Pro and Cons of Mortgage Strategic Defaults.

[4spurs]

A contract is just that; a contract and nothing more. Performance under the terms of the contract is not a measure of your character.

You should break each and every contract that is no longer advantageous to your position even if you could perform the terms of the contract.

 

[LizzieMaine]

Welcome to the Land of the Spree and the Home of the Knave.

 

[ButteMT61]

A contract is just that; a contract and nothing more. Performance under the terms of the contract is not a measure of your character. You should break each and every contract that is no longer advantageous to your position even if you could perform the terms of the contract.

lol

 

[TM]

Maybe we should look to the Mortgage Bankers Association as an exemplar:

http://online.wsj.com/article/SB10001424052748704829704575049111428912890.html

Tony

 

[ButteMT61]

Maybe we should look to the Mortgage Bankers Association as an exemplar:http://online.wsj.com/article/SB10001424052748704829704575049111428912890.htmlTony

Must be 4spurs' profession.

 

[vitanola]

Welshing is now a business plan?

It has been for about thirty years, but when a corporate entity does it, it is called "strategic bankruptcy".

LTV Steel dumped immense pension obligations on the PBGC back in the 'eighties, as did many other firms.

 

[TM]

It is the so-called "bankers" who created this mess. And they were richly rewarded for doing so.

As Vitanola pointed out, corporations violate contracts whenever it is advantageous. Why shouldn't individuals then not do the same?

But, on the other hand, just what does this topic have to do with the Golden Era?

Tony

 

[vitanola]

Where do we draw the line? We can all make an argument for "strategic defaults" with any kind of loan or credit card. Sounds great: buy expensive things for ourselves, get buyer's remorse or disappointed when they depreciate, argue that we can save money by not paying the loan/credit card bill and then keep the items anyway.

I always pay back my loans and have gone without many times to live within my means.

Am I being holier than thou? No, I'm just not that low.

My brother-in-law worked for Republic Steel for thirty-four years. His pension disappeared in a "Strategic Bankruptcy". This sort of thing goes on every day in the business world. Of course, while Corporations have the rights of persons, they do not appear to generally have the moral sense of persons, as poor as that sometimes may be.

Note this article in the WSJ: http://online.wsj.com/article/SB100...49803607666216.html?mod=WSJ_hps_LEFTWhatsNews, entitled "Commercial Property Owners Choose to Default".

The Journal says: "Companies such as Macerich Co., MAC +0.46% Vornado Realty Trust and Simon Property Group Inc. SPG +0.19% have recently stopped making mortgage payments to put pressure on lenders to restructure debts. In many cases they have walked away, sending keys to properties whose values had fallen far below the mortgage amounts, a process known as "jingle mail." These companies all have piles of cash to make the payments. They are simply opting to default because they believe it makes good business sense."

"These pragmatic decisions by companies to walk away from commercial mortgages come as a debate rages in the residential-real-estate world about "strategic defaults," when homeowners stop making loan payments even though they can afford them. Instead, they decide to default because the house is "underwater," meaning its value has fallen to a level less than its debt.

Banking-industry officials and others have argued that homeowners have a moral obligation to pay their debts even when it seems to make good business sense to default. Individuals who walk away from their homes also face blemishes to their credit ratings and, in some states, creditors can sue them for the losses they suffer."

"But in the business world, there is less of a stigma even though lenders, including individual investors, get stuck holding a depressed property in a down market. Indeed, investors are rewarding public companies for ditching profit-draining investments. Deutsche Bank AG's DB +0.39% RREEF, which manages $56 billion in real-estate investments, now favors companies that jettison cash-draining properties with nonrecourse debt, loans that don't allow banks to hold landlords personally responsible if they default. The theory is that those companies fare better by diverting money to shareholders or more lucrative projects."


Fitzgerald was right.

 

[LoveMyHats2]

I could speak volumes on this topic, however, the best course of action would be (in my opinion) to put the house on the market, sell if for what you can, and if you take a loss on some of it, pay that loss the best you can, most lenders will give you some time and set up a payment schedule under the circumstances.

Here in the USA, there were several bills passed in the early 1970's that granted very low income individuals to "obtain" credit and again another bill was passed in the mid 1980's. Those loans went down the drain, however the contracts (loan sets is the real label for them) were used as a "commodity" going from one bank or financial institution and even corporations as if it was "stock". As the years passed and those loan sets were never collected, it eventually created perhaps 80 percent of the fall of the economy and the wall street going to pot in 2008.

The ethical side of things are you pay what you owe in life, or should as that is what dictates your personal integrity.

 

[ButteMT61]

Ah yeah. The 99%'er view of the world. Corrupt corporations can do it, why can't we!
I'm against anyone or any entity using a shield to cheat out responsibility. Things happen. Good people and businesses go bankrupt. I think it's a worthwhile tool. But with it there is abuse. This to me is a clear case of what I "feel" is just that.
"I can live free and not pay the bill while saving money"? Dayam.

 

[Stanley Doble]

I have been a real estate investor for 40 years and never missed a payment and never defaulted on a mortgage.

I say, if it will do him any good he SHOULD default.

There is so much chicanery and outright thievery in banking and mortgage circles today it would make you sick. The collapse of the mortgage industry in 2008 was not an accident, it was the inevitable result of graft and corruption in the mortgage industry.

The banks themselves default on their mortgages and leases if it is in their interest. No kidding, there have been examples of this where lack of business made it to their advantage to close offices and renege on leases and mortgages.

He may want to look into this further. Some mortgages from before 2008 are so messed up the lender can't foreclose. In fact no one knows for sure who the lender is.

It seems, to save money, the lender neglected to register the mortgages at the courthouse as required by law. They then sold and swapped mortgages among themselves. Your son's mortgage could have been bought and sold half a dozen times and NO record of it at the courthouse. What is more, the original documents have been destroyed in millions of cases.

It has happened that 2, 3 or 4 different institutions tried to foreclose on the same mortgage. The judges throw these cases out if they can't produce the original signed documents and they are not registered.

There are other cases where people were thrown out of their houses by hired thugs, who were ordered by a bank to foreclose and take the house, where the homeowner never had a mortgage to begin with. Oops.

Your son should do some research. Starting with checking at the courthouse, Hall of Records or registry office to see if there is a mortgage registered. He should also check out some mortgage web sites and inform himself as to his legal rights.

 

[Stanley Doble]

To make my position crystal clear, I do not condone cheating or robbing. But I do condone defending yourself against cheats and robbers whether they use a six gun or a fountain pen.

 

[sheeplady]

I have been a real estate investor for 40 years and never missed a payment and never defaulted on a mortgage.

I say, if it will do him any good he SHOULD default.

There is so much chicanery and outright thievery in banking and mortgage circles today it would make you sick. The collapse of the mortgage industry in 2008 was not an accident, it was the inevitable result of graft and corruption in the mortgage industry.

The banks themselves default on their mortgages and leases if it is in their interest. No kidding, there have been examples of this where lack of business made it to their advantage to close offices and renege on leases and mortgages.

He may want to look into this further. Some mortgages from before 2008 are so messed up the lender can't foreclose. In fact no one knows for sure who the lender is.

It seems, to save money, the lender neglected to register the mortgages at the courthouse as required by law. They then sold and swapped mortgages among themselves. Your son's mortgage could have been bought and sold half a dozen times and NO record of it at the courthouse. What is more, the original documents have been destroyed in millions of cases.

It has happened that 2, 3 or 4 different institutions tried to foreclose on the same mortgage. The judges throw these cases out if they can't produce the original signed documents and they are not registered.

There are other cases where people were thrown out of their houses by hired thugs, who were ordered by a bank to foreclose and take the house, where the homeowner never had a mortgage to begin with. Oops.

Your son should do some research. Starting with checking at the courthouse, Hall of Records or registry office to see if there is a mortgage registered. He should also check out some mortgage web sites and inform himself as to his legal rights.

So what if his mortgage was never sold and he went with a small local bank that didn't syndicate? Lots of people who took out loans from small banks are upside down now- it's not like the economy went through and said "syndicated loan- upside down" "traditional mortgage- maintain value."

All of my loans have been with small banks who guaranteed to me they did not syndicate, because this is who I choose to do banking with.

 

[Big Bertie]

Looked at dispassionately, given that there is significant negative equity in the property, the critical issue for your son is whether default, followed by foreclosure, would be the end of the matter. In many jurisdictions the debt might not be extinguished and would follow him until it can be repaid. That would be my concern for your son, along with the effect on his creditworthiness thereafter.

 

[kiwilrdg]

The legal matter should be done at the advice of lawyers and accountants.

From a moral standpoint it should be considered that the money was borrowed and the money should be repayed with the agreed upon interest.
Here is an example of the basis of my opinion of this. If I put money in my savings account I would not want the bank to say that they are reducing my account value by $12,000 but giving me a beat up Toyota that they reposessed from someone. Even if I feel corporations are corrupt I do not feel it is the way a decent person should act.

Perhaps a renegotiation of the loan could be done to reduce the interest because a person making the payments is better for the lender than a person who would default on the loan.

 

[Stanley Doble]

That is why I suggest doing some research such as checking the status of the mortgage at the courthouse and doing some online research about the mortgage situation.

You don't seem to realize that the whole system was a scam from top to bottom. Predatory lenders induced borrowers to buy houses they could not afford in order to rip them off for excessive fees. They then pawned off the bad mortgages to other investors who finagled the paper and pawned them off to someone else. At every step legal protection was ignored and outright forgery was the rule.

The flood of easy money drove up the price of houses. When the whole scam collapsed the government bailed out the banks that were behind it. A gang of crooks walked away rich, and the public was stuck with the bill.

Bankers collected multi million dollar bonuses annually for engineering this ripoff and the public was stuck with the bill. The economy is still suffering the after effects.

So, check it out. If you made the loan to a local credit union, savings and loan or bank and they still hold the paper, all legally registered that is one thing. But if you are one of the millions of victims of an elaborate nation wide scam that is another thing.

By the way you should be careful of renegotiating a loan. This is their favorite trick to get you back on the hook. Millions of mortgages are "lost" in the fraudulent system, never properly registered with no chain of title. If you sign a new mortgage you are back on the hook - probably to a bank you never heard of and don't owe a cent to, who bought your mortgage for pennies on the dollar. So if you get a letter offering to renew your mortgage on better terms be wary. In addition, the "better" terms they offer are usually a better deal for them than for you although on the surface it looks like a good deal. You need to be a Philadelphia lawyer and an expert accountant to see where they are getting the best of it in the long run.

 

[Stanley Doble]

The legal matter should be done at the advice of lawyers and accountants.

From a moral standpoint it should be considered that the money was borrowed and the money should be repayed with the agreed upon interest.
Here is an example of the basis of my opinion of this. If I put money in my savings account I would not want the bank to say that they are reducing my account value by $12,000 but giving me a beat up Toyota that they reposessed from someone. Even if I feel corporations are corrupt I do not feel it is the way a decent person should act.

Perhaps a renegotiation of the loan could be done to reduce the interest because a person making the payments is better for the lender than a person who would default on the loan.

Repaid to who? In millions of cases the original lender got their money back, with a profit, within days of writing the mortgage. They sold it to someone else who sold it to someone else, who packaged it in a mortgage backed security and sold it to someone else. In some cases the same mortgage was sold or pledged as collateral to 3 or 4 different institutions at the same time.

Yes, this is illegal. It is also very profitable if you are one of the insiders.

If you want to know why the economy is in the dumper you should look into the billions, literally billions stolen by the mortgage industry from the public, and how the government bailed them out when the bubble blew up.

 

[Stanley Doble]

The real estate bubble didn't just happen. The mortgage industry is not the innocent victim of some black swan event.

Everyone who is underwater on a mortgage is the victim of the real estate bubble. The real estate bubble was engineered by some very rich, very unscrupulous people to scam billions out of the public first in the bubble itself, then in government bailouts when the bubble blew up.

To me anyone who is the victim of this scam, is in the same position as the victim of any other con man. If you are sold something and later find out the seller was a liar and the item you bought is only worth a fraction of what it was purported to be worth, I see nothing wrong with trying to get your money back or stop making payments on it.

 

[kiwilrdg]

Repaid to who? In millions of cases the original lender got their money back, with a profit, within days of writing the mortgage. They sold it to someone else who sold it to someone else, who packaged it in a mortgage backed security and sold it to someone else. In some cases the same mortgage was sold or pledged as collateral to 3 or 4 different institutions at the same time.

If the debt is incurred then there is an obligation to repay the debt. If there is a default there is someone who is owed the money that will not get money that they are due. The original loan had terms that were agreed to by the buyer. The buyer recieved the money and bought the house (which has a lein as security to ensure the loan is paid). If the lender has sold the debt to someone then the person who bought the debt is now owed the money. That means the same money is paid by the buyer, just sent to another address.

If you are sold something and later find out the seller was a liar and the item you bought is only worth a fraction of what it was purported to be worth, I see nothing wrong with trying to get your money back or stop making payments on it.

.

If the seller lied about what the property is then the seller should be taken to court to get the money back. If the seller did lie about the actual property there also might be legal action against any property inspectors, surveyors, title lawyers, exterminators, etc.

If the market fell and the value drops after the sale then the buyer owns a property that has dropped in value. If the buyer is considered cheated in that case the buyer should also return any gain in value to the original seller if the value of the property goes up when the house is sold again because the original seller would have been cheated.

As far as default, the bank is not the seller, just an institution that loaned money.

 

[ButteMT61]

"The industry is a scam". No doubt. But if you can look at yourself in the mirror and say "Well, they forced me with a gun to my head to sign a mortgage that was inflated because they knew all along that this was a scam and therefore I won't repay it", have at it.
There were people scammed. There are un/under-educated folks who got sucked in. There were also tons of speculators and flippers out there making it worse. Consumers were not total victims in this mess - they contributed to it.
Like I have said, if that's your way, enjoy. It's not for me unless I get scr3wed. Being underwater in a mortgage is not in an of itself being taken advantage of. People buy new cars and are repaying a large amount of money that as soon as it's driven off the lot, declines rapidly. Should we all just stop making car payments? You decide.