Walking away from your mortgage

[devman1983]

Hi All -

So, some people I know have done this:

They live in Detroit and have mortgages which are way way higher then the value of thier homes. Let's say their mortgage is at $90,000. They found the means to get a loan and then buy the house down the street for $5000 or $10000, walking away from their mortgage.

A recent writer on CNN.COM wrote "in my books this constitutes fraud"

I'm no lawyer but I suppose the mortgage company could take the debtor to court, find their assets, and try to take them or at least put a lein on them.

My friends' theory is this: "My credit will be ruined for 7 - 10 years. Why struggle for that long trying to make payments on my overinflated house. I wouldn't have made enough money in the 7 - 10 years to bring the balance down to a reasonable level anyway, so financially this makes sense."

I look on realcomp.com to see the houses on the market in Detroit. So many were mortgaged out to $50k or $60k, foreclosed, then put on the market for $5k. It's sad, but the housing market is just devestated.

What do you think? Are my friends commiting fraud? Or just doing what is in their best economic interests?

[Novine]

A different take on the problem:

http://online.wsj.com/article/SB120243369715152501.html

If there's fraud, it occurred on many levels. The houses didn't lose 90% of their value overnight. Loans never should have been given for those amounts in the first place.

[gazhekwe]

I believe that what one borrows, one pays back. On the other hand, housing prices were artificially inflated by the lenders' openhandedness and encouragement to borrow far beyond what it is reasonable. The crash of housing prices to more realistic levels should be borne, not just by the borrowers, but the lenders. I still say one keeps the place, but a new loan amount should be renegotiated that reflects fair market value. That way we don't have empty, deteriorating houses littering our communities and further bringing values down.

National policy anyone?

[2blocksaway]

If they can make the payments then they should stay.

I know it isn't their fault that the homes value dropped but they knew the terms when they signed.

I don't ever remember signing a mortgage that guaranteed the value of the home was going to go up after I purchased it.

I am tired of everybody saying things like these loans never should have been written in the first place. They paid fair market value at the time.

Why don't they buy the house down the street anyway and rent it or their current home out? That would actually help the block.

[devman1983]

Novine: Thanks for the link. I liked the article.

Lots of people DO think they have an ethical responsibility to pay their mortgages back. They take out credit card debt, cash in savings, stocks, retirement, college funds. Why would you do that to yourself when you can basically start fresh with no mortgage payment? Other people think of it purely as a math problem and do what is most advantageous to them.

The people I know who walked away from their homes did feel a responsibility to keep the neighborhood intact. After they walked they would still maintain their old foreclosed property. They mow the lawns, rake leaves, just enough to not piss off the neighbors too much

"Americans have long been able to cut their losses from bad investments and start over. It stands to reason that when the market made houses into yet another speculative investment, Americans would do the same." [[http://online.wsj.com/article/SB120243369715152501.html)

[softailrider]

Tremendous amount of mortgage fraud out there on part of the BORROWER. A whole lot of what I'm seeing is by design, people just walking away intentionally. Wasn't just in Detroit either, it was very pervasive, from the richest to the poorest areas. Have bank or mortgage companies gone after the assests of these people? Not that I'm aware of. Kind of like the perfect white collar crime.

[mam2009]

Tremendous amount of mortgage fraud out there on part of the BORROWER. A whole lot of what I'm seeing is by design, people just walking away intentionally. Wasn't just in Detroit either, it was very pervasive, from the richest to the poorest areas. Have bank or mortgage companies gone after the assests of these people? Not that I'm aware of. Kind of like the perfect white collar crime.

Uhhhhh...where is the fraud on the part of the borrower? The condition of a mortgage is "if I don't pay as promised, then the bank gets the house". That's the whole point of a loan secured by the house, otherwise known as a mortgage. The paperwork does not say, as long as I have a job and adequate income, I will pay you no matter what. Which is why these banks should get with the program quick to slow the futher decline of property values. If I can get a decent house in my same neighborhood for $5k-$30k, why would I continue to stay in my house with a $200k+ mortgage?! That's personal fiscal irresponsibility. The banks should be moving at lightspeed to renogotiate the terms of these outdated mortgages. Its far better for the bank to get $100k on a $200k+ mortgage than to sell it eventually to someone else for $10,000. Yes, this IS a new way of looking at a mortgage, but, hey, the only thing that stays constant is change. And the banks need to catch up with this new mindset of the market.

Not to mention that in Detroit [[most of) the abandoned homes lose their value rapidly due to being stripped of all items of value. The neighbors can't stop it. The police don't stop it. The banks don't stop it.

[Buy American]

Again, people need to take responsibility for their actions. You don't apply for a mortgage for more than you're able to pay for...and the banks shouldn't have given them out. Greed! Greed! Greed!
How many people in foreclosure took out mortgages that were too much for them? Then, on top of that, the toys come into play, boats, cottages, motorcycles, pools...the whole gammit. Then, they walk away from their homes because they are in way over their heads...ultimately, property values in the entire neighborhood are affected because of their actions and the cycle begins again. Personally, I have lost approximately $60,000 cash money on my modest home since I bought it a few years ago. I paid $170,000, the value is now around $110,000 or less because of foreclosures in my neighborhood and the comps are lower. I have sympathy for families who have been working hard for their modest homes, have been responsible in keeping their debts to a minimum and have set priorities...but those who, because of greed, had enormous mortgages, were in tremendous debt from foolish spending...I am not sympathic. On top of that...usually they end up in better shape than they were before they walked. There is definitely something wrong with this picture.

[Lorax]

Sorry, folks, but fraud and market manipulation was nearly entirely the fault of lenders, not borrowers. Sure, there were some people who saw this as an opportunity to use their homes as a cash cow, which is wrong, but with so many losing their jobs, or being underemployed is the real reason so many homes are going into foreclosure, especially here in Florida.

Investors are another culprit here, since they were leveraging the condo market to the point where wealthy individuals owning thousands of units in new construction buildings walked away leaving 50 story towers completely vacant. The Related Group headed by Jorge Perez comes to mind amongst others.

I know personally of a family who's family business has taken such a hit with this economic collapse, that they aren't able to continue paying their mortgage, and their bank is not modifying loans, as is the case with most banks. The national average for banks modifying distressed loans is around 4% of those eligible.

This family's bank has modified only 2.8% of their distressed loans.

Another interesting note, is that when banks fail, as over 100 have this year alone so far, the FDIC sells any remaining good paying loans to hedge fund groups, for an average of 50 cents on the dollar, and will insure these loans as well for up to 70% of their current appraised value. If and when these good paying loans default, with this scenario, banks really won't lose, and are under no pressure to modify loans, since they will do better getting the property back and auctioning it off.

So don't look for staggering numbers in loan modifications- it won't happen.

People are making the best decisions as per their own loan circumstances, and to hold some position of phony moral outrage over their heads is elitist and frankly disgusting.

[softailrider]

If you think that the staggering number of foreclosed properties are all a result of folks getting in over their heads you're totally wrong. On my block about 6 houses down was a fellow who had live in his house for over 30 years, his wife passed away and he wanted to move to North Carolina to live near his daughter. He couldn't sell his house for anywhere near what it HAD been worth, he re- morgaged it for about 300 K and walked. Probablly never even making a payment.

I personaly know real estate investors on Detroit who had property in the Warrendale area who let some of their property go back to the bank, give back 6 houses and they're walking away with hundreds of thousands. That kind of money sure makes for a way better retirement.

Of course, doesn't do wonders for your credit rating, I'm sure these people could care less about that.

Banks fault, borrowers fault - who knows.

Elitiest and disgusting, whatever.

[gazhekwe]

It is not moral outrage. The whole economy is based upon people keeping their word and paying their debts. One's word equals their integrity. If it is becoming acceptable to go back on our word and not pay what we owe, then I think we can kiss the world as we know it goodbye.

I do espouse a view that the depredations of the crash should be shared by the debtor and lender, as the lender's bad investment is just as much a part of the picture as the borrower's.

Lenders and brokers routinely encouraged people to take out home equity loans during the bubble, to invest more in the market, to buy additional goods, to fix up their home or whatever. Home equity lines of credit were sold hard. So, people borrowed to much encouraged by lenders who lent too much. Shared responsibility.

[Lorax]

When the system purposely games the field to it's own advantage, whether it's selling and repackaging liar loans, or inflating the bubble in any number of ways to enrich the pockets of the already wealthy, then all bets are off as far as I'm concerned.

There is nothing moral about any of it- it's business. Pure and simple. The collateral is the house itself, which the lender will take if one defaults. If the value of that property is brought down by market manipulation, it's certainly not in the control of the borrower. If that borrower loses his/her job due to the collapse and they can't pay their mortgage, again, blaming the victim isn't the answer.

Like I mentioned above, the lenders are never going to lose, since most troubled loans were bought for pennies on the dollar from the FDIC. Add the insurance claims on the defaulted loans, the homes/condos would have to lose 90% of their value in most cases for the lender to break even at worst.

Instead of siding with the wealth interests, people need to realize how complete the fraud was from Wall Street, as evidenced by the bank bailouts, which was nothing more than the biggest bank heist in US history.

[gazhekwe]

Well, I don't believe I am siding with the money interests. I am advocating for a return to integrity sponsored by both sides agreeing to take a fair share of the hit. That beats one side trying to stick it to the other like we seem to have now. You gotta pay the whole thing. No I don't, here's your house, nyaa nyaaa, nyaaa. What a travesty.

[Gistok]

What you are talking about in residential property has been happening in commercial property for decades [[not just in Detroit).

The 2 former owners of the Buhl Building and parking structure next door [[I won't name names) just let the building default to the lenders back in the 1990s. Being "able" to keep up with the payments was not a problem, since they owned the largest apartment complex in Farmington Hills [[Muirwoods), as well as dozens of apartment complexes in Arizona and Florida. They just crunched the numbers, and decided that it financially more in their interest to let the building go, rather than keep owning it.

In the business world... this is a way of life... ... just ask Donald Trump...

[pudsy]

I'm no lawyer but I suppose the mortgage company could take the debtor to court, find their assets, and try to take them or at least put a lein on them.

I have looked far and wide for an answer to that question but have yet to come up with a single MCL that either says the above statement is true or false with regards to 2nd mortgages or even refinancing the first mortgage. I almost 100% sure that if the mortgage was a "purchase money mortgage" than the bank can't go after the debtor---- as far as a second mortgage??????

[Ocean2026]

if one buys a house and the price appreciates as it has done MOST of the time, do owners then pay a bit extra on their mortgages so the holders can benefit?
A person makes a deal and they should stick with it, instead of blaming others for their problems. On the other hand some people just can't afford to do it. Its a tough issue.

[mauser]

I believe that what one borrows, one pays back..........National policy anyone?

I believe that what one lends, one should legally and Constitutionally have on hand in order to lend to begin with.

In the USA banks lend based on nothing. [[or a fraction) They put up nothing to guarantee the loan you sign, just their word and the paper its printed on.

[DetroitDad]

Ethics in this situation is like the DY poster who once said he had to promise to stay loyal [[given the third degree about loyalty to employers at an interview) to an employer who then decided to lay him off a few months later. It wasn't unethical or unloyal because it was "right sizing", and fixing their past mistake of over hiring...

What a joke!

This isn't bible camp friends, this is capitalism. It's more like a casino game. Know your odds, and learn to stay away from the glitzy sucker bets.

More importantly, learn how to be able to walk away.

Put ethics aside here and know that they are well aware that they are pulling the wool over people's eyes, and just moved onto the next hustle when we figure it out. Rest assured, Michael Clarke Duncan is really all around you, on every screen, telling you that you can be just like him and soon leave for that island.

I applaud those who walk away, and know better than to bring ethics anywhere near what goes on at Seventy Five and Ten.

[East Detroit]

Dumping your debt back into society should be criminal.

At the very least its irresponsible and selfish.
Do they think that the banks just absorb the loss with no effect for other citizens?

[Gistok]

Dumping your debt back into society should be criminal.

At the very least its irresponsible and selfish.
Do they think that the banks just absorb the loss with no effect for other citizens?

East Detroit, in a perfect world, I would agree with you 100%

But since the elimination of Debtors Prisons back in the 19th century, businesses, and people have done exactly as you mentioned... dumped their debt back into society.

People filing for bankruptcy... voluntary foreclosures, you name it... it happens.

That's why back when I was getting my undergrad degree, I opted out of Business Ethics [[is there really such a thing? ) and instead took Medical Ethics as a degree requirement.

[DetroitDad]

Dumping your debt back into society should be criminal.

At the very least its irresponsible and selfish.
Do they think that the banks just absorb the loss with no effect for other citizens?

Generally, I thought everyone had a contingency plan for when times got tough, especially Fortune 500 companies, banks, and various world governments. Apparently, almost no one did, except for a very few.

I can't take responsibility for other's inability to manage the possibility of lose. They took a gamble, knew the risks, and lost. These home owners who are walking away knew the risk and are just excepting their lose. I don't get how letting go of a bad investment is viewed as unethical.

[devman1983]

http://www.telegraph.co.uk/news/news...behaviour.html
So the judge cancels the mortgage because of Indymac's unwillingness to renegotiate the terms of the loan. It will be interesting to see what happens in the appeal. I never knew a judge could just flat out cancel the mortgage like that, but then again I'm not a lawyer.

This whole mess is both the lenders and the borrowers fault. If the lenders can get government bailouts and continue there bonus packages then as borrowers we can walk away too, and get a fresh start at the newly adjusted market price. It will be a long time before housing prices get back to normal for Detroit. Maybe not ever.

[DetroitDad]

Hey, a local auto supplier just walked away from my brother in-law and left him with three kids and no job, is that ethical? Of course, was Chrysler going into bankruptcy so it could walk away from a contract with that auto supplier ethical? Is it now ethical that my brother in-law had to walk away from his house?

Another interesting case is my sister's friend who recently inherited a Northwest Detroit home in a high crime neighborhood from her Mother who recently died. She is underwater on her suburban mortgage, is trying to pay it. She has had a hard time finding a renter. She is considering just walking away from the Detroit home. Is that unethical?

Since so many inner suburban homes are now underwater and held by empty nesters, will what is about to happen to them be ethical? Will it be ethical when cities, condo developments, and suburban communities have to cut services and raise taxes/dues because of depleting tax base? Will it be ethical when the people walk away from all these homes that reside in previously mentioned cities and communities? Will it be ethical when banks let them slide, or investors come in and divide and turn all those McMansions into cheap rental housing?

Should my family members stick it out in their underwater condos in condo communities with so many foreclosures that no one is left to pay the dues [[or bought in to begin with) and the association can no longer perform the maintenance and amenities promised?

Welcome to the casino [[sorry, this is a hot topic for me).

In the land and age of pure excess, the term ethics seems almost laughable.

[izzyindetroit]

Burn the motherfucker down!!!

[rondinjp]

I have looked far and wide for an answer to that question but have yet to come up with a single MCL that either says the above statement is true or false with regards to 2nd mortgages or even refinancing the first mortgage. I almost 100% sure that if the mortgage was a "purchase money mortgage" than the bank can't go after the debtor---- as far as a second mortgage??????

With respect to your mortgage it is a "non-recourse" debt which means the bank's only recourse on the lien is to acquire the house. However, for a "second mortgage" or home equity line of credit, you are entering into a recourse debt [[much like a credit card) wherein the bank can come after you personally for the debt owed.