purchase.  You accept the loan, you accept the terms.  The primary term of the loan is repayment of the principal, plus interest, on an agreed to bases no matter what may happen to the value or status of the involved security.

In other words they are making an investment.  You.  Lenders are not going to make that investment in you if you cannot be reasonably expect to repay, or if they cannot reasonably expect to recoup their interest via sale of the security (the home) should you default.

If you borrowed money to buy seed but the crop eventually died you'd still be obligated to repay the bank.  Borrowing to purchase a home is no different.  Just because the value goes down (or even goes completely away) does not change the fact that you borrowed a specific amount of money with the agreement to repay it.

Brad

[FTA84]

Laurent's argument appears to be that the bank is on the hook if the investment you purchased with their loaned money falters.  However, they do not get to share in the profit if the venture secedes.   Seems fair to the bank, doesn't it?

[Laurent du Var]

So "they" give you 400 000 Dollars for a house worth 400 000 Dollars at the time of the
purchase. No down payment. One year later "they" are responsable for the house and banking crisis which brings the value of "your" house down to 300 000 Dollars and yet you still owe them 400 000 Dollars with interest. 

"They" lend you money, which you'll never see on 1) your PROVEN ability to repay (based on what you earn, what you owe, and your financial history which proves absolutely nothing for the future unless you are working with a crystal ball and the mentalist) and 2) the value of the property as determined by an independent appraisal at the time of purchase and one year later "they" are responsable for the house and banking crisis which brings the value of "your" house down to 300 000 Dollars and destroys your PROVEN ability to repay because of "their" crisis and yet you still owe them 400 000 Dollars with interest. 

"In other words they are making an investment.  You."
Yes but they should buy me dinner first. 

[Jamisjockey]

I'm sorry, WHAT?

Are you really arguing that the bank doesn't have the right to make a return on a loan?

Buyer wants house.  Buyer doesn't have $300,000 for house.  Buyer and Bank come to terms for Bank to loan Buyer $300,000 to purchase house.  Bank makes money.  Buyer has purchasing power on thier word they will make payments to Bank.  
I'm not sure what part of that you don't get?


Speculating on the value of a home is no gaurantee.  Idiot speculative buyers are just as responsible as Banks and the .Gov in this mess (lets call it a 1/3 share for all!).  Check on the occupancy rate of new developments in Nevada, California, and Florida. 
Buying a home is no gaurantee of it maintaining its value. You assume a loan for the value of the loan, not for the value of the home.  If you then walk away from a house payment, and the bank cannot recoup its losses, you damn well should be on the hook for at least a portion of the loss, if not, all of the loss.

[Headless Thompson Gunner]

Yes, it is.
But they don't give you money, they give you a house, so there is only a financial obligation as long as you use said house.
You turn in the keys and stop paying, they reposess the house. That is what mortgage means and should be fair enough.

Doesn't work that way.  The bank doesn't give you their house, the bank gives you their money which you use to buy your house.  The deed to the property belongs to you, not the bank, and you're the owner even if you owe money.  

In exchange for the bank's money, you give the bank a note (a contract promising to pay money to the bank under specific terms) and a lien on the property (the right to take possession of the house if the contract isn't fulfilled).

Mortgage contracts don't say the buyer has the choice between repaying or handing over the keys at their discretion.  The mortgage says the buyer will pay under the specified terms.  Period.

Now, if the buyer fails to honor his contract then there are certain remedies available to the bank to try to repair the damage caused by the buyer's default, such as foreclosure.  But that doesn't mean the buyer has a the right to choose foreclosure over repayment if he happens to feel like it.  

[Gewehr98]

Maybe they do it differently in France?   

[AZRedhawk44]

I don't know anything about the longevity of a  light frame construction building but how will homes built today look like in 30 years? Those McMansions don't look so sturdy. 

My house was built in 1977.  It is 1 year older than I am.

I had a broken hot water pipe that needed fixing last week... but other than that it is perfectly sound.

My house is predominantly seasoned 2x6 construction, though.  Most McMansions and cookie-cutter neighborhoods nowadays use green 2x4's or sometimes even 2x3's.

My parents' McMansion (2800 sq ft, 3 car garage, late 1990's construction) has visible twisting of rafters and studs under the drywall, and even a couple places where the drywall is starting to separate. 

It isn't going to fall down as a result of that, though.  If they get really annoyed by the twisting they can have someone come in, replace the warped stud with a new one and re-drywall over the hole.  It'll cost a couple grand to have that done, but it isn't an inherent structural issue.  Just cosmetic.

The premise of a house as an "investment" is so faulty I can't even begin to tear it apart.  A person HAS to have a roof over their head to provide for his safety and the safety of his family.  You either rent, and pay the costs of maintenance as a function of free market rent prices, or own, and pay the costs of maintenance out of pocket as they come up.

The best part of a house as "investment" is if you stay in it for 20+ years.  As our annual 3% (yeah, right) inflation kicks in each year, that mortgage payment is locked in and becomes a smaller and smaller piece of your monthly budget.  With rent, it gets adjusted upwards every contract renegotiation.

My parents used to pay about $750 a month for our house in Minnesota in the late 1980's.  I wish my mortgage were that low.

But, my $1150 mortgage right now will feel much lighter in 15-20 years.