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Old 06-29-2008, 01:21 PM   #21
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Laurence, i agree - how frustrating!

i do think i heard on the news ( i do believe mccain said it too) about having the larger fha mtg's and also re'valuing mtgs to meet current price vs 2 years ago price...

i have just started to treat other people's financial beliefs (and parenting styles) like religion - it's about the same battle to convert friends/family to your beliefs...

i also have friends who milk every benefit they can, and it is very discouraging. they even applied for free/reduced lunch when they make a decent income because the application uses last year's income and by the present her husband had started working and increased their income...luckily they were rejected. they've also gone to the chiropractor just because it was included as a benefit, not because they needed it, and on and on...
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Old 06-29-2008, 01:29 PM   #22
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Originally Posted by laurencewill View Post
I guess I'm the idiot for playing by the rules. It's not much solace to know you are on the path to FIRE if you have to carry your neighbors on your back as well. I guess I'm the fool here.
I believe it's always better to play by the rules and earn what you get. Those who cheat the system learn bad habits that will catch up with them later.
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Old 06-29-2008, 03:37 PM   #23
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I know for a fact that despite whatever deal they get, I'm going to be mortgage free at 43 and definitely FIRE by 55. I need to just worry about my business.

It seems the only real benefit from laws passed so far is the income tax relief from a debt reduction a bank may give you. Before you would be taxed on that reduction in principle, now you don't (I think it said the next three years they are exempting).
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Old 06-29-2008, 04:06 PM   #24
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Originally Posted by Finance Dave View Post
Even if a bank forecloses on your house, you still may on the hook for the amount they don't recover via a sale...unless you negotiate otherwise with them. In addition, there are tax implications as discussed here... Double whammy: Foreclosure and taxes (Page 1 of 4)

Scenario #1
Essentially, if you owe $400k on the house, get the bank to accept $350k, then the $50k is considered a "benefit" to you, and you owe taxes on that amount at the marginal bracket you're in...so if you are in a 25% bracket...you'd owe $12,500 to the IRS.

Scenario #2
In addition, if you have a "recourse" loan, you can't just "walk away" without being obligated to any amount the bank can't recover. If they foreclose and sell the house for $350k, you're still on the hook for the other $50k. If you can get them to take a deed in lieu of foreclosure...then you go back into scenario #1. You can only "walk away" if you have a non-recourse loan...and even then you owe the taxes as in scenario #1.

I'd find it difficult to believe that a bank would give a loan on another house for the people if they were already upside down on the first one...unless there is fraud involved.

Dave
Dave this use to be the rule. The mortgage forgiveness act of 2007 (Passed just a few months after the Bankrate article shame on bankrate for not updating ) changed the rules for most short sells or foreclosures.
In general the forgiven debt is no longer taxed, but the basis of the house is reduced by forgiven amount. There are number of exceptions and rules.

Still this is big deal for most people and part of the on going tax payer bailout.

In general if you default on your mortgage, the only thing that is hurt is your credit rating. I had be happy to be proven wrong, but I have heard of almost no instance where banks go after people who default. Even in situation like refinances in the state of California where the loans are actual recourse loans. Purchase mortgages are non recourse.
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Old 06-29-2008, 04:08 PM   #25
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I believe it's always better to play by the rules and earn what you get. Those who cheat the system learn bad habits that will catch up with them later.

I hope you are right but I suspect that for many people involved in Real Estate cheating, they end up doing fine.
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Old 06-29-2008, 05:58 PM   #26
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Originally Posted by laurencewill View Post
Could someone explain to me the particulars of what's going on?
Well, she announces her friend just got he mortgage re-sized(?) by the mortgage company to what his house is currently appraised at, cutting 200k off of his loan, and she is now going to do the same.
You might ask your friend if she's ready to pay taxes on the bank sending them a $200K 1099.

The legal maneuvers mentioned in another post are designed to get mortgage values down to FHA loan limits (85% LTV) so that the mortgage can be insured by the FHA. The bank writes off the loss of the mortgage money (which is probably a smaller loss than the bank would take if they foreclosed the home) and the homeowner pays taxes on the 1099 (unless Congress allows that to be written off too). The idea is that FHA insurance will give real credibility to the assets behind all the subprime CDO tranches and pull this housing market out of the worst hit since the Depression... which is when the FHA was created.

I guess it's considered a better way to use taxpayer money than to just crank up the Treasury presses. Any hypothetically the FBI and the other TLAs are chasing down the fraudsters & other criminals to bring to justice so that this can't possibly happen again... until next time.

Actually your neighbor might be aiming too low. My BIL the CPA just helped a friend move out of her house near Annapolis. She bought it with a $140K mortgage 10 years ago and just kept refinancing with equity cashouts every few years. (Her $50K/year salary was too small for her living standards.) By the time the party ground to a halt when the bank refused the latest refinance, she was staring down $350K of mortgage debt and another $40K of credit-card debt (same bank). Under the latest friendly foreclosure laws, she turned over the keys and the bank forgave everything except a charge for a Caribbean cruise, for which she'll continue to pay $50/month payment for 16 months. I'm not sure that she even gets a 1099 if the bank calls the house the value of the mortgage & cc debt.

My BIL says she spent the money on entertainment and crap that didn’t mean anything. If you ever said anythig to her, you would just get the evil eye. She's a compulsive spender and will be right back in credit-card debt in a few more months.

I'm not sure what impact all these financial finagles have on one's credit rating. I'm not sure that anyone cares about that, either.
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Old 06-29-2008, 07:48 PM   #27
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Originally Posted by clifp View Post
Dave this use to be the rule. The mortgage forgiveness act of 2007 (Passed just a few months after the Bankrate article shame on bankrate for not updating ) changed the rules for most short sells or foreclosures.
In general the forgiven debt is no longer taxed, but the basis of the house is reduced by forgiven amount. There are number of exceptions and rules.


Still this is big deal for most people and part of the on going tax payer bailout.

In general if you default on your mortgage, the only thing that is hurt is your credit rating. I had be happy to be proven wrong, but I have heard of almost no instance where banks go after people who default. Even in situation like refinances in the state of California where the loans are actual recourse loans. Purchase mortgages are non recourse.
Wow clif, thanks for bringing me up to date...I obviously missed this one. I will make an edit to my original post to state such. I am a bit surprised this got through...but I won't go into how I'm sure the politics worked.

Dave

Edit: for some reason it won't let me edit my original post.
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Old 06-29-2008, 09:03 PM   #28
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Why do you think I choose Marx as an avatar?

Both the government and business, on the whole, are adopting Bolshevist approaches while ostensibly claiming their commitment to capitalism.

Privatize the gains, socialize the losses. God bless the USA!
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Old 06-30-2008, 02:19 AM   #29
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I said something about personal responsibility and who ultimately pays and she said something constructive back - I think it involved phrases like, "Just because it's not cocaine doesn't mean it isn't hustling" and "I could give a #%^!@ about anybody else". Real constructive.

Sadly, this seems to be the attitude of lots of people. But there certainly IS a cure for this sort of thinking. Let a persons bad choices have lasting negative consequences. Ever wonder why there are so many that call to "tax the rich" all the time? This is because appprox 40% of americans pay no taxes at all. It is the eternal dream of getting "something for nothing" that keeps this sort of thing alive.
We are free to fail or to succeed in america, but if the govt steps in and continues to make it harder for anyone to "fail", it also means it gets harder to succeed as well. All of the regulations that will now go into financial lending, will make it harder for people to get loans of any kind. No bank will be willing to make loans to other than people with outstanding credit. Not because they are greedy, or foolish, but because they do not want to be on the wrong side of the govt regulation.
If I want to sell chocolate chip cookies in my restaurant for $300 a cookie, should the govt really have the right to force me to lower my prices in the name of the "peoples" best interest? I believe that I should be able to charge whatever I wish for that (hypothetical) cookie. And if no one is buying one of my cookies, because they feel the price is too high, then I can lower my prices, or go out of business. Both of which, I have the legal right to do.
I still just cannot see what a "predatory lender is" even thought the media swears to me every day that they are everywhere! And I will probably hear the usual reactions of, the old people, people that were foolish and did not know better, it was not their fault and were victims, all of these people were duped by those slick talking bank reps. To that point, I would only counter with this thought. All of those people that got duped, swindled, taken advantage of, etc, still can operate a motor vehicle, have the right to raise their own children as they see fit, and can even vote for the next pres. of the United States. So am I really to beleive that these folks are completely competant in all of those other facets of their lives, but not for this case, and "only" this particular case? Much more likely it is just a re-packaged version of, "I could give a #%^!@ about anybody else". Which is where this posting first started. Claiming they were duped or taken advantage of, is just the most expediant way for them to get what they want.... bailed out for their bad financial decisions.
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Old 06-30-2008, 07:21 AM   #30
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Your neighbor is drinking too much kool-aid ... The second position would never walk away from a paying note. They'll collect what they can until foreclosure ... they have nothing to loose.

Now if they did not do the "pump n'run" (only a first mortgage) they might have a shot at a work-out or a short sale.
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Old 06-30-2008, 07:49 AM   #31
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If I were in the bank's position I would do a similar maneuver to mitigate my losses. If they are really that upside down with the interest only loan for a house larger than they can afford, it seems that if they do not do something, 18 months from now it will be another foreclosure on their books. Another house in the bank's hands that they need to turnover at a loss, after paying taxes and maintenance at a loss, and cost them even more money, which will come back as higher interest rates/lower property values for the rest of the people who want to buy houses.

To the specific issue of your friend/neighbor, the more I read things such as this and the purposeful foreclosing of one's house, I feel that most of the people (especially me) on this board are actually the ones with a perverted sense of what's right. I mean what can be right about LBYM, buying what you can afford, buying a fixed loan, saving for retirement and not spreading oneself too thin. And, the more I hear from Congress or Washington D.C. in general, it seems that no matter what some people do, they will eventually be bailed out. Thus, to be rational, WHY NOT spread yourself thin and rack up a ton of debt on your house/CC, the government will bail you out. I feel that it is only rational nowadays with the way that people treat the housing CRISIS (btw, when did it change from a housing issue to a HOUSING CRISIS... all caps necessary to emphasize how IMPORTANT it is) that it is smarter to spread yourself thin, because you can live the life and eventually be bailed out anyway because you didn't know any better, predatory lending practices, neighborhood foreclosures, layoffs, energy prices, food prices, poor economy and the list goes on and on and on...
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Old 06-30-2008, 08:02 AM   #32
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It may not be fair, but it's how your neighbor's bank wants to play things. While you're considering the unfairness of the situation, would you take pleasure if your neighbor wasn't getting bailed out and was the subject of a foreclosure? Would you say "serves them right" for their financial irresponsibility?
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Old 06-30-2008, 10:17 AM   #33
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Paying your own way, accepting responsibility for your actions, and honoring your commitments=strong moral compass.
You need better neighbors.
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Old 06-30-2008, 10:29 AM   #34
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Laurence, just for giggles, what seems to be happening is the following:

Borrower gets behnd on mortgage. Bank sees an upside down note with yet another house that will take a year, thousands of dollars, and lots of aggravation to foreclose on a house it doesn't want and in the menatime the house gets trashed. So if the borrower actually lives in the house and wants to stay there, the bank may offer to whack the principal and/or change the rate on the note to something that either the borrower can now realistically afford, or (and this is the part that makes me queasy) something that they can immediately refi into an FHA loan (making the borrower the gummint's problem now). Borrower gets their credit trashed for a long, long time and borrower's neighbors avoid the problems that go with having a foreclosure next door.

Sometimes the home equity lender or a mortgage insurer play midwife to these unholy births, but the above is the general structure of things. I think you are better off playing it straight and narrow. Would you prefer lying awake at night wondering if you and the family would not get the mortgage games approved and instead find yourselves on the street?
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Old 06-30-2008, 10:34 AM   #35
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Slight clarification, I found out yesterday they didn't draw any money out, their second is just the standard 80/20 1st and 2nd mortgage configuration. The household consists of couple and his Dad, who's medical condition and age have forced him out of work (essentially a handyman). Husband got laid off and is underemployed. Should they have bought less house? Absolutely. But they are doing what they can to make it work e.g. they rented a room to a grad student.

I wonder if they are a good typical example of this mess. They bought the soft deception of the real estate agent saying, "Don't worry about the 5 year ARM, in a couple of years you'll just refinance and be fine!", they want to stay in the house, they didn't try to pull money out but could have used some of that new car money on saving up a rainy day account or paying down debt. But that's not the American way! I don't think they were looking to game the system, but are simply guilty of being a bit like sheeple. Nothing is as simple as it seems.
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Old 06-30-2008, 10:36 AM   #36
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Laurence, just for giggles, what seems to be happening is the following:

Borrower gets behnd on mortgage. Bank sees an upside down note with yet another house that will take a year, thousands of dollars, and lots of aggravation to foreclose on a house it doesn't want and in the menatime the house gets trashed. So if the borrower actually lives in the house and wants to stay there, the bank may offer to whack the principal and/or change the rate on the note to something that either the borrower can now realistically afford, or (and this is the part that makes me queasy) something that they can immediately refi into an FHA loan (making the borrower the gummint's problem now). Borrower gets their credit trashed for a long, long time and borrower's neighbors avoid the problems that go with having a foreclosure next door.

Sometimes the home equity lender or a mortgage insurer play midwife to these unholy births, but the above is the general structure of things. I think you are better off playing it straight and narrow. Would you prefer lying awake at night wondering if you and the family would not get the mortgage games approved and instead find yourselves on the street?
100% agree. Neighbor said yesterday, "Had I known how stressful this would be, I would have never bought a house, a two bedroom apartment would be just fine!".
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Old 06-30-2008, 11:00 AM   #37
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I don't think they were looking to game the system, but are simply guilty of being a bit like sheeple. Nothing is as simple as it seems.
Sounds about right. I think the RE speculators bailed last year (by mid-year at the latest, I would guess), and now we are just seeing all the sorry cases of the people who generally work hard when they can, but just aren't that bright when it comes to personal finance and numbers in general.
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Old 06-30-2008, 03:53 PM   #38
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Just wanted to make a clarification that 40% of Americans pay no "income tax" at all.

Those 40% pay plenty of other taxes, between FICA, sales tax, property tax (even renters), gas tax, liquor tax, etc.

We can argue about what their fair share is, but they aren't paying nothing.


Quote:
Originally Posted by armor99 View Post
Sadly, this seems to be the attitude of lots of people. But there certainly IS a cure for this sort of thinking. Let a persons bad choices have lasting negative consequences. Ever wonder why there are so many that call to "tax the rich" all the time? This is because appprox 40% of americans pay no taxes at all. It is the eternal dream of getting "something for nothing" that keeps this sort of thing alive.
We are free to fail or to succeed in america, but if the govt steps in and continues to make it harder for anyone to "fail", it also means it gets harder to succeed as well. All of the regulations that will now go into financial lending, will make it harder for people to get loans of any kind. No bank will be willing to make loans to other than people with outstanding credit. Not because they are greedy, or foolish, but because they do not want to be on the wrong side of the govt regulation.
If I want to sell chocolate chip cookies in my restaurant for $300 a cookie, should the govt really have the right to force me to lower my prices in the name of the "peoples" best interest? I believe that I should be able to charge whatever I wish for that (hypothetical) cookie. And if no one is buying one of my cookies, because they feel the price is too high, then I can lower my prices, or go out of business. Both of which, I have the legal right to do.
I still just cannot see what a "predatory lender is" even thought the media swears to me every day that they are everywhere! And I will probably hear the usual reactions of, the old people, people that were foolish and did not know better, it was not their fault and were victims, all of these people were duped by those slick talking bank reps. To that point, I would only counter with this thought. All of those people that got duped, swindled, taken advantage of, etc, still can operate a motor vehicle, have the right to raise their own children as they see fit, and can even vote for the next pres. of the United States. So am I really to beleive that these folks are completely competant in all of those other facets of their lives, but not for this case, and "only" this particular case? Much more likely it is just a re-packaged version of, "I could give a #%^!@ about anybody else". Which is where this posting first started. Claiming they were duped or taken advantage of, is just the most expediant way for them to get what they want.... bailed out for their bad financial decisions.
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Old 06-30-2008, 06:52 PM   #39
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... and borrower's neighbors avoid the problems that go with having a foreclosure next door.
So she really does have Laurence's best interests at heart, and is only going through these trials in an effort to do what's right for him!

Whenever we have problems with our neighbors, or when they seem to be having their own money problems, I wonder what it would be like to just buy their house from them. Then I realize that I'd be a landlord whose tenants live next door...

One of the biggest advantages of home ownership is being able to distance yourself from the noise and the neighbors. Kinda hard to do so with most rentals.
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Old 06-30-2008, 07:09 PM   #40
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... Not sure what they call it, something like "buy and bail". Only for the people that can qualify for the new mtg. and not concerned about the foreclosure ramifications on credit.
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Originally Posted by ladelfina View Post
shafer, yes.. you nab the second new house before questions come up on the first one (again, klnd of anecdotal, but has happened).
a widespreading anecdote?...

The Housing Abyss - Yahoo! News

Quote:
Steve Hawks, owner of RE/MAX Platinum real estate agency in Henderson, Nev., says he has been flooded with calls from people interested in "buying and bailing" -- that is, buying an additional house while their credit is still good, then walking away from the old one unless they can cut a favorable deal with the lender. So far the number of people who have done so appears to be small. But Hawks says banks are receptive to lending for such purchases because they figure the buyer will be able to afford the new, cheaper place. Also, says Hawks, they know that, since the buyer's credit will become damaged, he or she won't pull the same trick on them, at least for a few years.
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