Underwater mortgage : stay or go?

[jackellis]

Sorry, no offense meant - nowadays I'm a bit extra cynical; that remark was not specifically directed .

No offense taken.

I' ve decided it's time to follow through on my promise to run for higher office - Dictator for Life. Among other campaign promises, I will make Mike Rowe (of Dirty Jobs fame) my Attorney General and institute a policy that all deadbeats have to work off their debts to society by doing things like cleaning chicken coops, sewers and dirty diapers.

Vote for me!

[dbhost]

I can't add much to what has been said here, other than if I had a friend that were that fast and loose with his ethics, I'd be looking for MUCH better friends... This guy sounds like he won't stick by his commitments when they aren't convenient... Nobody needs those kinds of friends hanging around... Can you trust that kind of a guy to be around when you really need your friends?

I do seriously wonder if what he is talking about trying to do, is it even legal? If so, why?

[gjat]

Is there even the slightest doubt in anyone's mind who is reading this board that any bank or business would hesitate to do exactly what this guy is proposing regardless of the ethics if it’s not actually illegal (it may be, I have no idea)?

People used to stick with their employer in hard times because they knew the goodwill would be reciprocated. Likewise they would keep paying on debt that it was rational to walk away from because it is the “right thing to do” and would likely expect those they do business with (be it a bank, a supplier, or on a personal level their neighbors) to operate the same way.

Those days are gone. This has lead to more “efficient and rational” organizations but at a cost to decency and ethics. I’m still not saying it’s right to walk away from your obligations, but if he does that he’s just playing by the same rules as the major players in the system.

Kristofor (whose house is still worth 20% more than he paid for it in 2002, and thus might be speaking out of his butt on this one…)

Kristofor,
The Bank IS NOT playing by the same rules. Read my example above. Now if the Banks were forcing people to sell their homes to reap a pro-rata share of the house appreciation, or were forcing people to pay off their house to protect the Bank when the market fell, that is a different story. Essentially, the guy bought the house for $2,000(?) per month, agreeing to pay off $340,000 in 30 years. If the house value goes up, he keeps 100% of the appreciation. If the house value goes down, he keeps 100% of the loss. Nothing changed as far the amount borrowed, the payment, or his ability to pay. The guy's a piece of sh!t if he walks away from a mortgage he can pay. He's screwing the little guys who are really having a tough time at no fault of his own.

[radhak]

For all that I don't agree with him, I am not ready to write him off as a friend, or as somebody trustworthy at a personal level. As Kristofer has succinctly put it, if he does not look out for himself and his family, who does - society at large? Or the bank? And he has reminded me time and again - he has never put a step wrong before. Note that his exposure is within the recommended 31% of salary, even though he bought at a peak, when a lot others were loading up on the 'freebies' . With all my flaws and frailties, I am not about to judge him.

But getting back to the real discussion, question is, is this legal? and is this a real loophole?

Pelligrini has noted one solid stumbling block : how much time does it take before the home becomes a 'primary residence'? A year would be a real crimp in anyone's plans !

[ragswl4]

The value of my primary residence has decreased by $400,000 in the last 4 years. I ain't crying or looking for some way to screw someone else because of this. It's called "life". Am I happy about it? No. Am I trying to recover the loss by unethical or fraudulent conduct? Not hardly.

The question posed by this thread turns my stomach. A prime example of how we all got in this mess. One buys a home to live in or one buys a home speculating that it will increase in value so one can reap the reward or the risk. In this case the unethical person wants to avoid the bad decision and bad fortune that occured. Pure dirtbag IMHO. He needs to tune in to Dr. Laura and learn how to become a "MAN", not a victim of his own decisions.

PS: If I had a friend who posed this to me, I would no longer have that friend based on what my response to him would be.

[toolguy1000]

he needs to consult a real estate attorney. ethics and morals have no place in real estate. it's business, plain and simple. each of us must operate in our own best self interest. and when it comes to business, don't forget the golden rule: do unto others.............before they do unto you!

[Russianwolf]

http://en.allexperts.com/q/Collectio...ure-Help-1.htm

have a look. It's possible it will work, but it's possible they could rake him over the coals.

ME personally, I wouldn't. Heck, I've fought off foreclosure twice in the last 5 years and filed Chapter 13 in order to keep my house. Value be ****ed, I want my house, It's worth it to me. That's all that matters.

[jackellis]

ethics and morals have no place in real estate. it's business, plain and simple. each of us must operate in our own best self interest. and when it comes to business, don't forget the golden rule: do unto others.............before they do unto you!

I hope you're joking, because if we all adopted your attitude, we'd all be in big trouble. Morals and ethics are crucial in business. Without them, most of us would be much worse off. In fact, it's because important people left their morals and ethics at home for a few years that we're in this economic fix.

The attitude we should be taking is that we only do business with people we trust. We should be able to dependably conduct business on a handshake. The purpose of contracts is not so much to define everyone's obligations, but to provide the basis for settling disputes later. Contracts are pre-nuptial agreements that, more than anything else, explain what happens in case of "divorce".

Idealistic: maybe. However if I had kids going into the business world, I'd be telling them to study the methods of Warren Buffett to learn what they should be doing, and Donald Trump to learn how not to behave.

[woodturner]

Another point that may have been missed in the discussion is that a mortgage is an legal obligation secured by a lien on a home. So he owes $X. Say the bank forecloses and manages to get $0.8*X throught the foreclosure proceedings, leaving a balance of 0.2*X unpaid. The borrower is still liable for that money, plus legal fees.

If he has a job, any other assets, or other means to obtain assets, the bank can and will take them. So, if he is "able to pay", the bank and the courts will compell him to pay.

It's true that in most states they can't take so much that he can't live - usually that is interpreted as median rent on a 1 BR apartment.

Furthermore, if he applies for a loan, even before foreclosure, he is unlikely to get it. A lender will look at the "upside down" mortgage and likely "smell a rat".

Even if his credit is good now, if he does this he will not be able to get any credit for 7 years.

The only way I see this could work is if he declares bankruptcy - which he probably cannot do, if he "can pay" the mortgage.

I agree with the other posters - find better friends.

[Shep]

Let us not forget that to enter into the foreclosure process you must be deliquent on your mortgage. So, If he were to try to by a new house before going through the foreclosure process, he would have to justify the Rental property, the first primary house (with 2 mortgages) and the new 3rd residence. He would have to show proper income for the new house. Since his wife doesn't work and he can barely afford the primary house, he would be turned down flat. If he goes into the foreclosure process then tries to by another home, his credit will show that he has been delinquent and a lender will show him the door. Either of those options will hurt extremely. My advise is to start cutting non esential expenses in order to stay in the house.

I don't see this as an ethical problem because either way he tries to get around this won't wok, so no ethics would be violated.

just my 2 cents.

[dbhost]

Wanna be a true friend to this guy? Go grab him a copy of Total Money Makeover by Dave Ramsey.

http://www.amazon.com/Total-Money-Ma...9910580&sr=8-1

The book is cheap, has a TON of good information on how to make his money work best for him, and how to do it ethically...

I somewhat wonder, are you going to show this friend this particular thread?

[radhak]

and when it comes to business, don't forget the golden rule: do unto others.............before they do unto you!

that's a good one !

Another point that may have been missed in the discussion is that a mortgage is an legal obligation secured by a lien on a home. So he owes $X. Say the bank forecloses and manages to get $0.8*X throught the foreclosure proceedings, leaving a balance of 0.2*X unpaid. The borrower is still liable for that money, plus legal fees.

If he has a job, any other assets, or other means to obtain assets, the bank can and will take them. So, if he is "able to pay", the bank and the courts will compell him to pay.

It's true that in most states they can't take so much that he can't live - usually that is interpreted as median rent on a 1 BR apartment.

I was reading up a bit - seems mortgage in the US are "a non-recourse debt", which means the lender may not go after any of the borrower's other assets to recoup his losses. Europe has "full recourse" mortgages, which means if you foreclose you practically give up all of your belongings and even future salary. So much so that in the UK, courts don't allow foreclosures as they are too harsh on the borrower!

But, foreclosures here only apply to the first mortgage, leaving the lender with little options. BUT, the second lender can still keep their books open and keep demanding their money back.

Furthermore, if he applies for a loan, even before foreclosure, he is unlikely to get it. A lender will look at the "upside down" mortgage and likely "smell a rat".

Good point - unless he goes to another bank; and we know how helpful banks are with each other !

I agree with the other posters - find better friends.

I am sensing my friend might cost me my membership here !
But seriously, I am surprised how a lot of you are seeing this as black-and-white, guilty! I am happy I am not judged as much by my friends by their own standards - I might be left friendless !

Found an article by martin feldstein that has a good suggestion how to stymie such situations.

[ragswl4]

I hope you're joking, because if we all adopted your attitude, we'd all be in big trouble. Morals and ethics are crucial in business. Without them, most of us would be much worse off. In fact, it's because important people left their morals and ethics at home for a few years that we're in this economic fix.

The attitude we should be taking is that we only do business with people we trust. We should be able to dependably conduct business on a handshake. The purpose of contracts is not so much to define everyone's obligations, but to provide the basis for settling disputes later. Contracts are pre-nuptial agreements that, more than anything else, explain what happens in case of "divorce".

Idealistic: maybe. However if I had kids going into the business world, I'd be telling them to study the methods of Warren Buffett to learn what they should be doing, and Donald Trump to learn how not to behave.

Thanks for expressing in an eloquent way exactly how I feel as well.

[radhak]

Wanna be a true friend to this guy? Go grab him a copy of Total Money Makeover by Dave Ramsey.

http://www.amazon.com/Total-Money-Ma...9910580&sr=8-1

The book is cheap, has a TON of good information on how to make his money work best for him, and how to do it ethically...

I somewhat wonder, are you going to show this friend this particular thread?

Wow - that book has great ratings! Mebbe I'll grab one for myself!


No, I had no intention of showing this thread to him. As I have stressed from the beginning, I don't intend advising him either direction. This thread was for me to gain some knowledge, to understand if he was b**lsh**ting me, if the law had such loopholes.

[paintandbodtman]

:


I am sensing my friend might cost me my membership here !
But seriously, I am surprised how a lot of you are seeing this as black-and-white, guilty! I am happy I am not judged as much by my friends by their own standards - I might be left friendless !

Found an article by martin feldstein that has a good suggestion how to stymie such situations.

Sounds like you'd rather have a irresponsible jerk for a friend then to hang with people that say what you need to hear instead of what you want to hear

wayne