Has anyone ever gone through a "strategic default" on their home?

[hsmamainva]

Where did you find that number? I am interested because I have read 3 for financial reasons and 5 for strategic defaults. We just hit 3 years, but we won't buy anytime soon.

 

ETA: How could it be 10? Credit is reported only 7 years past last active date.

 

7 years is how far back your credit is reported, yes...but a personal bankruptcy stays on for 10 years.

[lauracolumbus]

It depresses me that this even being debated.

 

Laura

[AlmiraGulch]

Can you explain how the housing market tanking has made a difference in how much money you'll have to retire? I'm assuming you planned to stay in the house until it was paid for, but unless you were counting on it appreciating an enormous amount and then selling it and living off the proceeds, I don't get it.

 

My daughter's friend walked away from her house when the value plummeted. They stopped paying and walked away, renting a place that was larger but the same price. Financially they are doing fine. But they were doing just as well before.

 

I was planning on the house appreciating and making a profit on the sale. I do realize that no appreciation is ever guaranteed, but no one expected this sort of devaluation.

 

If I walk away now, I'll save on home maintenance, insurance, property taxes, and many other things, so that even if I were to pay the same for rent as I'm paying now for mortgage I'd have an overage to actually invest to make some money, rather than losing money on this house every month.

 

That may be offset by the interest deductions I'd lose on my income taxes, so I'd need to carefully weigh it all, which I'm doing.

[AlmiraGulch]

It will be more like 7 - 10 years before your credit would recover enough from a strategic default before you'd be able to get another mortgage.

 

That's not true, actually. I know many, many people who have had foreclosures, bankruptcies and all manner of bad credit issues that were able to get new credit, including for new homes, in a much shorter time than that.

[Amy in NH]

7 years is how far back your credit is reported, yes...but a personal bankruptcy stays on for 10 years.

 

My husband had a personal bankruptcy in 2001 due to a business gone bad. I had a personal bankruptcy in 2003 due to lower wages after a big move. I won't go into the details of those situations, but suffice it to say that we got a mortgage to purchase our home in 2007.

[stansclan89]

7 years is how far back your credit is reported, yes...but a personal bankruptcy stays on for 10 years.

 

We had a personal bankruptcy in 2006 due to a business that failed that was not incorporated. We were able to get a credit card in 2007 (with a horrible interest rate). We were able to get a car loan in 2008 with a high interest rate and were able to refinance the loan six months later to a reasonable interest rate. We bought a house with an excellent interest rate in 2009.

 

We now have the same credit score that we had before bankruptcy (710) but the bankruptcy is still listed. It doesn't seem to matter that it's listed.

 

And I believe that foreclosures are only listed for 7 years.

[justamouse]

Not necessarily. Why can't we see it as a good business decision, as banks do? It's good for my bottom line to maintain good credit, to own real estate, to meet my financial obligations. When people find themselves, through no fault of their own, in a property that is worth far less than they owe on it, why should they, out of morality, make what amounts to a bad business decision to honor their original commitment? Would a bank make a decision like that?

 

Honoring commitments to individuals would fall under my own personal category of "moral obligation" to repay. I'd think twice, myself, after this financial crisis, which has been partly caused BY banks, before I classifieds banks in the same moral category as individuals.

:iagree:

 

Time to break out a reminder of why we're in this mess...

 

Matt Taibbi, BOA: Too Crooked to Fail

 

If you think anything has changed, and somehow banks became moral institutions, well, I'm just too cynical.

 

 

At least Bank of America got its name right. The ultimate Too Big to Fail bank really is America, a hypergluttonous ward of the state whose limitless fraud and criminal conspiracies we'll all be paying for until the end of time. Did you hear about the plot to rig global interest rates? The $137 million fine for bilking needy schools and cities? The ingenious plan to suck multiple fees out of the unemployment checks of jobless workers? Take your eyes off them for 10 seconds and guaranteed, they'll be into some **** again: This bank is like the world's worst-behaved teenager, taking your car and running over kittens and fire hydrants on the way to Vegas for the weekend, maxing out your credit cards in the three days you spend at your aunt's funeral. They're out of control, yet they'll never do time or go out of business, because the government remains creepily committed to their survival, like overindulgent parents who refuse to believe their 40-year-old live-at-home son could possibly be responsible for those dead hookers in the backyard.

 

It's been four years since the government, in the name of preventing a depression, saved this megabank from ruin by pumping $45 billion of taxpayer money into its arm. Since then, the Obama administration has looked the other way as the bank committed an astonishing variety of crimes – some elaborate and brilliant in their conception, some so crude that they'd be beneath your average street thug. Bank of America has systematically ripped off almost everyone with whom it has a significant business relationship, cheating investors, insurers, depositors, homeowners, shareholders, pensioners and taxpayers. It brought tens of thousands of Americans to foreclosure court using bogus, "robo-signed" evidence – a type of mass perjury that it helped pioneer. It hawked worthless mortgages to dozens of unions and state pension funds, draining them of hundreds of millions in value. And when it wasn't ripping off workers and pensioners, it was helping to push insurance giants like AMBAC into bankruptcy by fraudulently inducing them to spend hundreds of millions insuring those same worthless mortgages.

 

But despite being the very definition of an unaccountable corporate villain, Bank of America is now bigger and more dangerous than ever. It controls more than 12 percent of America's bank deposits (skirting a federal law designed to prohibit any firm from controlling more than 10 percent), as well as 17 percent of all American home mortgages. By looking the other way and rewarding the bank's bad behavior with a massive government bailout, we actually allowed a huge financial company to not just grow so big that its collapse would imperil the whole economy, but to get away with any and all crimes it might commit. Too Big to Fail is one thing; it's also far too corrupt to survive.

 

All the government bailouts succeeded in doing was to make the bank even more prone to catastrophic failure – and now that catastrophe might finally be at hand. Bank of America's share price has plunged into the single digits, and the bank faces battles in courtrooms all over America to avoid paying back the hundreds of billions it stole from everyone in sight. Its credit rating, already downgraded to a few rungs above junk status, could plummet with the next bad analyst report, causing a frenzied rush to the exits by creditors, investors and stockholders – an institutional run on the bank.

 

They're in deep trouble, but they won't die, because our current president, like the last one, apparently believes it's better to project a false image of financial soundness than to allow one of our oligarchic banks to collapse under the weight of its own corruption. Last year, the Federal Reserve allowed Bank of America to move a huge portfolio of dangerous bets into a side of the company that happens to be FDIC-insured, putting all of us on the hook for as much as $55 trillion in irresponsible gambles. Then, in February, the Justice Department's so-called foreclosure settlement, which will supposedly provide $26 billion in relief for ripped-off homeowners, actually rewarded the bank with a legal waiver that will allow it to escape untold billions in lawsuits. And this month the Fed will release the results of its annual stress test, in which the bank will once again be permitted to perpetuate its fiction of solvency by grossly overrating the mountains of toxic loans on its books. At this point, the rescue effort is so sweeping and elaborate that it goes far beyond simply gouging the tax dollars of millions of struggling families, many of whom have already been ripped off by the bank – it's making the government, and by extension all of us, full-blown accomplices to the fraud.

Read more: http://www.rollingstone.com/politics/news/bank-of-america-too-crooked-to-fail-20120314#ixzz1vf4Cr31H

I don't know anyone who has ever had to go more than 5 years before buying a home after bankruptcy.

 

 

:iagree:

Edited May 23, 2012 by justamouse

[Mrs Twain]

Loans are tougher to get now than they were in 2007 or 2008. You can't compare people's ability to get a loan back then with the way it is now. If you want to get a loan for a house in the future, you ought to be doing everything you can to make yourself look like a good risk rather than a bad risk.

[stansclan89]

Loans are tougher to get now than they were in 2007 or 2008. You can't compare people's ability to get a loan back then with the way it is now. If you want to get a loan for a house in the future, you ought to be doing everything you can to make yourself look like a good risk rather than a bad risk.

 

I know the rules changed in 2008 which is why we couldn't buy until 2009 (after a 2006 bankruptcy). I don't know if they have changed again since then.

 

ETA: She doesn't seem to want to buy again anyway--which I completely understand. dh feels the need to own, so we do.

[Chelle in MO]

It's just not persuasive to me that I should uphold some high moral standard toward a bank when I know perfectly well that the bank would foreclose me at a moment's notice if it served their shareholders' interests. Repayment of money is not the same, morally, as honoring a marriage commitment or a promise to a person. I've made no "promise" to the bank-I've made a contract. I have a legal relationship with them, not a personal, moral one.

 

I uphold a high moral standard because of who I am, regardless of circumstances.

[Mrs Twain]

I know many business people who have high moral standards both in their businesses and in their personal lives. Just because there may be business owners or banks who are not concerned with moral issues doesn't mean that there are none. If you ask me, the morals are the same for running a business as for personal life.

[justamouse]

I uphold a high moral standard because of who I am, regardless of circumstances.

 

I tend to think people who make things out to be so black and white have never been in such circumstances. Black and white, that moral high ground is a very easy place to be. Gray is where the true tests come in.

 

Sometimes the way to fight injustice is with your feet. Sometimes the only ammunition you have is not fighting.

[justamouse]

I know many business people who have high moral standards both in their businesses and in their personal lives. Just because there may be business owners or banks who are not concerned with moral issues doesn't mean that there are none. If you ask me, the morals are the same for running a business as for personal life.

 

You're not talking mom and pop shop, or small town bank. You are talking a huge corporation where all you are is a profit. They don't care one iota about you. Otherwise, they wouldn't have gambled the economy of the country away.

[mamajag]

Morally I couldn't even consider it.

[DawnM]

OP isn't in a gray situation. She has the means to pay. I would have a very different opinion if she had no money coming in and her kids might go hungry.

 

Dawn

 

I tend to think people who make things out to be so black and white have never been in such circumstances. Black and white, that moral high ground is a very easy place to be. Gray is where the true tests come in.

 

Sometimes the way to fight injustice is with your feet. Sometimes the only ammunition you have is not fighting.

[Murphy101]

You're not talking mom and pop shop, or small town bank. You are talking a huge corporation where all you are is a profit. They don't care one iota about you. Otherwise, they wouldn't have gambled the economy of the country away.

 

I don't think the size of the company is the key point to morals. Rich or poor can be moral upstanding people and it's just as hard for them for different reasons.

 

I simply don't think this is a moral question. The contract is set up for penalties for walking out. If the economy or the banks or whatever have created a situation where it is better to take those penalties than finish the contract, then that's the risk the bank took. And some of those banks majorly helped create that higher risk, so it's just as hard for me to feel bad for them as for someone who purposely took on debts they knew they couldn't afford to pay back.

 

If anything, I tend to think credit in general is bad news for most people. Whether it be from friend or stranger.

I avoid it as much as possible from strangers and completely from friends/family.

[Murphy101]

OP isn't in a gray situation. She has the means to pay. I would have a very different opinion if she had no money coming in and her kids might go hungry.

 

Dawn

 

 

This is the attitude I don't understand.

 

It is rare for an immoral act to become okay based on income.

 

Either it is immoral to avail oneself of the contracted penalties or it isn't.

 

And if it is immoral, then I question the morality of the contracts that offer an immoral option.

[justamouse]

I don't think the size of the company is the key point to morals. Rich or poor can be moral upstanding people and it's just as hard for them for different reasons.

 

I simply don't think this is a moral question. The contract is set up for penalties for walking out. If the economy or the banks or whatever have created a situation where it is better to take those penalties than finish the contract, then that's the risk the bank took. And some of those banks majorly helped create that higher risk, so it's just as hard for me to feel bad for them as for someone who purposely took on debts they knew they couldn't afford to pay back.

 

If anything, I tend to think credit in general is bad news for most people. Whether it be from friend or stranger.

I avoid it as much as possible from strangers and completely from friends/family.

 

 

 

This is the attitude I don't understand.

 

It is rare for an immoral act to become okay based on income.

 

Either it is immoral to avail oneself of the contracted penalties or it isn't.

 

And if it is immoral, then I question the morality of the contracts that offer an immoral option.

 

No, I completely agree, which is what I was inadequately trying to say. :001_smile: People ARE comparing these contracts to reneging on an agreement with a neighbor. I was trying to point out that wasn't the case.

[DawnM]

If she has NO MONEY, she can't pay. If she has money she can pay.....and should pay.

 

I could argue it is immoral either way, but that won't make magic money appear if she has none.

 

Dawn

 

This is the attitude I don't understand.

 

It is rare for an immoral act to become okay based on income.

 

Either it is immoral to avail oneself of the contracted penalties or it isn't.

 

And if it is immoral, then I question the morality of the contracts that offer an immoral option.

[Trish]

We just read the story about Abraham Lincoln, when he walked three miles to return a small amount of money to a customer after he had accidently charged her too much.

I think I recall also reading about him having to pay back a considerable debt after his business partner abandoned him. He paid off his entire debt, a little bit at at time, even though it took him years.

 

I think it is much better to emulate people with good character like Abraham Lincoln than others who are defaulting on their mortgages just because they are upset that they made a bad investment.

 

Just wanted to point out that the same people who crashed the housing market got bailed out with taxpayer funds and continue receiving performance bonuses.

[wapiti]

I haven't read this whole thread, but at the very least, the credit ramifications are serious. Suppose you wanted to borrow to help pay for your kids' college? I don't know how much credit affects that, and it may not be part of your kids' college financial plan, but I wouldn't want to close the door on that possibility just in case something should come up. Suppose your kid gets a job, wants to buy a used car and would like you to co-sign the car loan. Suppose there is some other sort of financial emergency in your family. There are too many possible situations for which good credit might be very useful and important to have.

[hsmamainva]

Loans are tougher to get now than they were in 2007 or 2008. You can't compare people's ability to get a loan back then with the way it is now. If you want to get a loan for a house in the future, you ought to be doing everything you can to make yourself look like a good risk rather than a bad risk.

 

:iagree:

 

When we bought our current house in 2005..and when we bought a house before that in the late 1990s...we were able to get a "no-doc" loan because my husband was self-employed.

 

He didn't have W2s, for example, and the only thing we had to do was state how much money we made and have a credit check run and we had a mortgage.

 

Those days are over. Now I've heard that you need a high credit score (700+) and at least 20% down. We never had to put more than $10,000 down previously.

[ChristyB in TN]

Ethically, walking away is wrong. When we sign those papers and agree to pay for something we give our word and stake our reputations and future ability to obtain credit on whether or not we keep that commitment. The character of the loaning institution has zero to do with the personal decision to keep a commitment.

Foreclosure has lasting impact on your emotions, reputation and ability to buy, work and invest. Home values will increase again when home owners stop walking away from their homes and letting them foreclose. The values aren't going up quickly but they will increase. Don't move if you don't have to for a couple of years, it doesn't make sense.

[Heather in Neverland]

I know LOADS of people in Michigan who did this.

 

Once upon a time a newly divorced woman bought a house with her divorce settlement money during the height of the housing market for $250,000 because, according to the appraisers who were HIRED BY THE BANK, the house was WORTH that amount.

 

People who were experts in the field of real estate and banking told her that this house was worth that amount (and yes, houses ARE touted as an investment). So the consumer gets the mortgage for this house.

 

If the house wasn't worth that amount then banks should not have loaned that amount. But they did. Five years later, that same house now might sell for $75,000 if she is lucky. This person now owes $175,000 more than what the house is worth.

 

She saw this as throwing good money after bad and walked away.

 

But here's the thing no one is mentioning: THE BANK HAS THE HOUSE. And it is a nice house. And the bank can sell it or write it off as a loss on their taxes, etc. The bank has choices.

 

What choice does this woman have? Who in their right minds would pay $250,000 for something that is only worth $75,000? So they can keep their reputation? With whom?

 

So what happened to this woman? She pulled $50,000 out of her 401k and paid cash for a smaller house that had been foreclosed on (a house that used to sell for about $150,000 a few years back) one week before she retired. She now lives debt-free and worry-free. And she was able to get credit cards without any hassle within one year of the foreclosure.

 

I call that a smart decision.

 

Luckily, we live in housing here paid for by the school so I don't have to worry about this happening to me but I can see why people in certain circumstances choose to do it.

 

.

[AlmiraGulch]

If she has NO MONEY, she can't pay. If she has money she can pay.....and should pay.

 

I could argue it is immoral either way, but that won't make magic money appear if she has none.

 

Dawn

 

Your judgement about the morality or immorality of what I do or don't decide to do is almost funny to me. To whose moral standards am I being held? Yours? Sorry....not interested.

 

What about my moral obligation to the best thing for my family? What if that means securing their future, and mine?

 

I'm not saying I'm going to do this or I'm not. I don't know. I don't have enough information yet, and I came here seeking others' experiences. In doing so, I of course expected and appreciate a variety of points of view. How this thread turned into a statement about morality is beyond me. And, as previously stated, kind of funny.

[AlmiraGulch]

I know LOADS of people in Michigan who did this.

 

Once upon a time a newly divorced woman bought a house with her divorce settlement money during the height of the housing market for $250,000 because, according to the appraisers who were HIRED BY THE BANK, the house was WORTH that amount.

 

People who were experts in the field of real estate and banking told her that this house was worth that amount (and yes, houses ARE touted as an investment). So the consumer gets the mortgage for this house.

 

If the house wasn't worth that amount then banks should not have loaned that amount. But they did. Five years later, that same house now might sell for $75,000 if she is lucky. This person now owes $175,000 more than what the house is worth.

 

She saw this as throwing good money after bad and walked away.

 

But here's the thing no one is mentioning: THE BANK HAS THE HOUSE. And it is a nice house. And the bank can sell it or write it off as a loss on their taxes, etc. The bank has choices.

 

What choice does this woman have? Who in their right minds would pay $250,000 for something that is only worth $75,000? So they can keep their reputation? With whom?

 

So what happened to this woman? She pulled $50,000 out of her 401k and paid cash for a smaller house that had been foreclosed on (a house that used to sell for about $150,000 a few years back) one week before she retired. She now lives debt-free and worry-free. And she was able to get credit cards without any hassle within one year of the foreclosure.

 

I call that a smart decision.

 

Luckily, we live in housing here paid for by the school so I don't have to worry about this happening to me but I can see why people in certain circumstances choose to do it.

 

.

 

Thank you for this. I was really looking for others' experiences more than a morality statement. I kind of think my throwing away a considerable amount of money is just....dumb.

 

Yes, I'm concerned about trashing my credit for a couple of years, but really....I think it might be worth the risk. Maybe.

[Kathryn]

I honestly don't know what I'd do, that's a tough decision. I'd want to do the right thing ethically, but I'd have the same problems with throwing away money.

 

We bought in 2005 and were well off for a while because we'd gotten a HUD house cheaply. However, we're now down to owing just a bit less than we could get for it in this economy. I can't imagine owing much, much more than we could ever hope to get. We are upset enough that we can't get anything out of it and can't move up (we bought as a starter house with no idea we would have children here and really hate it now).

[Jane in NC]

Your judgement about the morality or immorality of what I do or don't decide to do is almost funny to me. To whose moral standards am I being held? Yours? Sorry....not interested.

 

What about my moral obligation to the best thing for my family? What if that means securing their future, and mine?

 

I'm not saying I'm going to do this or I'm not. I don't know. I don't have enough information yet, and I came here seeking others' experiences. In doing so, I of course expected and appreciate a variety of points of view. How this thread turned into a statement about morality is beyond me. And, as previously stated, kind of funny.

 

This thread has been extremely interesting to me. I find that, in general, people expect a certain level of behavior from people but often excuse corporations from behaving morally since their purpose is profit. Rather fascinating...

 

Bluegoat's comments are worth repeating.

 

 

What I find flabbergasting and bizarre is the idea that banks or other businesses, whose purpose in life is, we are told, only to make money, are doing the right thing when they make decisions based only on the financial outlook. INdividuals on the other hand supposedly have any number of moral obligations to live up to, though why that is is not clear.

 

If the purpose of business is to make money, why isn't that also the purpose of individuals? If individuals have other moral obligations, don't the businesses owed and operated by individuals have those moral obligations as well? (If you decide to incorporate yourself and have the corporation buy the house, does it then become moral to treat it only as a business issue?)

 

And who says the purpose of business is to make money anyway - money is only an abstraction of value. Value is a service or a resource or a product which humans want or need for a better life. From my perspective, the purpose of business is to improve human life, for individual owners and customers and for the community. And that definitely has a moral component.

[Bootsie]

I know LOADS of people in Michigan who did this.

 

Once upon a time a newly divorced woman bought a house with her divorce settlement money during the height of the housing market for $250,000 because, according to the appraisers who were HIRED BY THE BANK, the house was WORTH that amount.

 

People who were experts in the field of real estate and banking told her that this house was worth that amount (and yes, houses ARE touted as an investment). So the consumer gets the mortgage for this house.

 

If the house wasn't worth that amount then banks should not have loaned that amount. But they did. Five years later, that same house now might sell for $75,000 if she is lucky. This person now owes $175,000 more than what the house is worth.

 

She saw this as throwing good money after bad and walked away.

 

But here's the thing no one is mentioning: THE BANK HAS THE HOUSE. And it is a nice house. And the bank can sell it or write it off as a loss on their taxes, etc. The bank has choices.

 

What choice does this woman have? Who in their right minds would pay $250,000 for something that is only worth $75,000? So they can keep their reputation? With whom?

 

So what happened to this woman? She pulled $50,000 out of her 401k and paid cash for a smaller house that had been foreclosed on (a house that used to sell for about $150,000 a few years back) one week before she retired. She now lives debt-free and worry-free. And she was able to get credit cards without any hassle within one year of the foreclosure.

 

I call that a smart decision.

 

Luckily, we live in housing here paid for by the school so I don't have to worry about this happening to me but I can see why people in certain circumstances choose to do it.

 

.

 

The issue isn't that she is paying $250,000 for something worth $75,000. She DID buy something and paid $250,000. That is in the past. That $250,000 went to the previous owners of the house. She didn't have $250,000, so borrowed it from the bank. Her decision now is not whether she should pay $250,000 for something worth $75,000; her decision is whether to honor the agreement she made with the bank.

 

Would it be "strategic" if she saw a pair of shoes she loved for $100 in Macy's, but didn't have the cash to pay for them. So she charged them on her bank credit card. After she wore the shoes for a while, she saw they were on sale for $25. She was upset because she owed the bank $100 for something that was only worth $25! So she decided not to pay her credit card bill.

[DawnM]

:iagree:

 

The issue isn't that she is paying $250,000 for something worth $75,000. She DID buy something and paid $250,000. That is in the past. That $250,000 went to the previous owners of the house. She didn't have $250,000, so borrowed it from the bank. Her decision now is not whether she should pay $250,000 for something worth $75,000; her decision is whether to honor the agreement she made with the bank.

 

Would it be "strategic" if she saw a pair of shoes she loved for $100 in Macy's, but didn't have the cash to pay for them. So she charged them on her bank credit card. After she wore the shoes for a while, she saw they were on sale for $25. She was upset because she owed the bank $100 for something that was only worth $25! So she decided not to pay her credit card bill.

[gingersmom]

The issue isn't that she is paying $250,000 for something worth $75,000. She DID buy something and paid $250,000. That is in the past. That $250,000 went to the previous owners of the house. She didn't have $250,000, so borrowed it from the bank. Her decision now is not whether she should pay $250,000 for something worth $75,000; her decision is whether to honor the agreement she made with the bank.

 

Would it be "strategic" if she saw a pair of shoes she loved for $100 in Macy's, but didn't have the cash to pay for them. So she charged them on her bank credit card. After she wore the shoes for a while, she saw they were on sale for $25. She was upset because she owed the bank $100 for something that was only worth $25! So she decided not to pay her credit card bill.

 

:iagree:

[Heather in Neverland]

The issue isn't that she is paying $250,000 for something worth $75,000. She DID buy something and paid $250,000. That is in the past. That $250,000 went to the previous owners of the house. She didn't have $250,000, so borrowed it from the bank. Her decision now is not whether she should pay $250,000 for something worth $75,000; her decision is whether to honor the agreement she made with the bank.

 

Would it be "strategic" if she saw a pair of shoes she loved for $100 in Macy's, but didn't have the cash to pay for them. So she charged them on her bank credit card. After she wore the shoes for a while, she saw they were on sale for $25. She was upset because she owed the bank $100 for something that was only worth $25! So she decided not to pay her credit card bill.

 

Ah but see, the previous owners did not owe $250,000 on the house. That is just how much they were told by an industry professional that they could get. So they put it on the market for that amount. Then another industry professional says, "Yes! We agree that it is worth it...so much so that we are going to loan you the money for it!" They took a risk that the house actually was worth it.

 

Or did they? Because it seems to me that there was a lot of news about faulty lending practices by the banks ... Giving consumers mortgages based on inflated appraisals just so they could sell bigger mortgages.

 

It was a gamble and everybody lost. But the government bails out the banks for their bad gamble. Who bails out the little guy?

 

If the industry professionals either lie to make more money or gamble it away at least they get the house back and can make some of their money back and can write the rest of it off. But what happened to this woman's divorce settlement she used for a down payment?

 

Gone. Forever. Nothing to show for it. Excuse me if I don't feel sorry for these mortgage companies and their shady lending practices.

 

So back to your shoe analogy. It is really more like she bought a pair of designer shoes for $100 because they were supposedly worth it only to find out later that they were knock offs and not the real thing and so not worth what she paid. But somehow the store owner gets to take the shoes back, sell them to someone else for a lesser amount and the woman gets no money back and has no shoes.

 

 

.

 

 

.

.

[Bootsie]

Ah but see, the previous owners did not owe $250,000 on the house. That is just how much they were told by an industry professional that they could get. So they put it on the market for that amount. Then another industry professional says, "Yes! We agree that it is worth it...so much so that we are going to loan you the money for it!" They took a risk that the house actually was worth it.

 

Or did they? Because it seems to me that there was a lot of news about faulty lending practices by the banks ... Giving consumers mortgages based on inflated appraisals just so they could sell bigger mortgages.

 

It was a gamble and everybody lost. But the government bails out the banks for their bad gamble. Who bails out the little guy?

 

If the industry professionals either lie to make more money or gamble it away at least they get the house back and can make some of their money back and can write the rest of it off. But what happened to this woman's divorce settlement she used for a down payment?

 

Gone. Forever. Nothing to show for it. Excuse me if I don't feel sorry for these mortgage companies and their shady lending practices.

 

So back to your shoe analogy. It is really more like she bought a pair of designer shoes for $100 because they were supposedly worth it only to find out later that they were knock offs and not the real thing and so not worth what she paid. But somehow the store owner gets to take the shoes back, sell them to someone else for a lesser amount and the woman gets no money back and has no shoes.

 

 

.

 

 

.

.

No, this is not the same. The original owner of the house is not taking the house back and selling it to someone else ofr the smaller amount.

 

Also, the purchaser of the house was taking the risk that the price of the house would fall in the future (just as she was taking the risk that the price would rise.) If people want to see a home as an investment and gain when housing prices rise (as the previous owners of the home did) they must be willing to take the downside risk also.

[vonfirmath]

So back to your shoe analogy. It is really more like she bought a pair of designer shoes for $100 because they were supposedly worth it only to find out later that they were knock offs and not the real thing and so not worth what she paid. But somehow the store owner gets to take the shoes back, sell them to someone else for a lesser amount and the woman gets no money back and has no shoes..

 

No. To be equivalent, the credit card would take the shoes back, NOT the store.

 

The credit card might try to sell the shoes to recoup the investment, but the credit card has NO USE for the shoes and doesn't want them any more than the banks want your house.

 

The only reason the banks consider the house property worth investing based on is the idea that folk WON'T just give it back because they still need to live in it.

 

Is the OP claiming that he discovered their was some lie/deliberate falsehood made in his sale of the house? Because if so there is recourse. You can go after the realtor, the appraiser, etc. The folks who deliberately took from him. Even the original bank.

 

But you can't just decide "Banks did these bad things, I'm in a bad place now so I'm going to 'stick it to the man'" and assume that you are "just making a business deal" and others NOT treat you different knowing that you've made such a decision.

 

People have compassion for those who get into a hard spot. That compassion hardens when others try to take advantage of it when they are NOT in a hard spot.

 

And note that not everyone agree with what the government did when they "Bailed out the banks" either. I think they made a bad situation worse. So you can't throw that out as if it makes your actions any better.

[Heather in Neverland]

Is the OP claiming that he discovered their was some lie/deliberate falsehood made in his sale of the house? Because if so there is recourse. You can go after the realtor, the appraiser, etc. The folks who deliberately took from him. Even the original bank.

I don't think the OP is claiming that but she might be?

 

But you can't just decide "Banks did these bad things, I'm in a bad place now so I'm going to 'stick it to the man'" and assume that you are "just making a business deal" and others NOT treat you different knowing that you've made such a decision.

I guess it depends on how much you care about other people's opinions, especially strangers. I don't know how the OP feels about that but I can tell you that the woman I gave an example of does not. Those who love her know her whole situation and agree with what she did and support her.

 

And note that not everyone agree with what the government did when they "Bailed out the banks" either. I think they made a bad situation worse. So you can't throw that out as if it makes your actions any better.

I am glad it is not MY situation but I certainly don't judge others who are in these situations. Many good, hard-working people have lost everything and no one bailed them out. So they have to do what they have to do and I won't speak ill of them for it.

 

.

[*Michelle*]

If any bank execs are reading this, I'm sure they are sighing in relief.

 

These loans aren't simple partnerships between individuals and their local bank. The big banks deliberately manipulated the mortgage market to generate massive amounts of new loans that could be repackaged and sold as investment vehicles. If they could have done it with auto loans, they would have. They took the reputation of mortgages and used that to sell high-risk loans as stable, low-risk securities.

 

When the high-risk borrowers began defaulting, the banks developed derivatives that allowed them to turn more profit on the very same shady investments that were collapsing. They shorted themselves and made more profit on their own bad judgement. Never mind what they were doing to the people they purport to be their "customers," you and me. We are not their primary concern, no matter what the marketing materials say. We are numbers on a spreadsheet that they used to create securities for their real customers.

 

The banks engineered this mess and figured out how to profit all the way down. And a big part of how they were able to do that was because they knew their "customers" were still in an old-fashioned mindset of Their Bank being there to partner with them and help them get their American Dream.

 

Welcome to reality. If you want that type of relationship, stick to your local credit union.

[Murphy101]

So back to your shoe analogy. It is really more like she bought a pair of designer shoes for $100 because they were supposedly worth it only to find out later that they were knock offs and not the real thing and so not worth what she paid. But somehow the store owner gets to take the shoes back, sell them to someone else for a lesser amount and the woman gets no money back and has no shoes.

 

I agree. I would go far as to say that this situation is very similiar to loan sharks. Crazy inflated value. With interest. And an ominous you better not walk away - or else.

 

There's a reason loan sharks are illegal. And the actions of these banks should have been illegal.

 

Also, it was dang hard to find a reasonably priced home during that time of ridiculous inflation. My dh and I looked for over 3 YEARS to find a home that met our needs and was in our price range. And honestly, we went a bit higher than what we felt comfortable with because there simply was not anything else below that price for us. Many people bought more than they could afford because that was all there was! Everything was more than most people could afford. Thank God we are not upside down. We drove a crazy hard bargain and use our own appraisers and we refused to take as much as the bank kept pushing for us to take (and they pushed hard and persuasively to take out as much as 50k more so we could "update" the house).

 

I think most people want to keep their homes. They don't want to trash their credit and they bought the home because they wanted it. I think most people don't walk away JUST because of being upside down. For most, there are many factors and that's just one of them.

 

The penalties are stiff and the credit hit deep and it's a headache in general. When the penalties become the best part of the contract, that's one crummy contract. I think it unreasonable to tell someone they are moral in using the contract unless they use the one aspect of it that might benefit them.

[Murphy101]

Welcome to reality. If you want that type of relationship, stick to your local credit union.

 

:iagree:

 

I love our credit union.:)

[regentrude]

Ah but see, the previous owners did not owe $250,000 on the house. That is just how much they were told by an industry professional that they could get. So they put it on the market for that amount.

.

 

But the buyer chose to buy the house for that price - so she must have though it worth it. She was not forced to buy this house and take out a mortgage.

[4everHis]

OP

 

What's being lost here is that you are basing your thoughts on tax assessments not appraisal. If you get appraisals you might find you are not nearly as upside down as you think and this whole thread could be a waste.

[KS_]

I haven't read through all the other replies, but my step-brother did this a couple years ago - after going to the bank and trying to work with them to reevaluate what the home was worth. They didn't want to work with him and would rather go into foreclosure and then resell the house for less that what they could have renegotiated for with my brother.

[beaners]

 

Those days are over. Now I've heard that you need a high credit score (700+) and at least 20% down. We never had to put more than $10,000 down previously.

 

Shockingly, FHA loans are still out there. We just got a mortgage on a second house (first house is not FHA) with the regular FHA 3% down. The credit score is around 700. Many of the houses I've see discussed here sound like they go over the amount FHA will insure though.

 

 

I think most people want to keep their homes. They don't want to trash their credit and they bought the home because they wanted it. I think most people don't walk away JUST because of being upside down. For most, there are many factors and that's just one of them.

 

I'd agree with you, but the OP has essentially said that this is why she is considering the option of walking away.

[elegantlion]

Exactly my thought. It's ok for a business to do any stinky arse thing they want because hey that's business. But god forbid some little peon does it...(not calling you a peon Q...:D).

 

:iagree:

 

I have two mortgage situations where bank employees basically lied to our faces when we asked questions. I've had the bait and switch at the 11th hour in a refinance. It was ugly. One situation ended up with a fired employee and we could have pursued charges. In the end we opted not to because there would have been no gain and we'd have to spend more money.

 

I agree that we should uphold our obligations with integrity, but the banks also used to hold some responsibility to their clients, which they seem to have forgotten that the shareholders are not their only responsibility.

 

A few years ago I watched as every bank in a two mile stretch did massive remodeling, exterior, interior, and these were small branch offices. In the same period of time 5 or 6 small businesses on the same street went out of business. So you have a vacant business for sale and a sparkly shining new bank building right next to it. Businesses have a responsibility to the community too. It's easier to forget that when the "local" bank is a national faceless chain.

 

So do we have an obligation to do the right thing? Yes. But the right thing can vary in any given situation and perspective, and one can only get screwed so many times before you fight back.

 

To the OP: I don't envy your situation, whichever way you chose to go. :grouphug:

[AlmiraGulch]

I think my other post may have gotten lost on this thread, but I'm going to expand my thought.

There's a lot of people here who know folks who have gotten cars and credit cards easily after foreclosure, and that may be certainly true. But neither of those things takes into account how much more in interest you will be paying - which I don't think anyone would consider good money management. If you had the credit score that would allow you to qualify for the the 0-3% deals on a car, but purposely give that up in favor of, say 13% (don't ask me where that number came from :glare: ), that doesn't seem like the smartest option. And I'm not saying that you will absolutely need a car before your credit score gets back to normal...but you don't know what will happen.

 

Like I said previously, I've BTDT and I would absolutely not do it again if I could go back (and there's many times where I wish I could).

 

This is a very good point. You never know what you're going to need until you need it. I appreciate hearing the other side from someone who has actually been there, too. Thanks for this.

[Trish]

 

I have two mortgage situations where bank employees basically lied to our faces when we asked questions. I've had the bait and switch at the 11th hour in a refinance. It was ugly. One situation ended up with a fired employee and we could have pursued charges. In the end we opted not to because there would have been no gain and we'd have to spend more money.

 

I agree that we should uphold our obligations with integrity, but the banks also used to hold some responsibility to their clients, which they seem to have forgotten that the shareholders are not their only responsibility.

 

A few years ago I watched as every bank in a two mile stretch did massive remodeling, exterior, interior, and these were small branch offices. In the same period of time 5 or 6 small businesses on the same street went out of business. So you have a vacant business for sale and a sparkly shining new bank building right next to it. Businesses have a responsibility to the community too. It's easier to forget that when the "local" bank is a national faceless chain.

 

So do we have an obligation to do the right thing? Yes. But the right thing can vary in any given situation and perspective, and one can only get screwed so many times before you fight back.

 

To the OP: I don't envy your situation, whichever way you chose to go. :grouphug:

 

:iagree:

[AlmiraGulch]

 

 

I think most people want to keep their homes. They don't want to trash their credit and they bought the home because they wanted it. I think most people don't walk away JUST because of being upside down. For most, there are many factors and that's just one of them.

 

The penalties are stiff and the credit hit deep and it's a headache in general. When the penalties become the best part of the contract, that's one crummy contract. I think it unreasonable to tell someone they are moral in using the contract unless they use the one aspect of it that might benefit them.

 

Yes, this. It's not JUST that I'm upside down. If it's just that the loan were for substantially more than my home's value, but the neighborhood hadn't been on the decline because of drastically slashed home values, and I didn't need more space (which I do...I have three more people living in my home now than the three that were here when I bought, plus I work out of my home now), and if I saw any chance of the value appreciating enough for me to get out of her in the next 2 or 3 or even 5 years, I wouldn't even be considering this. It's a big decision....one that I'm considering quite carefully.

[Kathryn]

No. To be equivalent, the credit card would take the shoes back, NOT the store.

 

The credit card might try to sell the shoes to recoup the investment, but the credit card has NO USE for the shoes and doesn't want them any more than the banks want your house.

 

The only reason the banks consider the house property worth investing based on is the idea that folk WON'T just give it back because they still need to live in it.

 

Is the OP claiming that he discovered their was some lie/deliberate falsehood made in his sale of the house? Because if so there is recourse. You can go after the realtor, the appraiser, etc. The folks who deliberately took from him. Even the original bank.

 

But you can't just decide "Banks did these bad things, I'm in a bad place now so I'm going to 'stick it to the man'" and assume that you are "just making a business deal" and others NOT treat you different knowing that you've made such a decision.

 

People have compassion for those who get into a hard spot. That compassion hardens when others try to take advantage of it when they are NOT in a hard spot.

 

And note that not everyone agree with what the government did when they "Bailed out the banks" either. I think they made a bad situation worse. So you can't throw that out as if it makes your actions any better.

 

:iagree: in the situation we're talking about here, the friend agreed upon a price with the seller and looked for a bank to loan her money to give to seller. She found a bank, bank agreed that the house was worth it, and paid money that went to the seller after the friend signed an agreement with the bank to repay them the money. The economy then tanks and the house is no longer worth what it once was. The bank still paid the seller that money, whether or not the seller "deserved" it or "needed" it. That was the agreement. Friend does not own the house. The bank owns the house and lets friend live there as long as she makes payments as she agreed to do. If she fails to make those payments, the bank takes its house back and tries to recoup some of its investment.

[AlmiraGulch]

OP

 

What's being lost here is that you are basing your thoughts on tax assessments not appraisal. If you get appraisals you might find you are not nearly as upside down as you think and this whole thread could be a waste.

 

I'm not, though. I suppose I didn't state it fully. My tax assessment caused me to do additional research. That's why in my initial post I said I'm anywhere between $65 - $95K (or whatever the exact numbers are....I don't have them in front of me) under water. The tax assessment was based on the lowest value (and so highest deficit). The rest of the range is based on the what comparable homes in my neighborhood and immediate area are selling for.

[AlmiraGulch]

I haven't read through all the other replies, but my step-brother did this a couple years ago - after going to the bank and trying to work with them to reevaluate what the home was worth. They didn't want to work with him and would rather go into foreclosure and then resell the house for less that what they could have renegotiated for with my brother.

And is your step-brother happy with his decision, or does he wish he'd just stuck it out? Has he had a hard time since then?

[abacus2]

I think people who have the ability to pay but walk away from mortgages simply because their house lost value should never be allowed to purchase a house again.

 

You made a deal with the lender to pay that mortgage, and if you can do it you should.

 

What if the reverse situation were to happen, and your house appreciated by 100% or more. Would you expect/allow the lender to take it back because they could sell it for a profit. Of course, you wouldn't.

 

If you default when you are able to pay, you are doing exactly the same thing in reverse. You're backing out on the deal because the terms no longer suit you. It's not the lender's fault your home has lost value, so why should you be allowed to stick them with the house?

 

Even if you're willing to take the hit to your credit and more importantly your reputation, you shouldn't be allowed to do it. I know if you were a friend or family member of mine, I would never look at you the same if you did this.

 

If the bolded were true, I would agree with you. The problem is that the lenders are absolutely a significant cause of the recent outrageous drops in home value.

 

To the OP: If you like you home and neighborhood and can afford to pay, I think it makes the most sense to pay and continue to enjoy your life, trying to ignore what's going on with house prices.