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Interesting Article - House Is Gone but Debt Lives On
Old 10-02-2011, 07:21 AM   #1
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Interesting Article - House Is Gone but Debt Lives On

There have been many discussions about homes and related finances over the last several years. A few years ago when "strategic defaults" began happening there was a lot of speculation about what might happen.

Apparently it is starting to happen. banks are trying to recover the difference between the sale of the foreclosed home and the mortgage. It is no surprise with the huge mortgage problem at the banks.

There are a lot of people that are underwater on their homes. So this article may be helpful in understanding how banks might respond to certain types of action.

Quote:
LEHIGH ACRES, Fla.—Joseph Reilly lost his vacation home here last year when he was out of work and stopped paying his mortgage. The bank took the house and sold it. Mr. Reilly thought that was the end of it.
In June, he learned otherwise. A phone call informed him of a court judgment against him for $192,576.71.
House Is Gone but the Debt Lives On - WSJ.com
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Old 10-02-2011, 07:38 AM   #2
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I thought the most interesting information in the article was that the inventor of d-Con poison was a guy named Ratner...

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Lehigh Acres was carved out of scrub land and cattle farms in the 1950s by a Chicago businessman, Lee Ratner, who had made a fortune on d-CON rat poison...
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Old 10-02-2011, 09:01 AM   #3
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I am so glad that I have never been tempted to buy and flip houses. I understand that a lot of capable people in the Charlotte, NC area "invested" in housing in the Wilmington, NC area. I wonder how they are doing.
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Old 10-02-2011, 09:03 AM   #4
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For those that think it is easy to just walk away from a bad mortgage
Quote:
Forty-one states and the District of Columbia permit lenders to sue borrowers for mortgage debt still left after a foreclosure sale. The economics of today's battered housing market mean that lenders are doing so more and more.
For those that figure the banks won’t sue because their legal costs will be too high
Quote:
Silverleaf Advisors LLC, a Miami private-equity firm, is one investor in battered mortgage debt. Instead of buying ready-made deficiency judgments, it buys banks' soured mortgages and goes to court itself to get judgments for debt that remains after foreclosure sales.
And then there’s this
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Investors know that most states allow up to 20 years to try to collect the debts, ample time for the borrowers to get back on their feet. Meanwhile, the debts grow at about an 8% interest rate, depending on the state.
And the article didn’t even mention the dreaded 1099-C. The one where you have to pay tax on the debt you walked away from. Now you gotta pay your debts and pay your taxes ... what’s this country coming to, anyway?
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Old 10-02-2011, 09:06 AM   #5
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Originally Posted by chinaco View Post
There have been many discussions about homes and related finances over the last several years. A few years ago when "strategic defaults" began happening there was a lot of speculation about what might happen.

Apparently it is starting to happen. banks are trying to recover the difference between the sale of the foreclosed home and the mortgage. It is no surprise with the huge mortgage problem at the banks.

There are a lot of people that are underwater on their homes. So this article may be helpful in understanding how banks might respond to certain types of action.

House Is Gone but the Debt Lives On - WSJ.com
Note that second homes in all states are open to deficiency judgements, but conversely you can go BK and get a mortgage cramdown on the lender. Of course the way to kill the deficiency judgement all be it is harsh medicine is to go bankrupt. On primary residences if deficiency judgements are allowed varies from state to state, and if you re-fied and took money out.
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Old 10-02-2011, 10:53 AM   #6
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Interesting article... sounds like the author couldn't decide whether they were writing about evil scheming financial institutions or finagling flippers flouting the financing laws.
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Old 10-02-2011, 11:11 AM   #7
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It's hard not to be judgmental when reading the article. Personally I would never have defaulted on the mortgage in the first place. I would have figured out some way to pay it as promised. To me my pledge to pay my debts means something even if doing so would put me in a less than optimal financial position. From my point of view, he owes the bank not only the difference but also the extra cost incurred to them in selling the home and having to sue him for the rest, plus any interest due. I think that my point of view is so very antiquated, however, that it places me firmly in the 19th century.

However, this archaic point of view partly explains why I choose to be debt free now that that is possible for me.
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Old 10-02-2011, 11:43 AM   #8
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Quote:
Originally Posted by chinaco View Post
There have been many discussions about homes and related finances over the last several years. A few years ago when "strategic defaults" began happening there was a lot of speculation about what might happen.

Apparently it is starting to happen. banks are trying to recover the difference between the sale of the foreclosed home and the mortgage. It is no surprise with the huge mortgage problem at the banks.

There are a lot of people that are underwater on their homes. So this article may be helpful in understanding how banks might respond to certain types of action.

House Is Gone but the Debt Lives On - WSJ.com


Maybe, individuals under water on their homes are better off putting it on the market, ask the bank to take a short sale which probably results in a lower loss as the resutl of lower fees and the home being in better condition than it would be if it were vacant for a few months.

I don't have this problem but I do feel sorry for the individuals suffering losses AND the banks that have to raise all of our fees to return to profitability. Anybody have a good answer to those facing these type of problems?
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Old 10-02-2011, 11:52 AM   #9
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Originally Posted by W2R View Post
It's hard not to be judgmental when reading the article. Personally I would never have defaulted on the mortgage in the first place. I would have figured out some way to pay it as promised. To me my pledge to pay my debts means something even if doing so would put me in a less than optimal financial position. From my point of view, he owes the bank not only the difference but also the extra cost incurred to them in selling the home and having to sue him for the rest, plus any interest due. I think that my point of view is so very antiquated, however, that it places me firmly in the 19th century.

However, this archaic point of view partly explains why I choose to be debt free now that that is possible for me.
I agree. However, it seems better for all the parties if the banks were to try and work out an equitable deal for those people with good credit who've lost their job or for some other reason can't pay for reasons beyond their control. If I were in that situation, I'd much rather pay off my house than walk away. If the banks would delay or reduce repayment until I was back on my feet, I'd start paying as soon as I could. Seems easier than foreclosing, selling at a loss and then suing the previous owner not knowing if you will win in court or even be able to collect if you do.
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Old 10-02-2011, 12:13 PM   #10
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Originally Posted by flyfishnevada View Post
I agree. However, it seems better for all the parties if the banks were to try and work out an equitable deal for those people with good credit who've lost their job or for some other reason can't pay for reasons beyond their control. If I were in that situation, I'd much rather pay off my house than walk away. If the banks would delay or reduce repayment until I was back on my feet, I'd start paying as soon as I could. Seems easier than foreclosing, selling at a loss and then suing the previous owner not knowing if you will win in court or even be able to collect if you do.
Banks are probably playing the odds. We've "worked with tenants" who fall behind on their rent payments. Doesn't often work out well for us as they tend to continue to spiral downward into debt. Often a failure to pay rent is accompanied by a general decline in the appearance of the apartment, which drags down the enjoyment of living next to them, which causes other tenants to move out, which leaves us with a more difficult to rent building and less money to improve it...
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Old 10-02-2011, 12:17 PM   #11
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Originally Posted by W2R View Post
It's hard not to be judgmental when reading the article. Personally I would never have defaulted on the mortgage in the first place. I would have figured out some way to pay it as promised. To me my pledge to pay my debts means something even if doing so would put me in a less than optimal financial position. From my point of view, he owes the bank not only the difference but also the extra cost incurred to them in selling the home and having to sue him for the rest, plus any interest due. I think that my point of view is so very antiquated, however, that it places me firmly in the 19th century.

However, this archaic point of view partly explains why I choose to be debt free now that that is possible for me.
I feel that if someone is trying to hurt me, he belongs hurt himself. The mortgage scam over the recent period has been so egregious and corrupt that IMO anyone who can safely walk away from a large debt should.

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Old 10-02-2011, 12:17 PM   #12
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Originally Posted by W2R View Post
It's hard not to be judgmental when reading the article. Personally I would never have defaulted on the mortgage in the first place. I would have figured out some way to pay it as promised. To me my pledge to pay my debts means something even if doing so would put me in a less than optimal financial position. From my point of view, he owes the bank not only the difference but also the extra cost incurred to them in selling the home and having to sue him for the rest, plus any interest due. I think that my point of view is so very antiquated, however, that it places me firmly in the 19th century.

However, this archaic point of view partly explains why I choose to be debt free now that that is possible for me.
I would say your point of view is more mid to late 20th century, not the 19th century. The 19th century (1800-1899) was really a terrible age of colonialism and land grabs by European powers, with little consideration for rights and obligations of those that came into the interaction/transactions with the globe-trotting European colonial powers.

You point of view is too pure, wholesome and honorable to belong to the 18th century!
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Old 10-02-2011, 12:39 PM   #13
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I think that my point of view is so very antiquated, however, that it places me firmly in the 19th century.
Just like the fictitious Mr Micawber who ended up in debtors prison when he couldn't pay his debts

"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
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Old 10-02-2011, 01:07 PM   #14
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Just like the fictitious Mr Micawber who ended up in debtors prison when he couldn't pay his debts

"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
Love that quote, which I heard often in my youth.
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Old 10-02-2011, 01:31 PM   #15
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Originally Posted by W2R View Post
It's hard not to be judgmental when reading the article. Personally I would never have defaulted on the mortgage in the first place. I would have figured out some way to pay it as promised. To me my pledge to pay my debts means something even if doing so would put me in a less than optimal financial position. From my point of view, he owes the bank not only the difference but also the extra cost incurred to them in selling the home and having to sue him for the rest, plus any interest due. I think that my point of view is so very antiquated, however, that it places me firmly in the 19th century.

However, this archaic point of view partly explains why I choose to be debt free now that that is possible for me.
Quite the contrary - I don't think it is antiquated at all. Being the victim of one's own bad judgement is not the same as being victimized by unlawful or unethical behaviour by another. Despite everything we read in the press, it appears most of the housing bubble was plain and simple greed. Borrowers and lenders alike need to pay for their greed, and one way or another, are doing so.

It does make a great media topic, though, especially for journalists good at framing things for the uncritical reader.
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Old 10-02-2011, 04:51 PM   #16
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Quite the contrary - I don't think it is antiquated at all. Being the victim of one's own bad judgement is not the same as being victimized by unlawful or unethical behaviour by another. Despite everything we read in the press, it appears most of the housing bubble was plain and simple greed. Borrowers and lenders alike need to pay for their greed, and one way or another, are doing so.

It does make a great media topic, though, especially for journalists good at framing things for the uncritical reader.
It's easy to blame the banks and I'm sure some of the blame lies with them, but the borrowers who were stupid enough not to read the fine print or sign up for a loan they knew they couldn't pay back are to blame also. Not to mention the people that were trading in houses every year to get a bigger one and the government for encouraging risky loans. It's a terrible situation.

I can understand, not condone, a borrower who bought a house in good faith that is now worth half of what they owe with no prospect of that turning around in the foreseeable future, walking away. I can also understand a bank going after them. Like I said above, there should be a way the borrowers who seem worth the risk to the banks to work something out that satisfies both parties.

As it is, the rules favor those who are not doing the right thing. We tried to refinance, not because we couldn't make our payment, just to get a better rate and we were told that their weren't enough comps and we couldn't get a refi, but the bank did suggest we miss a few payments and then the bank could consider reworking our loan. Huh? Again, I'd think it would be better business to work with the people making payments, not to suggest they stop. But what do I know?
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Old 10-02-2011, 05:16 PM   #17
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Originally Posted by flyfishnevada View Post
It's easy to blame the banks and I'm sure some of the blame lies with them, but the borrowers who were stupid enough not to read the fine print or sign up for a loan they knew they couldn't pay back are to blame also. Not to mention the people that were trading in houses every year to get a bigger one and the government for encouraging risky loans. It's a terrible situation.
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I can understand, not condone, a borrower who bought a house in good faith that is now worth half of what they owe with no prospect of that turning around in the foreseeable future, walking away. I can also understand a bank going after them. Like I said above, there should be a way the borrowers who seem worth the risk to the banks to work something out that satisfies both parties.
+1

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As it is, the rules favor those who are not doing the right thing. We tried to refinance, not because we couldn't make our payment, just to get a better rate and we were told that their weren't enough comps and we couldn't get a refi, but the bank did suggest we miss a few payments and then the bank could consider reworking our loan. Huh?
Wow, just wow. This is crazy. The bank doesn't have enough comps so they suggest that you miss a few payments so that they can then negotiate a better rate for you? Any idea what the logic is behind that?

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Again, I'd think it would be better business to work with the people making payments, not to suggest they stop. But what do I know?
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Old 10-02-2011, 05:29 PM   #18
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I know of quite a few instances where the bank refused to lower the mortgage for the homeowner but then foreclosed and sold the home for half what was being negotiated. Also I know of a few multimillionaires who walked from dozens of properties. Its a real mess. Lehigh acres started out as a blue collar community years ago. Now it's riddled with crime.
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Old 10-02-2011, 05:32 PM   #19
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Wow, just wow. This is crazy. The bank doesn't have enough comps so they suggest that you miss a few payments so that they can then negotiate a better rate for you? Any idea what the logic is behind that?
From what I understand in talking to folks working at one of the gigabanks, the missed payments move the loan from the generic 'answer desk' folks over to a department that empowered to discuss details and actually provide options, as well as negotiate on a limited basis.

The borrower can't just request this, while their loan is 'performing,' or being paid on schedule. There's no reason to give someone who appears to be able to make the contracted payments a break.
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Old 10-02-2011, 05:54 PM   #20
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Wow, just wow. This is crazy. The bank doesn't have enough comps so they suggest that you miss a few payments so that they can then negotiate a better rate for you? Any idea what the logic is behind that?
Government programs I'd guess. Those mortgage programs, to my knowledge, addressed people who were behind or had adjustable rates that shot up once the initial period was over. We weren't the only ones. We'd heard from other we know that they tried to contact the bank about some kind of relief and they were told if you weren't behind in your payments, you were out of luck.

Unintended consequences I'm sure. I doubt few, if any, of our Reps and Senators who voted for these bailouts intended to reward bad behavior, but they did. I wonder how many people just stopped paying in order to get a lower interest rate or to rework their terms because there wasn't a government program to assist them.

Don't get me wrong, I'm not advocating the government should have. I'm saying they shouldn't have bailed out anyone in the first place. If a bank did something wrong, there's laws for that. If a borrower got in trouble, that's why they have bankruptcy courts. IMHO, all the action by the government, no matter how well intended, just made the problem worse and made it last longer.
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