patrick.net

I'm not for or against walking away, but the way these things usually turn out...the biggest losers end up being the people who thought they could get ahead by taking the easy way out.

I walked because, most importantly, I would have been flat broke and not able to pay. I sold the house for more than the purchase price, but I was underwater. Long, stupid story.

Anyway, it never occurred to me just to default on the second while still paying the first, but had I done that, any chance of a short sale would have evaporated quickly. I short-sold the home in '08 for about $850k, and now, based on sales in the area, the place would probably only be worth $450K. Would I still want to be paying for that? No comment. ;)

Do what's best for you, but know all the facts. I may end up declaring bankruptcy over this one day (if the second lender sues and wins), but at this point, I don't care. I would love nothing more than to move on, renting for the rest of my life if I have to.

Bankruptcy is OK, for, after all, what is a credit score other than a tool to just get into more debt? I'm tired of debt.

wow, quite a post. It has the feeling that there's an entire melancholy novel behind it somewhere...

As far as having to deal with a landlord that defaults - due diligence on the part of renters is certainly recommended in times like these. At least in San Mateo County, PropertyShark and the county clerk's office are some good places to start.

As far as being turned down as a renter by a big bank because you're on a black list, I don't think the chances of that are great. Feel free to cite some sort of example of this, but its not as if banks hold grudges. They'll do whatever makes them the most money. If that includes renting to somebody that has a foreclosure on their record - so be it. If they don't pay rent, it has got to be a lot easier/cheaper to evict a renter than to foreclose on somebody. Now, if you've got massive financial issues outside of that foreclosure, any potential landlord that does a credit check might take issue with you.

Walking away (not that I've done it, or even have a mortgage) is a personal decision. Spending time worrying about what everyone else is doing and how it will affect the macro climate doesn't seem wise. Worrying about your grandchildren paying some portion of the bank's losses for your financial mistakes pales in comparison to going to your children and grandchildren for handouts when you eventually default on a property you could never afford.

What "crashes like this" have you witnessed and when? It seems to me that we're in uncharted waters to a certain degree. Hopefully you're not referring to Buenos Aires prices recovering once hyperinflation hit there.

> 2) You will avoid Federal income tax liability through 2012. You will owe State of California income tax on any losses to the lender.

This is only if the lender writes off the loan as a loss, they are under no obligation to do so.

http://money.cnn.com/2010/02/03/real_estate/foreclosure_deficiency_judgement/index.htm

In some states the bank can wait years, till you recover financially, before taking you to court and filing a deficiency against you between the amount they were able to recover selling the house and the amount of the original loan. All you bastards that thought you could walk away scott free cause it was inconvient to continue to pay your mortgage are in for a rude awaking one day, if could be 10 years later, but your paying the bank back one way of another.

TechGromit says

All you bastards that thought you could walk away scott free cause it was inconvient to continue to pay your mortgage are in for a rude awaking one day, if could be 10 years later, but your paying the bank back one way of another.

There is a statute of limitations on suing over a loan default. In California, it's four years. Most other states are around that time, too. They can still pester you after that, but they'll have no legal clout.

The tax consequences from the state will come via a 1099-C which only has to be counted as income if you were solvent (assets > liabilities) at the time of foreclosure. In California, most people who have walked away were so far underwater that they were almost certainly insolvent at the time, and therefore not subject to pay taxes on the forgiven debt. As far as being "blacklisted", that will only apply to those who are seeking loans. And as stated earlier, banks are all about making money with the least amount of risk. If you can save for a 50% down payment, there is virtually no risk to a lender so the foreclosure is not likely to affect you very much. Just save as much cash as possible and avoid the need for loans. You will be fine. And your grandkids will be paying for ALL of the spending going on today. The amount you may save by walking away and looking out for you will be much greater than the negative impact walking away may have on your particular offspring.

stocksjustgoup says

There is a statute of limitations on suing over a loan default. In California, it’s four years. Most other states are around that time, too. They can still pester you after that, but they’ll have no legal clout.

True, but they will wait long as possible to file in the case you don't have money and sooner if you do. I remember one poster here, who had other assets, but felt it was his god given right to get a loan modification from the bank or he was going to walk away because the house was worth less than the mortgage was for. I hope he got his reward from the bank for his short sightness.

No Help in Sight, More Homeowners Walk Away by David Streitfeld
Monday, February 1, 2010 provided by The New York Times

In 2006, Benjamin Koellmann bought a condominium in Miami Beach. By his calculation, it will be about the year 2025 before he can sell his modest home for what he paid. Or maybe 2040.

“People like me are beginning to feel like suckers,” Mr. Koellmann said. “Why not let it go in default and rent a better place for less?”

After three years of plunging real estate values, after the bailouts of the bankers and the revival of their million-dollar bonuses, after the Obama administration’s loan modificationplan raised the expectations of many but satisfied only a few, a large group of distressed homeowners is wondering the same thing.

New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.

In a situation without precedent in the modern era, millions of Americans are in this bleak position. Whether, or how, to help them is one of the biggest questions the Obama administration confronts as it seeks a housing policy that would contribute to the economic recovery.

“We haven’t yet found a way of dealing with this that would, we think, be practical on a large scale,” the assistant Treasury secretary for financial stability, Herbert M. Allison Jr., said in a recent briefing.

The number of Americans who owed more than their homes were worth was virtually nil when the real estate collapse began in mid-2006, but by the third quarter of 2009, an estimated 4.5 million homeowners had reached the critical threshold, with their home’s value dropping below 75 percent of the mortgage balance.

They are stretched, aggrieved and restless. With figures released last week showing that the real estate market was stalling again, their numbers are now projected to climb to a peak of 5.1 million by June — about 10 percent of all Americans with mortgages.

“We’re now at the point of maximum vulnerability,” said Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. “People’s emotional attachment to their property is melting into the air.”

Suggestions that people would be wise to renege on their home loans are at least a couple of years old, but they are turning into a full-throated barrage. Bloggers were quick to note recently that landlords of an 11,000-unit residential complex in Manhattan showed no hesitation, or shame, in walking away from their deeply underwater investment.

“Since the beginning of December, I’ve advised 60 people to walk away,” said Steve Walsh, a mortgage broker in Scottsdale, Ariz. “Everyone has lost hope. They don’t qualify for modifications, and being on the hamster wheel of paying for a property that is not worth it gets so old.”

Mr. Walsh is taking his own advice, recently defaulting on a rental property he owns. “The sun will come up tomorrow,” he said.

The difference between letting your house go to foreclosure because you are out of money and purposefully defaulting on a mortgage to save money can be murky. But a growing body of research indicates that significant numbers of borrowers are declining to live under what some waggishly call “house arrest.”

Using credit bureau data, consultants at Oliver Wyman calculated how many borrowers went straight from being current on their mortgage to default, rather than making spotty payments. They also weeded out owners having trouble paying other bills. Their estimate was that about 17 percent of owners defaulting in 2008, or 588,000 people, chose that option as a strategic calculation.

Some experts argue that walking away from mortgages is more discussed than done. People hate moving; their children attend the neighborhood school; they do not want to think of themselves as skipping out on a debt. Doubters cite a Federal Reserve study using historical data from Massachusetts that concludes there were relatively few walk-aways during the 1991 bust.

The United States Treasury falls into the skeptical camp.

“The overwhelming bulk of people who have negative equity stay in their homes and keep paying,” said Michael S. Barr, assistant Treasury secretary for financial institutions.

It would cost about $745 billion, slightly more than the size of the original 2008 bank bailout, to restore all underwater borrowers to the point where they were breaking even, according to First American.

Using government money to do that would be seen as unfair by many taxpayers, Mr. Barr said. On the other hand, doing nothing about underwater mortgages could encourage more walk-aways, dealing another blow to a fragile economy.

“It’s not an easy area,” he said.

Walking away — also called “jingle mail,” because of the notion that homeowners just mail their keys to the bank, setting off foreclosure proceedings — began in the Southwest during the 1980s oil collapse, though it has never been clear how widespread it was.

In the current bust, lenders first noticed something strange after real estate prices had fallen about 10 percent.

An executive with Wachovia, one of the country’s biggest and most aggressive lenders, said during a conference call in January 2008 that the bank was bewildered by customers who had “the capacity to pay, but have basically just decided not to.” (Wachovia failed nine months later and was bought by Wells Fargo.)

With prices now down by about 30 percent, underwater borrowers fall into two groups. Some have owned their homes for many years and got in trouble because they used the house as a cash machine. Others, like Mr. Koellmann in Miami Beach, made only one mistake: they bought as the boom was cresting.

It was April 2006, a moment when the perpetual rise of real estate was considered practically a law of physics. Mr. Koellmann was 23, a management consultant new to Miami.

Financially cautious by nature, he bought a small, plain one-bedroom apartment for $215,000, much less than his agent told him he could afford. He put down 20 percent and received a fixed-rate loan from Countrywide Financial.

Not quite four years later, apartments in the building are selling in foreclosure for $90,000.

“There is no financial sense in staying,” Mr. Koellmann said. With the $1,500 he is paying each month for his mortgage, taxes and insurance, he could rent a nicer place on the beach, one with a gym, security and valet parking.

Walking away, he knows, is not without peril. At minimum, it would ruin his credit score. Mr. Koellmann would like to attend graduate school. If an admission dean sees a dismal credit record, would that count against him? How about a new employer?

Most of all, though, he struggles with the ethical question.

“I took a loan on an asset that I didn’t see was overvalued,” he said. “As much as I would like my bank to pay for that mistake, why should it?”

That is an attitude Wall Street would like to encourage. David Rosenberg, the chief economist of the investment firm Gluskin Sheff, wrote recently that borrowers were not victims. They “signed contracts, and as adults should also be held accountable,” he wrote.

Of course, this is not necessarily how Wall Street itself behaves, as demonstrated by the case of Stuyvesant Town and Peter Cooper Village. An investment group led by the real estate giant Tishman Speyer recently defaulted on $4.4 billion in debt that it had used to buy the two apartment developments in Manhattan, handing the properties back to the lenders.

Moreover, during the boom, it was the banks that helped drive prices to unrealistic levels by lowering credit standards and unleashing a wave of speculative housing demand.

Mr. Koellmann applied last fall to Bank of America for a modification, noting that his income had slipped. But the lender came back a few weeks ago with a plan that added more restrictive terms while keeping the payments about the same.

“That may have been the last straw,” Mr. Koellmann said.

Guy D. Cecala, publisher of Inside Mortgage Finance magazine, says he does not hear much sympathy from lenders for their underwater customers.

“The banks tell me that a lot of people who are complaining were the ones who refinanced and took all the equity out any time there was any appreciation,” he said. “The banks are damned if they will help.”

Joe Figliola has heard that message. He bought his house in Elgin, Ill., in 2004, then refinanced twice to get better terms. He pulled out a little money both times to cover the closing costs and other expenses. Now his place is underwater while his salary as circulation manager for the local newspaper has been cut.

“It doesn’t seem right that I can rent a place somewhere for half of what I’m paying,” he said. “I told my bank, ‘Just take a little bite out of what I owe. That would ease me up. Isn’t that why the president gave you all this money?’ ”

Bank of America did not agree, so Mr. Figliola, who is 48, sees no recourse other than walking away. “I don’t believe this is the right thing to do,” he said, “but I’ve got to survive.”

TechGromit says

True, but they will wait long as possible to file in the case you don’t have money and sooner if you do. I remember one poster here, who had other assets, but felt it was his god given right to get a loan modification from the bank or he was going to walk away because the house was worth less than the mortgage was for. I hope he got his reward from the bank for his short sightness.

Well, in my case, I don't have any assets they'd be allowed to come after, so if they sue and win, I can't afford it and will have no choice but to file bankruptcy.

In my case, though, I'm not even sure if the bank still owns the debt in question. I've been subsequently contacted by two collection agencies over this, neither one of which has provided validation. I have no idea where this stands, actually.

stocksjustgoup says

TechGromit says

Well, in my case, I don’t have any assets they’d be allowed to come after, so if they sue and win, I can’t afford it and will have no choice but to file bankruptcy.
In my case, though, I’m not even sure if the bank still owns the debt in question. I’ve been subsequently contacted by two collection agencies over this, neither one of which has provided validation. I have no idea where this stands, actually.

Well any judgement they leagally levy against you, they can collect over 20 years, even to the point of Garnishing part of your wages. As for the colloection agencies, I would ignore them, until they offer some proof that they now own the debt, it's just there word against yours. If they really owned it, why not go to court to get you to pay?

pshawn says

With prices now down by about 30 percent, underwater borrowers fall into two groups. Some have owned their homes for many years and got in trouble because they used the house as a cash machine. Others, like Mr. Koellmann in Miami Beach, made only one mistake: they bought as the boom was cresting.
It was April 2006, a moment when the perpetual rise of real estate was considered practically a law of physics. Mr. Koellmann was 23, a management consultant new to Miami.
Financially cautious by nature, he bought a small, plain one-bedroom apartment for $215,000, much less than his agent told him he could afford. He put down 20 percent and received a fixed-rate loan from Countrywide Financial.
Not quite four years later, apartments in the building are selling in foreclosure for $90,000.
“There is no financial sense in staying,” Mr. Koellmann said. With the $1,500 he is paying each month for his mortgage, taxes and insurance, he could rent a nicer place on the beach, one with a gym, security and valet parking.
“I took a loan on an asset that I didn’t see was overvalued,” he said. “As much as I would like my bank to pay for that mistake, why should it?”

The same thing could be said of any gambler that makes a bet on BlackJack, a slot machine or sports betting, I didn't win, why should I have to pay up? How does it benefit me? This type of entitlement attitude just pisses me off! Yes, you made a mistake, you got all caught up in the real estate Propaganda, but isn't this exactly the same thing a casino does with the flashing lights, ringing bells and free drinks on the casino floor. To get you caught up in the moment and lose you sence of judgement? This is American, your perfectly free to make mistakes, BUT you have to pay for your mistakes. As for "Wall Street" getting bail out money, it's not free, congress has it's head so far up the asses of the bailed compaies, they are tripping all over themselves to pay it back to get rid of goverment oversight.

Mr. Koellmann applied last fall to Bank of America for a modification, noting that his income had slipped. But the lender came back a few weeks ago with a plan that added more restrictive terms while keeping the payments about the same.
“That may have been the last straw,” Mr. Koellmann said.
“It doesn’t seem right that I can rent a place somewhere for half of what I’m paying,” he said. “I told my bank, ‘Just take a little bite out of what I owe. That would ease me up. Isn’t that why the president gave you all this money?’ ”

Yes, the president help Bank of America out of a tight spot, but they are paying every penney back (interest free, but they are still paying it) Why should we kick in free money to you, what makes you so special?

Bank of America did not agree, so Mr. Figliola, who is 48, sees no recourse other than walking away. “I don’t believe this is the right thing to do,” he said, “but I’ve got to survive.”

I really don't agree with letting these deatbeats walk away without the tax obligations the president is currently forgiving. The government is only encourging this type of behavior. I hope bank of america Nails this guys ass to the wall with a deficiency judgement. This is how the capitialist system works, sell it cheaper or charge to the hilt to those that don't know better, yes sometimes it's a brutal system, but it works, Communism really didn't live up to all the hype, we have the Soviet Union as Proof.

I don't buy any of this about RENTERS being under a dark cloud after walking away.

There are tons of vacant rental properties, take your pick. Even assuming you were renting directly from Bank B, they are not going to really care that much about your default at Bank A. You paid your deposit and "last month" rent or whatever, they will be as happy to rent to you as any other Schmoe.