Pro and Cons of Mortgage Strategic Defaults.

[LizzieMaine]

The biggest villain of all was the "it's dough -- let's go!" culture of the time, the idea that everybody was making money and you better get in now and make yours before it's too late. The people who I wish were swinging from lamp posts are the people who promoted and pushed that culture. But walking away from one's debt isn't going to accomplish that goal -- they've already got theirs, and they've got yours too, regardless of what you do. Walking away from the debt is a black mark on your history, not theirs -- they've rigged the system to ensure that.

Not coincidentally, this was the same culture that brought a lot of people into the stock market in 1929 who had no business being there. And the results were not too different.

 

[kiwilrdg]

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.

Good example of what I was trying to convey.

 

[countryclubjoe]

Good example of what I was trying to convey.

Hi Kiwilrdg
Thank you for your reply. From my limited knowledge of which was acquired in the last 12 hours ( Online Research ) It would appear that reposessing a car is much easier then foreclosing a home especially in what is called a Judicial State, so I don't think the comparison applies, however I see where your coming from.
Best regards
CCJ

 

[kiwilrdg]

It would appear that reposessing a car is much easier then foreclosing a home especially in what is called a Judicial State, so I don't think the comparison applies, however I see where your coming from.

It is not the specifics of the collection laws that I feel makes it a good example. It is the fact it is the money loaned rather than the value of the purchased that determines the debt. Cars depreciate at such a great rate that almost all auto loans are upside down. In todays market most home loans are upside down and this also happened in the great depression. The house was just a bad investment at the time. It was a good time for the seller to sell. It does not negate the obligation to repay the loan.

 

[ButteMT61]

It is not the specifics of the collection laws that I feel makes it a good example. It is the fact it is the money loaned rather than the value of the purchased that determines the debt. Cars depreciate at such a great rate that almost all auto loans are upside down. In todays market most home loans are upside down and this also happened in the great depression. The house was just a bad investment at the time. It was a good time for the seller to sell. It does not negate the obligation to repay the loan.

Indeed.That's the rub - a house as an investment v a place to live. Like I said, blame the industry for the scams - there were plenty - but don't act like consumers were all innocent victims (today's key term for every problem).This kind of behavior will only prolong the recovery - if any - of the economy.* I'm in agreement with you, just replying to the general discussion.

 

[countryclubjoe]

Hi Folks

I appreciated all the replies and I also want to apologize for posting a topic that is not GE related. At the time and even now it just seemed easier for me to discuss this delicate issue with online folks then discuss the topic with my few friends, friends which think along the same lines as I think. I wanted to get some different ideas on the subject.
I have been reading online all night on this subject and there seems to be many arguments on both sides of the issue. It also seems that many folks are doing these stratgic defaults. The results both positive and negative have not yet been documented.
Presently I am simply looking at this issue from a Father/Son point of view, not from a businessman point of view. Clearly Parents want what is best for there children and we hope that they make good decisions along the path of life.
Thanks again to one and all.
Best regards
CCJ

 

[sheeplady]

Hi Folks

I appreciated all the replies and I also want to apologize for posting a topic that is not GE related. At the time and even now it just seemed easier for me to discuss this delicate issue with online folks then discuss the topic with my few friends, friends which think along the same lines as I think. I wanted to get some different ideas on the subject.
I have been reading online all night on this subject and there seems to be many arguments on both sides of the issue. It also seems that many folks are doing these stratgic defaults. The results both positive and negative have not yet been documented.
Presently I am simply looking at this issue from a Father/Son point of view, not from a businessman point of view. Clearly Parents want what is best for there children and we hope that they make good decisions along the path of life.
Thanks again to one and all.
Best regards
CCJ

I do hope your son comes out of this ok. Also, please encourage him to get at least a second opinion and stay on top of things with whomever the lawyer is he goes with. Seriously, this is not a time to mess around with a cheap lawyer.

 

[countryclubjoe]

Hi All

Hi Sheeplady-- Your replies have been very helpful. I am meeting with my Son on Sunday for football and some beers and hopefully I can get a better picture of just what his intentions are and what he is trying to accomplish in all this. Also meeting with an old friend ex attorney tomorrow to get a better legal view on the subject. This stratgic default business seems relatively new therefore I am not sure of the legal ramifications associated with doing one. I also believe most attorney's are not clear on the subject.
I hope to have a clearer view of my Son's intentions come Sunday, then I will try to advise him accordingly.
Best regards
CCJ

 

[sheeplady]

Hi All

Hi Sheeplady-- Your replies have been very helpful. I am meeting with my Son on Sunday for football and some beers and hopefully I can get a better picture of just what his intentions are and what he is trying to accomplish in all this. Also meeting with an old friend ex attorney tomorrow to get a better legal view on the subject. This stratgic default business seems relatively new therefore I am not sure of the legal ramifications associated with doing one. I also believe most attorney's are not clear on the subject.
I hope to have a clearer view of my Son's intentions come Sunday, then I will try to advise him accordingly.
Best regards
CCJ

I've got to say, you sound like a great dad. I'm glad you found what I said helpful. I really stress the lawyer thing after what happened with my neighbors (who weren't delinquent and should have been able to keep their home). Times aren't easy out there. Best of luck.

 

[SSuperDave]

One of my clients is a bond broker, and her comment in '08 was "if you treat your house like an investment, don't be surprised when it acts like one"

 

[Burton]

Countryclubjoe, the two things that caught my eye were that your son CAN make the current payment and that he plans on squatting in the home for free for some time to save money. You asked for pros and cons and to me:
1. He can live with honor and continue his contract and hope for an upturn in housing prices.
2. He can live with dishonor and proceed with his non-payment and attempt at squatting which it sounds like you are seeking some support for.

I know some people will disagree.

 

[tonyb]

I am quite closely related a man (I use the term loosely) who has walked away from many an obligation, personal and financial. He has defaulted on real estate contracts, filed for bankruptcy protection multiple times, fathered at least two children by women other than the one to whom he is married -- the list goes on and on. His one (almost) saving grace is considerable "presence" and charm, which is what gets people to go along with his propositions in the first place. Knowing him has left me quite cautious of presence and charm.

He never once walked away from those occasional schemes of his that showed a gain. Imagine that.

The question I have for anyone who can afford to make the payments on their "underwater" mortgage is: Would you walk away from this deal if the value had increased since you made the purchase and you had any equity in the property? Would you just pack up your bags and leave the gains for someone else to reap?

I can understand a person throwing up his hands and walking away if his choice is feeding himself and his family or making his mortgage payment. But I would hope that such a person would learn his lesson and never put himself in such straits again. In the case at hand, the would-be defaulter can afford his payments. Perhaps the question he should ask himself is: Would I do business with such a person? What does this person do when things don't go quite exactly as planned? Does he buckle down, or does he walk away?

 

[vitanola]

I am quite closely related a man (I use the term loosely) who has walked away from many an obligation, personal and financial. He has defaulted on real estate contracts, filed for bankruptcy protection multiple times, fathered at least two children by women other than the one to whom he is married -- the list goes on and on. His one (almost) saving grace is considerable "presence" and charm, which is what gets people to go along with his propositions in the first place. Knowing him has left me quite cautious of presence and charm.

He never once walked away from those occasional schemes of his that showed a gain. Imagine that.

The question I have for anyone who can afford to make the payments on their "underwater" mortgage is: Would you walk away from this deal if the value had increased since you made the purchase and you had any equity in the property? Would you just back up your bags and leave the gains for someone else to reap?

I can understand a person throwing up his hands and walking away if his choice is feeding himself and his family or making his mortgage payment. But I would hope that such a person would learn his lesson and never put himself in such straits again. In the case at hand, the would-be defaulter can afford his payments. Perhaps the question he should ask himself is: Would I do business with such a person? What does this person do when things don't go quite exactly as planned? Does he buckle down, or does he walk way?

You make excellent points.

The only question that I would pose is if it is morally abhorrent for an individual to walk away from an obligation, why is it "just business" when done by a corporate entity? In the commercial real estate world it has for a century been well understood that a mortgage is a contract which may be fulfilled in two ways, one of which is returning the property to the Mortgagee.

 

[Stanley Doble]

I still say a person has no obligation to live up to a contract that they were tricked into signing by fraud, or that the other party has not lived up to.

Unfortunately in recent years the mortgage and banking business has become shot through with fraud. That is why I suggested the questioner start by finding out who exactly holds the mortgage, whether it is properly registered, and whether the lender was legitimate or one of the fly by night outfits that existed only to scam the public.

 

[tonyb]

You make excellent points.

The only question that I would pose is if it is morally abhorrent for an individual to walk away from an obligation, why is it "just business" when done by a corporate entity? In the commercial real estate world it has for a century been well understood that a mortgage is a contract which may be fulfilled in two ways, one of which is returning the property to the Mortgagee.

I'm right with you, vitanola. My fear is that we've rationalized shifty dealings to the point that we've legitimized corrupt practices. This does not bode well.

 

[kiwilrdg]

Unfortunately in recent years the mortgage and banking business has become shot through with fraud. That is why I suggested the questioner start by finding out who exactly holds the mortgage, whether it is properly registered, and whether the lender was legitimate or one of the fly by night outfits that existed only to scam the public.

Why would any scam be suspected in this case? The only way that I see a problem that scams the property owner would be if two companies are claiming to hold the note or if any escrow payments are not being forwarded.

 

[ButteMT61]

There is no scam - yet. The homeowner simply doesn't like the market, so he's not going to pay while living free (squatting). At least no scam has been reported here by the OP.
And just because corporations are doing this doesn't mean you should. That's a pretty low bar, isn't it? Do as you wish. I know I won't sit here and cheerlead the whole thing. I have kids too, and I've made them face some tough outcomes on bad choices. That's what parents do. And nobody here is more protective of their kids.

 

[Noirblack]

You make excellent points.

The only question that I would pose is if it is morally abhorrent for an individual to walk away from an obligation, why is it "just business" when done by a corporate entity? In the commercial real estate world it has for a century been well understood that a mortgage is a contract which may be fulfilled in two ways, one of which is returning the property to the Mortgagee.

Vitanola, this is an important point. There are provisions in the contract in the event of default.

The thing about a strategic default is that each case is different. E.G. if a person owed $1,000,000 on a house now valued at $250,000, it would make sense to default (or even declare bankruptcy). If they owed $550,000 on a house worth $500,000 they might as well keep paying the mortgage because the house value will rise enough to make paying it worthwhile. We don't know the details from the original post. We don't know if the son owed a lot or a little. There has been a lot of pronouncements about how a person must live up to any and all obligations. Well, if you own a million on a house worth $250k, you'd be crazy to keep making payments. I doubt that many of the "live up to your obligations" crowd would be willing to pay out a mortgage in a situation like this.

 

[LizzieMaine]

It's probably safe to say that most of the "Live Up To Your Obligations" crowd would have had the sense not to get mixed up in a deal like that in the first place.

 

[tonyb]

Vitanola, this is an important point. There are provisions in the contract in the event of default.

The thing about a strategic default is that each case is different. E.G. if a person owed $1,000,000 on a house now valued at $250,000, it would make sense to default (or even declare bankruptcy). If they owed $550,000 on a house worth $500,000 they might as well keep paying the mortgage because the house value will rise enough to make paying it worthwhile. We don't know the details from the original post. We don't know if the son owed a lot or a little. There has been a lot of pronouncements about how a person must live up to any and all obligations. Well, if you own a million on a house worth $250k, you'd be crazy to keep making payments. I doubt that many of the "live up to your obligations" crowd would be willing to pay out a mortgage in a situation like this.

I certainly hope you aren't including me in the "crowd" who make "pronouncements" about "how a person must live up to any and all obligations."

What I read is that the young fellow can afford to make the payments but is considering staying put, living rent-free, for the several months minimally it would take to get him and his out of the house.

Even if he were so far underwater (owing a million on a house now worth a quarter of that, to cite your hypothetical), well, I shed no tears for anyone who buys a house for a million bucks. And if he wishes to be out from under the deal, his remaining in a place, living rent-free while the eviction process runs its lengthy course, is truly the moral equivalent of theft. If he could afford to make a mortgage payment on a house now worth less than he paid for it, it seems a safe assumption that he could afford to pay rent.