Maybe a strategic default was not a great idea

[Texas Proud]

I did not go back to look for the various threads on the mortgage mess, but for some it is not over... so, unless you lived in a state where they could not come after you, you might still be on the hook....

Many thousands of Americans who lost their homes in the housing bust, but have since begun to rebuild their finances, are suddenly facing a new foreclosure nightmare: debt collectors are chasing them down for the money they still owe by freezing their bank accounts, garnishing their wages and seizing their assets.


.....


Andrew Wilson, a spokesman for Fannie Mae, said the finance giant is focusing on "strategic defaulters:" those who could have paid their mortgages but did not. Fannie Mae analyzes borrowers' ability to repay based on their open credit lines, assets, income, expenses, credit history, mortgages and properties, according to the 2013 IG report. "Fannie Mae and the taxpayers suffered a loss. We're focusing on people who had the ability to make a payment but decided not to do so,” said Wilson.

​

Americans face post-foreclosure hell as wages garnished, assets seized

 

[tryan]

Reminds me of a single mom who looked at a vacancy I had. Listed $2100/mo as "rental income". I said "tell me about the rental income". Discussion went like this:

"It's from a duplex I own"
"So a mortgage, taxes, insurance and repairs need to come out it."
"No. Just taxes."
"It's free n'clear?"
"No. But I haven't made a mortgage payment in 4 years. I was a VICTIM of a predatory lender. They have not been able to foreclose and I expect they never will."
"Sorry I can't use that as reliable income for your rental application. Good luck in your house search."

Just for grins, I went the tax assessors web site ... sure enough, she owned the house.

 

[athena53]

I have really mixed feelings about strategic defaults. I'm not sure what I would have done if my job disappeared, I needed to relocate and I was $200K under water because everyone around me was selling their houses at bargain-basement prices.

I have less sympathy for people who did a cash-out refi for every dime they could get every time the house appreciated and used it for cruises and weddings. I remember one post on a personal finance board from a young woman who said they were having a hard time paying the mortgage since she'd quit her job to become a SAHM (what a surprise!) and they decided they really didn't like the neighborhood anymore, so...

At the time, you could also be held liable for taxes on any portion of your mortgage that the bank forgave, and I reminded her of that. I believe they changed that later. Too bad.

 

[timo2]

I'm sorry for the sad stories in the article, but it has always irked me that some people could keep on paying but took the unethical way out. I'm sure everyone being 'chased down' is not a victim as described in the article, but actually deserves to be held accountable. For instance BIL in Texas has filed for bankruptcy three times (one for each divorce I guess), and each time was able to get credit to buy cars and houses relatively quickly. It totally disgusts us whenever people do that stuff. DW and I went through difficult times but kept paying our debts even when other people may have filed for bankruptcy or defaulted.

 

[imoldernu]

Foreclosure... default...
A sleeping giant that couldn't be handled by the banks or Fannie and Freddie at the time...
Simply speaking it was money owed. Just as we "book" monies owed to us, as in Social Security or Pensions or Annuities... so do the banks count the money owed for homes as money that is "booked"... part of their assets. For the years after the housing bubble broke, the banks were in a precarious position, and not able to "write off" the losses.
Those who owed more than their houses were worth.. even after they were foreclosed upon.. and the house was resold... STILL owe.
As banks become more solvent (Thanks to the government and you and I)... the objective becomes to collect or write off bad loans, in order to become more stable and credit worthy.

Ergo... the couple who thought they were home free from having to pay the rest of their $250,000 mortgage, when the bank took back the house... are now on the hook for the difference between their remaining Balance $200K, and the costs before the bank sold the house, and... the loss that was taken when the house was resold.

So... the house wa originally $250,000
The couple paid $50,000,
The bank costs were $25,000
The house resold for $170,000
The mortgage balance was $200,000, which they still owe. The bank can try to collect $55,000.

Very, very common... and in the interim several years, the bank had no contact with the couple, so the $55K came as a surprise.

My understanding... YMMV

 

[brewer12345]

Actually, I believe that defaulting on your debts is an option open to every Merkin. I don't see it in moral terms, as it is simply a business transaction. But as with every business transaction, be prepared to bear all of the costs as you will enjoy all of the benefits. I have zero sympathy for anyone squealing that their creditors are trying to collect after they defaulted.

 

[foxfirev5]

A deal is a deal. I am slightly encouraged that people are being held to their obligations.

 

[Mulligan]

I'm sorry for the sad stories in the article, but it has always irked me that some people could keep on paying but took the unethical way out. I'm sure everyone being 'chased down' is not a victim as described in the article, but actually deserves to be held accountable. For instance BIL in Texas has filed for bankruptcy three times (one for each divorce I guess), and each time was able to get credit to buy cars and houses relatively quickly. It totally disgusts us whenever people do that stuff. DW and I went through difficult times but kept paying our debts even when other people may have filed for bankruptcy or defaulted.

I remember reading in Vegas paper online how some people when the bottom was quickly dropping out in the market were buying a similar house even in the same neighborhood sometimes and then walking away from existing home. So in effect they benefited twice from what they did as home values have increased nicely from the lows of a few years ago.


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[Bestwifeever]

I have no problem with people doing strategic defaults as I assume those people used the same reasoning to send bonus buckets of money to their banks when their homes were worth twice as much as they paid for them.

 

[Gearhead Jim]

I never came close to defaulting on anything, and don't approve of those who do when not forced to.

But if the situation were reversed, the bank would do the same to you.

 

[samclem]

A deal is a deal.

Indeed. And the "deal" was that the bank made a business decision to make a loan using the home value as the primary security if the borrower stopped making payments. It's a good bet when prices are rising (most of the time) and a bad bet when home prices fall--that's just the cost of doing business.
The borrowers who chose not to make payments anymore need to be held to the terms of the deal--all of them. But they aren't crooks. "This isn't personal, it's just business".

 

[Mulligan]

Indeed. And the "deal" was that the bank made a business decision to make a loan using the home value as the primary security if the borrower stopped making payments. It's a good bet when prices are rising (most of the time) and a bad bet when home prices fall--that's just the cost of doing business.
The borrowers who chose not to make payments anymore need to be held to the terms of the deal--all of them. But they aren't crooks. "This isn't personal, it's just business".

When I was in my early 20s, I wanted a house, but knew I couldn't because I didn't have a 20% downpayment, so I waited....it appears much of this problem would have been avoided if that had remained the case. As people wouldn't have been as eager to walk away if they had a significant skin in it. Even if they were further under water than that, they would have been more likely to have waited to see if the equity would return because much of it was theirs.


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[rodi]

When I was in my early 20s, I wanted a house, but knew I couldn't because I didn't have a 20% downpayment, so I waited....it appears much of this problem would have been avoided if that had remained the case. As people wouldn't have been as eager to walk away if they had a significant skin in it. Even if they were further under water than that, they would have been more likely to have waited to see if the equity would return because much of it was theirs.


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I agree with this. I big part of the problem was people not having a significant down payment. The other side of that was banks not doing due diligence back in the "No Doc" loan days.. (aka liar loans). IMO if they'd kept the old model of 20% down for a mortgage, and full doc loans, both sides would have faired better in the housing downturn.

As far as creditors coming after foreclosed home"owners"... I know it varies state to state - but CA is a single action state - if a bank sends a home to trustee sale OR judicial action - that is their one shot at it. The vast majority went to trustee sales - so they can't go after the former owner for the difference - there's no judgement to do so.

That said - the taxes are another thing - especially for short sales - except for a period of amnesty on this by executive order - the feds could come after the short seller for taxes on the difference between the loan amount and the short sale amount...

 

[samclem]

As far as creditors coming after foreclosed home"owners"... I know it varies state to state - but CA is a single action state - if a bank sends a home to trustee sale OR judicial action - that is their one shot at it. The vast majority went to trustee sales - so they can't go after the former owner for the difference - there's no judgement to do so.

Yes, and we'd expect that there should be higher mortgage rates in states that have legislated limits on how far banks can go to collect what is due. It makes the loans riskier, and therefore (all else being equal), banks will charge more to make the loans. In this way, everyone who borrows in those states provides a subsidy to those who walk away from their loans (or otherwise can't/won't continue to pay them off).

 

[meierlde]

It should be noted that at least some of these debts are approaching or have passed the statute of limitations in states (typically 4-6 years). Once the statute of limitations has passed they can no longer get a court decision to enforce the debt, although it will remain on the credit report. Everyone should know the length of the statue of limitations in their state:
http://credit.about.com/od/statuteoflimitation/a/entirestatesol.htm.

 

[pb4uski]

To me these strategic defaulters are no different than people who default on student loans - a deal is a deal, especially if you have the ability to pay and just refuse to pay because you think you can get away with it. I'm glad to see people like that nailed to the wall.

If someone has fallen on hard times and is unable to pay then that is a whole different situation.

 

[bad_LNIP]

I have strategically defaulted and it was a financially fantastic decision. I don't feel bad at all or begrudge anyone who looks at life as a business decision. Everyone else does.

By comparison, I knew of a lady that blew 70k of her retirement savings trying to save a house she didn't live in located in a state she was never going to return to, all for the sake of her credit and doing the so called "right thing" when she lived in North Carolina, which has some of the strongest consumer protection laws in the country.

At the end of the day, folks it's just business. Never personal. For those morally conflicted over the whole thing, believe me, the banks have no shame in their game, and neither should you.

Keep in mind, these are the folks that would re-arrange transactions to stack NSF fees over the weekend, participated in a massive amount of perjury/fraud to foreclose on people's homes, swapped financial documents at the closing table, mandatory binding arbitration, bankruptcy "reform" etc...

I think if we are going to compare a few smart consumers that maybe got over on the banks, vs the long, long list of misdeeds done by the banks to consumers, and who benefited the most, I don't think anyone can argue the banks have come out way, far ahead of consumers.

Guilt is a wasted emotion. I sleep like a baby on a pillow every night.

 

[Mo Money]

A deal is a deal. I am slightly encouraged that people are being held to their obligations.

+1. I scraped by for years paying down my mortgage and a big bucket of student loans. I have always lived below my means, (except perhaps for the first two or three years of working, when I lived AT my means, to pay down debt and get modestly established). The "victim" mentality of some of these debtors is at best humorous , and worst annoying .

 

[pb4uski]

I have strategically defaulted .... At the end of the day, folks it's just business. Never personal. For those morally conflicted over the whole thing, believe me, the banks have no shame in their game, and neither should you. ....

And I would never do business with someone who doesn't keep their word. Fool me once, shame on you... fool me twice, shame on me.

Funny how you rationalize what you did my blaming the lenders. I concede that some banks misbehaved, and they are wrong too, but two wrongs does not make a right.

Do you live in a recourse state?

 

[Texas Proud]

I have no problem with people doing strategic defaults as I assume those people used the same reasoning to send bonus buckets of money to their banks when their homes were worth twice as much as they paid for them.

When the price is high, it is the seller who is getting the bucket load of money.... not the bank.... maybe a little bit more in fees, but the big winner was the person who owned the property and sold it....

 

[Texas Proud]

Indeed. And the "deal" was that the bank made a business decision to make a loan using the home value as the primary security if the borrower stopped making payments. It's a good bet when prices are rising (most of the time) and a bad bet when home prices fall--that's just the cost of doing business.
The borrowers who chose not to make payments anymore need to be held to the terms of the deal--all of them. But they aren't crooks. "This isn't personal, it's just business".

For most parts of the country the deal also is that the person will pay what is owed... all of it.... sure, the loan is secured by the home, but unless the loan says that if the bank takes the house then the loan is forgiven.... it is still outstanding and due.... some banks pursue the balance and some do not....

It appears that IF the person has other assets to pay, then the bank wants their money.... if you are still poor, you are safe...

 

[Bestwifeever]

When the price is high, it is the seller who is getting the bucket load of money.... not the bank.... maybe a little bit more in fees, but the big winner was the person who owned the property and sold it....

Sure. I am thinking this: people "strategically" default and the bank takes the hit. I am thinking if the property value goes up instead, the seller who thinks strategic defaulting is only fair should also think giving some of the profit from that profitable sale to the bank is also fair. I know it doesn't make sense

...

Keep in mind, these are the folks that would re-arrange transactions to stack NSF fees over the weekend, participated in a massive amount of perjury/fraud to foreclose on people's homes, swapped financial documents at the closing table, mandatory binding arbitration, bankruptcy "reform" etc...

I think if we are going to compare a few smart consumers that maybe got over on the banks, vs the long, long list of misdeeds done by the banks to consumers, and who benefited the most, I don't think anyone can argue the banks have come out way, far ahead of consumers.

Guilt is a wasted emotion. I sleep like a baby on a pillow every night.

I guess you are one of these smart consumers. I had to look up NSF as I am not personally familiar with what that is, but I wonder how a "smart consumer" ended up in a position to choose to strategically default.

 

[bad_LNIP]

And I would never do business with someone who doesn't keep their word. Fool me once, shame on you... fool me twice, shame on me.

So you have no accounts with any of the major banks? Cool!

Funny how you rationalize what you did my blaming the lenders.

I don't blame the lenders, per se, but I'm just saying I'm not going to be the only honest guy at the table. The lenders aren't as pure as the driven snow or boy scouts either, generally speaking, so I'm just saying I wouldn't feel bad for them. At all.

Do you live in a recourse state?

Yup. No issues with deficiency judgments. Don't believe the hype they tell you to keep consumers in line.

 

[MichaelB]

At the end of the day, folks it's just business. Never personal. For those morally conflicted over the whole thing, believe me, the banks have no shame in their game, and neither should you.

Keep in mind, these are the folks that would re-arrange transactions to stack NSF fees over the weekend, participated in a massive amount of perjury/fraud to foreclose on people's homes, swapped financial documents at the closing table, mandatory binding arbitration, bankruptcy "reform" etc...

I don't blame the lenders, per se, but I'm just saying I'm not going to be the only honest guy at the table. The lenders aren't as pure as the driven snow or boy scouts either, generally speaking, so I'm just saying I wouldn't feel bad for them. At all.

Do you live in a recourse state?

Without comment on the merits of your choice, I would point out that "the banks" were most often not "the lenders". The banks were usually intermediaries, a few were originators. The banks that did most of the originating went bust, their shareholders and employees are mostly SOOL. The lenders left holding worthless mortgage were (and are) primarily pension funds and retirees.

 

[bad_LNIP]

I had to look up NSF as I am not personally familiar with what that is, but I wonder how a "smart consumer" ended up in a position to choose to strategically default.

Because my crystal ball has a crack in it and is no longer under warranty.

if you are still poor, you are safe..

or if they just can't find you.

As far as the nsf fees, they would essentially re-order transactions to trigger a wave of nsf fees where they would have possibly only received one.

For example if you say $600 in your checking account and multiple transactions on Friday and sat, say 10 transactions for a total of $200, but then have a big transaction for $500 on sunday Afternoon, if the transactions were entered in the order of when they occurred, you would have one NSF for the one $500 transaction on Sunday.

What the banks would do is re-arrange the $500 transaction to hit first, even though it was done after all the other transactions, send the $500 through and say 3 of the smaller transactions until you run out of money then tag you for NSF fees of $35 on the remaining 7 transactions.

Wells Fargo ordered to pay $203 million in overdraft case | Reuters

Big banks have been gaming your overdraft fees to charge you more money - The Washington Post