NY Times Article: Enjoying the Fruits of Foreclosure

[stephenandrew]

I am not without sympathy for people who have gotten in over their heads, but the attitude of some of these people is shocking. The folks in this article seem to have a sense of entitlement, and appear to take no responsibility for their actions. Maybe debtor's prison isn't such a bad idea.

For Some Homeowners in Foreclosure, a Rent-Free Approach - NYTimes.com

 

[Amethyst]

I know someone in Florida who is doing this. His attitude is that he hasn't been able to find a job, and his credit rating is toast no matter what he does, so...Screw the bank!

He is not a big spender, but he eats out regularly, buys what he wants, and is actually day trading with the mortgage money. When the time comes, he'll declare bankruptcy, and move into a condo that his mom owns.

And here I am, toting PBJ sandwiches to work every day, sharing 1 car with husband, throwing extra money at the mortgage so we can be free of it when I retire. Some days, we feel like chumps.

Amethyst

 

[brewer12345]

I know someone in Florida who is doing this. His attitude is that he hasn't been able to find a job, and his credit rating is toast no matter what he does, so...Screw the bank!

He is not a big spender, but he eats out regularly, buys what he wants, and is actually day trading with the mortgage money. When the time comes, he'll declare bankruptcy, and move into a condo that his mom owns.

And here I am, toting PBJ sandwiches to work every day, sharing 1 car with husband, throwing extra money at the mortgage so we can be free of it when I retire. Some days, we feel like chumps.

Amethyst

Yeah? Would you trade positions with him?

Not me. I feel sorry for these folks and will keep paying my mortgage, thanks very much.

 

[W2R]

I know someone in Florida who is doing this. His attitude is that he hasn't been able to find a job, and his credit rating is toast no matter what he does, so...Screw the bank!

He is not a big spender, but he eats out regularly, buys what he wants, and is actually day trading with the mortgage money. When the time comes, he'll declare bankruptcy, and move into a condo that his mom owns.

And here I am, toting PBJ sandwiches to work every day, sharing 1 car with husband, throwing extra money at the mortgage so we can be free of it when I retire. Some days, we feel like chumps.

Amethyst

Amethyst, one great thing about delayed gratification is that when the time comes, it's all there waiting for you. Like you, I pinched pennies and worked hard to pay off my house, and didn't spend much. But now I am retired and I eat out regularly and buy what I want like your friend ... but with the added advantage that I don't have to work any more either. I know you won't give up on your goals, and you will get there.

 

[clifp]

These articles have really started to piss me off; no not at the people, but rather at the banks and the media.

I've pretty much given up hoping that people will do the right thing and pay their debt. Like it or not mortgages are now a business proposition, if it makes financial sense to default, well I guess people will stop paying them.

Florida is a recourse state and refi are recourse loans in every state I believe. This means that couples business can be seized along with their truck to pay their mortgage. Now I realize that it may not be financially sensible to go after everyone such as the mom who cuts hair. However, it appears that banks aren't going after anybody. I think banks need to be tougher and use legal means to scare people into paying their mortgages.

If you are in so deep that you can't possibly pay back your debts, then declare bankruptcy and get a fresh start. But realistically the banks need to stop these strategic defaults or at least need to change the perception that walking away from a mortgage has no consequences other than hurting your credit rating. Currently the choice for people is A. struggle to pay your mortgage, or B. stop paying, live rent free for a 18 months and end up with a bad credit. I understand why people chose B. If B ultimately results in bankruptcy I think we will see less strategic defaults.

Next the media needs to accompany these stories with articles about how what these do to the rest of us. I'm part owner (i.e. shareholder) of a couple banks that do business in Florida so there is decent change that some of these mortgages belong to these banks. In 2009 both banks dramatically slashed dividend payment and my income got cut also.

Even if the mortgage isn't through one of my banks, it is almost certain that mortgage is owned by a bank in mutual fund or index fund,owned by myself and most everyone on the forum. However, even if you don't own any stocks, their defaults hurt the average American because the vast majority of mortgages are sold to Fannie and Freddie and when they default, the add to the tremendous losses suffered by Freddie and Fannie and ultimately gets add to our and our children's debt load.

Just once, I like to see an article where it calculated how much money the couples default was costing the rest of us.

 

[traineeinvestor]

If you are in so deep that you can't possibly pay back your debts, then declare bankruptcy and get a fresh start. But realistically the banks need to stop these strategic defaults or at least need to change the perception that walking away from a mortgage has no consequences other than hurting your credit rating. Currently the choice for people is A. struggle to pay your mortgage, or B. stop paying, live rent free for a 18 months and end up with a bad credit. I understand why people chose B. If B ultimately results in bankruptcy I think we will see less strategic defaults.

Next the media needs to accompany these stories with articles about how what these do to the rest of us. I'm part owner (i.e. shareholder) of a couple banks that do business in Florida so there is decent change that some of these mortgages belong to these banks. In 2009 both banks dramatically slashed dividend payment and my income got cut also.

Even if the mortgage isn't through one of my banks, it is almost certain that mortgage is owned by a bank in mutual fund or index fund,owned by myself and most everyone on the forum. However, even if you don't own any stocks, their defaults hurt the average American because the vast majority of mortgages are sold to Fannie and Freddie and when they default, the add to the tremendous losses suffered by Freddie and Fannie and ultimately gets add to our and our children's debt load.

Just once, I like to see an article where it calculated how much money the couples default was costing the rest of us.

Exactly.

To add to the list, the expected level of losses due to defaults is something that the banks take into account when setting the interest rates for all borrowers. In effect we all pay more for our mortgages because others default.

 

[Keim]

Exactly.

To add to the list, the expected level of losses due to defaults is something that the banks take into account when setting the interest rates for all borrowers. In effect we all pay more for our mortgages because others default.

This makes it real simple morally. Pretty equivalent to shoplifting-on a grand scale!

 

[ATC KH]

Yeah, I have to agree that the attitude of some of these people is ridiculous.

From the article:

One reason the house is worth so much less than the debt is because of the real estate crash. But the couple also refinanced at the height of the market, taking out cash to buy a truck they used as a contest prize for their hired animal trappers.

It was a stupid move by their lender, according to Mr. Pemberton. “They went outside their own guidelines on debt to income,” he said. “And when they did, they put themselves in jeopardy.”

 

[brewer12345]

This makes it real simple morally. Pretty equivalent to shoplifting-on a grand scale!

How is what these people are doing any diferent than what corporations, commercial real estate developers, etc. do when they walk away from debt that is in excess of what an investment is worth?

 

[jayc]

How is what these people are doing any diferent than what corporations, commercial real estate developers, etc. do when they walk away from debt that is in excess of what an investment is worth?

I agree. Same line I get from banks when applying for a loan and Megacorp when they lay you off. ‘Nothing personal just business’, which leads to what goes around comes around.

 

[brewer12345]

I agree. Same line I get from banks when applying for a loan and Megacorp when they lay you off. ‘Nothing personal just business’, which leads to what goes around comes around.

Does not even have to have moral overtones of "comes around..." Its just the rules of the game in a game that is black and white numbers on a page. A decimal point is not tinged with morality.

 

[Jay_Gatsby]

Does not even have to have moral overtones of "comes around..." Its just the rules of the game in a game that is black and white numbers on a page. A decimal point is not tinged with morality.

Morality aside, that's the bottom line (so to speak). Businesses write off outstanding customer invoices all the time. It's a cost of doing business. Do the customers feel like they must pay such invoices? No, in many cases they decide that making payroll, financing their latest shipment, etc... are more important than paying off an invoice from a particular vendor. True, they're burning a bridge with that vendor, but there are plenty more vendors out there willing to sell to them (perhaps on tighter credit terms).

I'm all for paying one's debts. But if businesses can "get away with" not paying off their debts (or reorganizing in bankruptcy and eliminating the value of their common stock), why can't individuals do the same?

EDIT: One more thought. Why are we blaming the individuals here? If banks were so hell bent on being paid on outstanding mortgages, why aren't they going after the deadbeats? The answer is "for a variety of reasons," but only one really matters - they don't want to do so.

 

[Amethyst]

Brewer, of course I wouldn't trade places with him. W2R...you're absolutely correct, too. Also, I don't mean to sound churlish about the vast numbers of people who've fallen on bad times. There, but for the grace of God...

Looked at a certain way, though, my acquaintance is ER at the age of 52. He isn't hungry or threadbare. He has a car and a lady friend, and buys gifts for his nieces and nephews. He works for a while, and leaves when he does't like the job any more. Although it will hurt to lose his house, he'll eventually inherit the condo from his mother. The only reason he doesn't move in there now, is that he thinks day trading may one day solve all his troubles.

And to think, he always looked down on people on welfare. Now, he is one.

A.

Yeah? Would you trade positions with him?

Not me. I feel sorry for these folks and will keep paying my mortgage, thanks very much.

 

[Independent]

Another "proof by anecdote" article. Are there any statistics regarding the number of people who could afford their mortgages (e.g. have the same job at the same pay they had when they took out the mortgage, haven't had disastrous medical expenses, etc.) but just decided not to pay because they are underwater?

The article jumps from a story about someone still owns an airboat to gross numbers for all late payors with just a few words "no firm figures" to indicate that they really aren't connected.

My daughter bought near the peak, lost the job that was supposed to pay the mortgage, had a personal tradgedy, saw the market value of the house drop by 30%, and is now mailing her 401k money to some investors somewhere. If she asked, I'd suggest she tell the lender she'd like to do a short sale then stop paying the mortgage.

 

[Moemg]

I can understand people doing short sales but are these banks looking into the situations at all ? We know a couple that are in the midst of a short sale . They bought at the top and his business has failed but they still have rental property and a $50,000 motor home and see no reason why they should sell that to pay their debts . Plus I thought a short sale affected your credit but they are also in the process of buying another home .

 

[Masquernom]

I read an article about this situation a while back. Turns out during the mortage resell hayday a while back, mortgage companies were writing mortgages so fast and selling them off that they didn't complete all of the proper paperwork. The mortgage companies sold the mortgage so they don't own it any more. They sold it, but didn't file the paper work to transfer ownership to the trust properly. So in a legal sense, nobody can prove in court that they actually own the mortgage. It's a legal defense that's stopping foreclosure cold. The defense lawyer simply asks the bank to prove they own the mortgage and the foreclosure just stops. There are apparently a lot of cases in Florida just sitting idle now because of this. Nobody knows how to break this stalemate right now.

 

[Gearhead Jim]

How is what these people are doing any diferent than what corporations, commercial real estate developers, etc. do when they walk away from debt that is in excess of what an investment is worth?

Exactly correct.
But I suspect that if individuals start treating their persoanl financial obligations the way corporations do, then the whole system may collapse.

 

[stephenandrew]

How is what these people are doing any diferent than what corporations, commercial real estate developers, etc. do when they walk away from debt that is in excess of what an investment is worth?

I think one of the key differences is the attitudes of these people. I get that it may make "business" sense for them to default, not pay, tie up proceedings in court, etc. But they could atleast feel badly about it, feel some regret. I get the impression that some of these folks are feeling like they are making out, sticking it to the man, getting a free lunch, etc. It would be nice if they might do something to meet their obligations--maybe eat in instead of going out to eat.

 

[Keim]

How is what these people are doing any diferent than what corporations, commercial real estate developers, etc. do when they walk away from debt that is in excess of what an investment is worth?

I don't see a substantial difference and don't like when corporations do that. Are you saying that two wrongs make a right?

Somehow I hold people to a higher standard than corporations. Corporations are made for one thing-to make money. It is their job to do whatever they can legally to accomplish this. In my rose tinted world people should be better than that. This article highlights people that aren't, and I think they are stealing. How is living in a house for 1.5 years mortgage free any different then walking into the grocery and simply taking all the groceries you want?

Long story short: If you are upside down on your mortgage and can still afford to pay for it, I think you should. Investing has risk.

I do have sympathy for folks that have had health problems, job loss, etc. and can no longer afford their mortgage. But I would still be against them walking on the loan.

 

[brewer12345]

I think one of the key differences is the attitudes of these people. I get that it may make "business" sense for them to default, not pay, tie up proceedings in court, etc. But they could atleast feel badly about it, feel some regret. I get the impression that some of these folks are feeling like they are making out, sticking it to the man, getting a free lunch, etc. It would be nice if they might do something to meet their obligations--maybe eat in instead of going out to eat.

Remember that you are viewing things through the lens the reporter is using. Based on the reporter behavior I have seen on the forum, I am suspicious. But I bet if every one of these people were given the choice to have their house, job, etc. back they would take it. Since that is not on the table, you do what you can with what you have.

 

[stephenandrew]

Remember that you are viewing things through the lens the reporter is using. Based on the reporter behavior I have seen on the forum, I am suspicious. But I bet if every one of these people were given the choice to have their house, job, etc. back they would take it. Since that is not on the table, you do what you can with what you have.

I guess we will agree to disagree. I don't think these folks are "doing what they can with what they have"---I think they are "doing more than what they should be", given their obligations. And, they seem to be perfectly content to, for lack of a better word, flaunt it.

 

[brewer12345]

I don't see a substantial difference and don't like when corporations do that. Are you saying that two wrongs make a right?

Somehow I hold people to a higher standard than corporations. Corporations are made for one thing-to make money. It is their job to do whatever they can legally to accomplish this. In my rose tinted world people should be better than that. This article highlights people that aren't, and I think they are stealing. How is living in a house for 1.5 years mortgage free any different then walking into the grocery and simply taking all the groceries you want?

Long story short: If you are upside down on your mortgage and can still afford to pay for it, I think you should. Investing has risk.

I do have sympathy for folks that have had health problems, job loss, etc. and can no longer afford their mortgage. But I would still be against them walking on the loan.

You forget: one of the reasons people originally came to the US and founded the country was to avoid debtor's prisons upon business or personal financial difficulties. Pretty much since the inception of the nation, we have been a "fresh start" system. Its "American" to default on your debt when things do not work out and then to go off on a fresh venture.

 

[Keim]

You forget: one of the reasons people originally came to the US and founded the country was to avoid debtor's prisons upon business or personal financial difficulties. Pretty much since the inception of the nation, we have been a "fresh start" system. Its "American" to default on your debt when things do not work out and then to go off on a fresh venture.

We'll have to agree to disagree, Brewer.

I have no problem with people using the legal and ethical tools available to them to help them out of a tough spot. Declaring bankruptcy is one. Working through the legal system to mitigate the damage of your mistake is another. There are more. The people in this article aren't doing that. They are simply deciding on their own to end the legally binding agreement they made with the bank. By staying in the house after abrogating their deal they are actually profiting by the original mistake they made. As an earlier poster pointed out: They aren't simply screwing the bank. They are screwing all of us by causing increased fees, insurance, taxes, etc. Lets not even mention the damage many do to the homes as they are finally evicted.

We must have different definitions of what is "American." I find it distinctly unAmerican to not honor agreements made.

 

[brewer12345]

We must have different definitions of what is "American." I find it distinctly unAmerican to not honor agreements made.

Let's put it this way: if it were a choice between providing for my kids or defaulting and living in the house as long as I could get away with, I would happily default.

 

[Keim]

Let's put it this way: if it were a choice between providing for my kids or defaulting and living in the house as long as I could get away with, I would happily default.

Yeah, that is not a choice anyone would like to make. If in that position I'd be looking at every legal means available. I'd also be cutting my expenses to the bone, selling off toys, and shopping at foodbanks if necessary. I do know the feeling, having dealt with an unexpected 50% income reduction about two years ago.

That is why some people (I suspect both of us) live very conservatively. That way when life does throw a curve ball we can handle it without having to bail on our commitments. You can bet I was glad to be nearly debt free, with adequate savings when I had problems.

I don't have much sympathy for these folks and think what they are doing is wrong. The bank didn't make them take the loan, didn't make them buy expensive toys, nor did it make them invest poorly, if at all. Yet they are making the bank (and the rest of us) pay for their lack of financial understanding. These people made their choices in life, and decided not to act financially prudent. The result is a bitter pill that they need to swallow.

Bluntly: It is wrong to take a service from a business without paying for it. Banks and their services are no different than grocery stores, car dealers or gas stations. None MAKE you do business with them, but all have a fair expectation of payment when you do agree to use their service.

Interestingly, my eight year old daughter just read this note over my shoulder. It caused a discussion. I said "let me give you an example. What if your parents loaned you money for a toy, and you decided you didn't like it. Would you still owe them money even if you no longer wanted it?" Without even thinking she said "Yes. Because I agreed to pay them the money, so they got it for me with that understanding. It would be wrong not to pay them the money I agreed to." Made me proud!

No moral relativism there. Kids can see somethings so much more clearly than adults.