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Old    Dave (sordave)      Join Date: May 2002       08-27-2010, 5:28 PM Reply   
My neighbors have decided to take the "my house is worth less than I owe so I am letting the bank take it" route. I have seen a few houses that have been foreclosed with yards that look like crap. Fortunately, these people are still living in the house and still have a yard service. We share about 200 ft of property line with nice shrubs and trees that are on their property and I am wondering if I should start planting on my property in case they let the plats die.

How long can these people live in the house without making payments? If they are forced to move, how long does a house typically sit unoccupied until it goes to auction or whatever?
Old    Sean M (magic)      Join Date: Mar 2002       08-27-2010, 5:36 PM Reply   
I don't work in the real estate/mortgage or legal biz, but my wife and I know of people that have stopped making payments and been in the current house for 9+ months, in one case just over a year. That's with them not making a single payment. Two of these cases have resulted in divorce and the wives did not know their husbands had stopped paying the mortgage till people were showing up to repro stuff.

We are in the market to buy a house right now and looking at short sales and bank repro's. The foreclosed homes take forever for the bank to list them. So the previous mortgage owner has been kicked out or moved out, the bank now owns the house and sits on it for months before even listing. Then it takes months for a sale to even go through. The whole time the house is not really kept up that well. A local neighborhood has houses that a few years ago where selling for $700K+ that are vacant and listed for under $500K not getting a single offer. We are in the process of putting together an offer on a short sale for $400K that last sold for $650K two years ago.
Old    Dave (sordave)      Join Date: May 2002       08-27-2010, 5:49 PM Reply   
Sean - This is the exactly the case - $700K house that is probably worth $450. The weird thing is they have not even tried to sell it. Just spending their money on toys, vacations, etc.

Are the short sale houses you have been looking at have their yards maintained or are they the weed filled dead grass types I have seen around. This is a really nice neighborhood and it would be a shame to have this house bring down the values of the other houses if it looks like a haunted house.
Old    Shawndoggy (shawndoggy)      Join Date: Nov 2009       08-27-2010, 6:14 PM Reply   
LOL, you mean it's a $450K house that they paid $700 for, right?

it varies from state to state, but out here in Nevada, it's pretty likely not to be physically removed from your house for 12-18 months (and in some cases longer) after your last payment. Don't know what your state's laws are like, but here in NV the "owners" aren't usually removed from the house until well after the home has been "sold" at auction (in quotes because it's usually the bank that takes the property back). The owners need to be evicted, and here banks are actually paying owners to leave. They'll give 30 days to move out and if the owners leave the place in OK condition, the bank will pay up to $3K (yes, that's right, bank pays $3K to the people who stiffed the bank). Banks are doing that because we've had a big problem with owner's stripping houses bare or just thrashing them before they go.
Old    Sean M (magic)      Join Date: Mar 2002       08-27-2010, 8:06 PM Reply   
Quote:
Originally Posted by sordave View Post
Sean - This is the exactly the case - $700K house that is probably worth $450. The weird thing is they have not even tried to sell it. Just spending their money on toys, vacations, etc.

Are the short sale houses you have been looking at have their yards maintained or are they the weed filled dead grass types I have seen around. This is a really nice neighborhood and it would be a shame to have this house bring down the values of the other houses if it looks like a haunted house.
The shortsale we are putting in offer in is in great shape. They current owners are still in the house. Problem will be if (big if) it closes at the price we're offering there are bunch of other houses priced $50K higher that very much the same (same builder, lot size, age, condition, upgrades...), so we'll drag down the neighborhood values even more...
Old    Paul (psudy)      Join Date: Dec 2003       08-28-2010, 8:34 AM Reply   
Typically after the court hearing they have a 60-90 day right of redemption. After that they are forced out. The time it takes to get to the hearing can often be a drawn out process especially if they fight it. Once it becomes OREO(bank property) they will usually auction it pretty soon, unless the market in the area is ok(doesn't sound like it is) then they may list it(its up to them). I am sure the bank would have no problem with you planting stuff there to keep it looking nice. It only improves their position. Or you could do them a favor and burn it down.

Keep in mind that if they do auction it, they usually let them go for pennies on the dollar, which could allow for some interesting new neighbors.

BTW, if they are the kind of people that can still afford it and choose not to because they made a bad investment, forcing the bank to take the loss, you should burn it down with them in it.
Old    Shawndoggy (shawndoggy)      Join Date: Nov 2009       08-28-2010, 1:05 PM Reply   
Quote:
Originally Posted by psudy View Post
Typically after the court hearing they have a 60-90 day right of redemption. After that they are forced out. The time it takes to get to the hearing can often be a drawn out process especially if they fight it. Once it becomes OREO(bank property) they will usually auction it pretty soon, unless the market in the area is ok(doesn't sound like it is) then they may list it(its up to them). I am sure the bank would have no problem with you planting stuff there to keep it looking nice. It only improves their position. Or you could do them a favor and burn it down.

Keep in mind that if they do auction it, they usually let them go for pennies on the dollar, which could allow for some interesting new neighbors.

BTW, if they are the kind of people that can still afford it and choose not to because they made a bad investment, forcing the bank to take the loss, you should burn it down with them in it.
This shows it REALLY varies from state to state. There's no right of redemption and no hearing in NV... just straight up nonjudicial foreclosure. Looks like Psudy is in Kansas, and sordave is in Indiana, so the experience will likely be different for all three of us.

Psudy... ho ho, it must not be TOO bad in your neck of the woods if banks are quickly auctioning REO properties. Here in NV there's about a TWO YEAR supply of bank owned properties which aren't listed and aren't being auctioned. Basically they are being held back to prop up the market. Ouch. It's a freakin wasteland out here.

Funny thing is the stigma of walking away is all but gone here too. EVERYONE is doing it. Basically anyone who bought or refi-ed after 2004 is underwater by 40-60%. I've spoken with many young couples who bought a crappy "starter" house/condo in 05 and 06 for say $325K and the house is now worth $110K. They are doing OK and can pay the mortgage, but life has intervened and they need a bigger place to raise a family, or need to move for employment, etc. No good answer for people in that position, especially when economists are predicting that they won't be back to "even" on their purchase price for FIFTEEN YEARS. Whether to stick it out for 15 or take the lumps on your credit report now is really just a business decision.

Last edited by shawndoggy; 08-28-2010 at 1:07 PM.
Old    Train (ttrigo)      Join Date: Dec 2004       08-29-2010, 10:34 AM Reply   
we have some "friends" who lived for free in their house for 15 months before it sold. effing joke. $4k camera, new car, trip to paris, NY. and they bragged about not having to pay "rent". meanwhile they had friends getting laid off and closing businesses. I hate people like this.
Old    C.I.E..... Evan (guido)      Join Date: Jul 2002       08-29-2010, 11:25 AM Reply   
Yeah.... crazy times right now. We're sitting on a rental house that is underwater right now. We're trying to do the ethical thing and not let it go. We had planned on being able to sell it after we moved and kind of got forced to rent it because of the reduced value. We'll see what happens. The mortgage will go adjustable in 1 year (we had a 5 year fixed on that property). If the rates adjust up we may opt to take our lumps and get on with it.

I still think values are artificially low. We've had this property for 7 years, put over $100k of improvements into it. It's a really nice little house, but right now it appraises for lower than we paid for it. Nearly $300k less than it appraised for at the top of the market. If only I'd sold it then. Ha, ha, ha.

Dave, you never know what'll happen. It all depends on the bank and the home "owner". Some people will just stop caring once the process is started. Others will keep up the property until they leave. You can bet on the fact that the bank wont maintain it, but around here the forclosures and shortsales are getting snapped up in a hurry. You can kind of get the idea that the houses are vacant by the less than perfect lawns, but it's not like some neighborhoods that I've been to where houses look abandoned. If it were my neighbors house I'd probably be inclined to do a bit of yard work to keep my house from looking like crap. It doesn't take much time to run next door and mow the lawn and pull some weeds.
Old    Hate N Pain (hatepain)      Join Date: Aug 2006       08-30-2010, 9:43 AM Reply   
I think you'd have to be a fool to move out of a property you're allowing to go back. With most banks one can expect 18 months of rent free living as they have so many properties to handle. Don't get me wrong I think it sux that people are doing this but if you're gonna do it you may as well stock pile some cash while you're at it. I have some neighbors that are short selling their house, they moved out right away 5 miles away? Now us neighbors get to take turns mowing the front yard. Honestly though, none of us are sad that they are gone.
Old    Akadirtbikingdad (wakeboardingdad)      Join Date: Aug 2008       08-30-2010, 10:43 AM Reply   
Quote:
Originally Posted by ttrigo View Post
we have some "friends" who lived for free in their house for 15 months before it sold. effing joke. $4k camera, new car, trip to paris, NY. and they bragged about not having to pay "rent". meanwhile they had friends getting laid off and closing businesses. I hate people like this.
Me too. We have some "friends" too who are working over the system. Meanwhile, they are getting another new vehicle, having the house re-done, new furniture and laptops for everyone! Of course, they are not returning the house to the bank, just not paying for multiple months so they can get the loan adjustment/government assistance done. Nice......
Old    C.I.E..... Evan (guido)      Join Date: Jul 2002       08-30-2010, 11:06 AM Reply   
If you don't know somebody already doing this, you will. It sucks for those of us trying to do things the right way. The unfortunate part is that there is little repercussion for this right now. IMO the best way to fix the economy is to stabilize the housing market by helping those that are current on their loans and enforcing some type of repayment for those that are walking. Until foreclosure's stop there will be no stabilization and the economy will suffer.

There was an economist on the radio that was contradicting my thought. Saying that banks are loaning at 4% and that it wasn't helping, that people weren't taking advantage. The reality is that those 4% loans just aren't available to those of us that bought in the last couple years and are temporarily underwater on our properties, and with 20% required down payments you're going to have a hard time luring potential buyings into the pool. It's just impractical what's going on. I guarantee that if I could re-fi my rental house to a 30 year fixed at 4-5% I wouldn't even consider walking from it.

The thing that kills me are the people that can still afford their houses, but are walking purely on the speculation that it'll take 15 years for them to recover their original value. I'm sure there are places where that will happen, but mark my words right now.... I predict a lot of these people will be left high and dry when the market rebounds. All it's going to take is the right loan product and it'll happen much quicker than people expect. Market values are so depressed right now in some pretty desirable areas.

We'll see what happens.
Old    Sean M (magic)      Join Date: Mar 2002       08-30-2010, 11:17 AM Reply   
Quote:
Originally Posted by guido View Post

There was an economist on the radio that was contradicting my thought. Saying that banks are loaning at 4% and that it wasn't helping, that people weren't taking advantage. The reality is that those 4% loans just aren't available to those of us that bought in the last couple years and are temporarily underwater on our properties, and with 20% required down payments you're going to have a hard time luring potential buyings into the pool.

We'll see what happens.
FYI -- You can do 3.5% down via FHA loan. You can have only one FHA load at a time, other than that I don't really know much about them. We are just starting the process now (have been pre-approved and meeting today to draft the offer on the Shortsale house we are looking at). Then I guess it's wait for months till someone process the offer to see what happens. In the mean time if the double dip deal does happen, there may be more houses at our price range to put offers on. It's so weird when I think back to March 2004 when we bought our current house, you had to look and put an offer in that day or get beat to the punch or into bidding wars, it only got worse from there.
Old    Steve - O (misteve)      Join Date: Aug 2007       08-30-2010, 11:28 AM Reply   
Wow! I can't believe people do that crap..... well actually I can I guess.

I wonder if any of the people that give up on their homes could be mildly responsible and instead of blowing their would be rent money save it and pay down their CC debt etc. so they can actually come out decent in the long run. It seems like if you have a mortgage, give up on it, and go12-15 months without making a mortgage payment you could save an eff load of cash!
Old    Paul (psudy)      Join Date: Dec 2003       08-30-2010, 1:14 PM Reply   
"underwater on our properties, and with 20% required down payments "

It might help if reporters started reporting facts. You DO NOT NEED 20% DOWN TO GET CONVENTIONAL PRICING. 5% is the Min. You must have a credit score of 740 or better to get the best rate. Anything below that increases your rate(but not by a whole lot until you drop below 680). Below 640 and you can't get PMI, so then the 20% rule kicks in.

I think media is half the battle to recovery. If they started actually checking facts and stopped reporting nonsence to people, maybe we would recover a lot quicker.
Old    Someone Else (deltahoosier)      Join Date: Jun 2002       08-30-2010, 4:15 PM Reply   
Except if you Don't put down 20%, you do have PMI and that gets a little pricey with only 5% down. That can be enough to keep people out of a loan.
Old    Patrick (jetskiprosx)      Join Date: Aug 2004       08-30-2010, 6:58 PM Reply   
PMI shouldn't be the difference between making payments and not. We didn't have 20% to put down and went the FHA route last year when we got our home. I think PMI cost is about 5% of our monthly mortgage payment. Not a killer by any means, but will be nice to be done with it
Old    Akadirtbikingdad (wakeboardingdad)      Join Date: Aug 2008       08-30-2010, 9:32 PM Reply   
Quote:
Originally Posted by jetskiprosx View Post
Not a killer by any means, but will be nice to be done with it
Don't forget that you'll have to get the wheels rolling to get rid of it. I had to pay for a b@tchy appraiser (no offense to appraisers overall, but she was not nice) to come by my house to get rid of it. If Guido is right and the right loan product causes housing to rebound, you may be done with PMI sooner than you thought. In a perfect world anyway.....
Old    Meathead (meathead65)      Join Date: Sep 2006       08-30-2010, 11:10 PM Reply   
Quote:
Originally Posted by guido View Post
If you don't know somebody already doing this, you will. It sucks for those of us trying to do things the right way. The unfortunate part is that there is little repercussion for this right now. IMO the best way to fix the economy is to stabilize the housing market by helping those that are current on their loans and enforcing some type of repayment for those that are walking. Until foreclosure's stop there will be no stabilization and the economy will suffer.

There was an economist on the radio that was contradicting my thought. Saying that banks are loaning at 4% and that it wasn't helping, that people weren't taking advantage. The reality is that those 4% loans just aren't available to those of us that bought in the last couple years and are temporarily underwater on our properties, and with 20% required down payments you're going to have a hard time luring potential buyings into the pool. It's just impractical what's going on. I guarantee that if I could re-fi my rental house to a 30 year fixed at 4-5% I wouldn't even consider walking from it.

The thing that kills me are the people that can still afford their houses, but are walking purely on the speculation that it'll take 15 years for them to recover their original value. I'm sure there are places where that will happen, but mark my words right now.... I predict a lot of these people will be left high and dry when the market rebounds. All it's going to take is the right loan product and it'll happen much quicker than people expect. Market values are so depressed right now in some pretty desirable areas.

We'll see what happens.
This is the great moral issue for a lot of folks....I am current on the note, my home is in excellent condition, but it is currently worth about 200K less than I owe. We saw values on our model peak at around 580K in early 06. Now its realistically trading for the 210-225 range, and I owe 410K on it.

I could qualify for the same mortgage I have on this house, but buy easily twice the home, on the waterfront, in a better hood right now. Every month is a struggle to send of the mortgage knowing how much more house we could be getting for that payment.
Old    Josh Morgan (Lawdog)      Join Date: May 2010       08-31-2010, 12:14 AM Reply   
It's kinda funny how people get all upset at the ones who can afford their house but choose to walk away from it. They are working the system the same way most people on section 8 work the system. Most on section 8 dont even have a job and suck more tax dollars than anybody. People have been doing it for YEARS, but now that the middle class is working the system people are upset about it. Personally I'm all current with my bills and my house hasnt taken a hit in this economy, as a matter of fact it's worth more.
Old    Akadirtbikingdad (wakeboardingdad)      Join Date: Aug 2008       08-31-2010, 5:54 AM Reply   
Lawdog, you're house is rare and you are lucky. Let me be clear. I am upset at EVERYONE that takes advantage of the system. The reason why folks turn a blind eye to the section 8 folks is because they do not have the means to do hardly anything else, but there has always been disgust about those who use food stamps to buy better quality of meats or use their cash to buy beer, cigs and now cell phones. However, they are not typically in our backyard (aka middle class). However, when you see someone that is a friend or a next door neighbor and you see their toys or know of the vacations they have enjoyed while you and yours did without, then that puts a different spin on it. However, to conclude, I am a equal opportunity hater.

This sucks for everyone though. I am lucky too. My house is not upside down, but that is not because I have it almost paid off. It is because my house is "normal" in a "normal" neighborhood, in a "normal" city. It is not a high end house that was so highly sought after several years ago and in a city that was devastated due to the economy. Being a working class city (Memphis) it has not been hit so hard, but my wife has lost her job too.

If I were young, and realized that I was in a huge hole that was not my fault or could not dig myself out of for 10 to 20 years, it would be a struggle to stay somewhere when "everyone else is doing it".
Old    Tim C (lifetimewarranty)      Join Date: Oct 2008       08-31-2010, 7:48 AM Reply   
Quote:
Originally Posted by Lawdog View Post
It's kinda funny how people get all upset at the ones who can afford their house but choose to walk away from it. They are working the system the same way most people on section 8 work the system. Most on section 8 dont even have a job and suck more tax dollars than anybody. People have been doing it for YEARS, but now that the middle class is working the system people are upset about it. Personally I'm all current with my bills and my house hasnt taken a hit in this economy, as a matter of fact it's worth more.

Actually, Lawdog, most of us that take care of ourselves are pretty upset with those working section 8 also. I think it is possible to be ticked off with 2 things at the same time...

And Meathead, you've got my respect for honoring your debt. Way to "Man up".
Old    Akadirtbikingdad (wakeboardingdad)      Join Date: Aug 2008       08-31-2010, 11:11 AM Reply   
I have to add one more thing here. Last night, I caught the author of the book "The Cheapskate Next Door" on CBN. He said that some of the "cheapskates" he met would go to the bank and ask what they could qualify for, on a house, and then go buy a house that was 75% of that amount. Duh! Even when I bought my first house at the tender age of 22 and didn't have a pot to p@ss in, I knew the bank had a very different view of what I could afford. Who let's the bank tell them what they can afford to pay? Oh yeah! The one's who were a large contributor in getting the market in this shape. The public who lets others think for them, don't do the math themselves, and thinks the guy selling the loan and house are to be trusted.
Old    John Anderson (fly135)      Join Date: Jun 2004       08-31-2010, 11:21 AM Reply   
There's a big difference between sec 8 and foreclosure. Sec 8 people work the system and foreclosure people are worked by the system. People who bought houses aren't primarily what caused the economic anomoly that directed them into overpriced homes. I'm really surprised if anyone is stupid enough to stay in an upside down house if they've thought it through and decided they would be better off out of it.
Old    C.I.E..... Evan (guido)      Join Date: Jul 2002       08-31-2010, 11:25 AM Reply   
Oh trust me.... Section 8 and Wellfare piss me off as much or more than those walking from poor mortgages and underwater homes.

My personal feeling is this:

-There needs to be repercussion for walking from your mortgage. Bankruptcy, colletctions, etc....
-The banks need to take some responsibility for their actions by writing mortgages for people that are current, but are underwater. Making fixed rate mortgages available and affordable would be huge.
-The banks and Fed need to re-evaluate lending policies. People have proven that they aren't smart enough to do it on their own. Guidelines need to be in place to prevent the massive inflation that the housing market saw from '00 to '05. It's really simple: Don't write loans for people that can't afford them. Owining a home is a privilage, not a right.

Oh and:

-Section 8 and Wellfare is not simply a gift. It is a crutch. If you want to stay on it, then prove to me why you can't work and be a productive member of society.
Old    Sean M (magic)      Join Date: Mar 2002       08-31-2010, 11:57 AM Reply   
Re Section 8, my parents own an apartment building, they flat out refuse to rent to Section 8 tenants. They don't get to many applying and their current tenants tend to rent for a long time, but once they see Section 8 on the application, it's bye bye.
Old    John Anderson (fly135)      Join Date: Jun 2004       08-31-2010, 12:28 PM Reply   
We have a home we rent out and I won't take a sec 8 either. You might get your rent, but that doesn't stop them from destroying your property. A good credit record and a holding a job is the only thing that offers any recourse for collecting a debt owed.
Old    Shawndoggy (shawndoggy)      Join Date: Nov 2009       08-31-2010, 12:30 PM Reply   
Quote:
Originally Posted by guido View Post
Oh trust me.... Section 8 and Wellfare piss me off as much or more than those walking from poor mortgages and underwater homes.

My personal feeling is this:

-There needs to be repercussion for walking from your mortgage. Bankruptcy, colletctions, etc....
-The banks need to take some responsibility for their actions by writing mortgages for people that are current, but are underwater. Making fixed rate mortgages available and affordable would be huge.
-The banks and Fed need to re-evaluate lending policies. People have proven that they aren't smart enough to do it on their own. Guidelines need to be in place to prevent the massive inflation that the housing market saw from '00 to '05. It's really simple: Don't write loans for people that can't afford them. Owining a home is a privilage, not a right.
Banks have made a purely economic decision to not (right now anyway) pursue deficiencies. It costs more to chase people down who don't have the cash in the first place than it does for the bank to lick its wounds and move on. "Justice," in the sense of people getting what they deserve, can by VERY expensive.

Sadly, our economy can't withstand scraping every defaulting borrower out of the credit pool forever. We depend on people to get in debt up to their eyeballs. They might get benched for a while, but they'll be back in the game in 5-7 years at the longest.

As has been mentioned above in the thread, one way banks could protect themselves would be to make loans smaller relative to the value of the collateral. When you were seeing 100% financing with interest only for 5 years, it didn't take a rocket scientist to see that this was going to result in overpriced housing (and banks taking huge losses if it comes to foreclosure). If banks would NEVER loan more than 80%, there'd always be an equity cushion and as a side effect there'd be less likelihood for dramatic jumps in value... because the pool of borrowers would be limited to those who could come "cash in" with 20%.

Think that sounds harsh? Just wait till the shoe starts to drop on the commercial market in the next couple of years. On that side, the market started to explode in 2001 or so. Most of those mortgages are for 10 years, but amortized for longer periods... meaning that as they come due, there will be "balloon" payments. Back in 2001 it was realistic that borrowers would just refi when the day came. The problem is that lending practices have tightened significantly -- it's rare to see a bank lend on less than a 60/40 basis on a commercial property now.

The end result for those who pay their bills is that tightened lending practices will continue to decrease the value of our homes, and will most certainly prevent massive increases in value. As long as there are a substantial number of people upside down, we won't have equilibrium. And once we do reach bottom, I do not expect a huge rebound... many of the "best" borrowers now have a foreclosure or short sale on their credit report, we've got a weaker economy, and people generally are more wary of buying a home as an investment in their future.
Old    Paul (psudy)      Join Date: Dec 2003       08-31-2010, 1:25 PM Reply   
Once the property becomes bank owned, that cushion the 20% provides evaporates rapidly.
Old    Shawndoggy (shawndoggy)      Join Date: Nov 2009       08-31-2010, 2:57 PM Reply   
Quote:
Originally Posted by psudy View Post
Once the property becomes bank owned, that cushion the 20% provides evaporates rapidly.

Precisely. In uncertain market conditions it's quite possible that an 80/20 loan does not fully secure the loan. Which makes taking anything less than 20% down a risky proposition.
Old    Jason B (jason_b)      Join Date: Feb 2008       08-31-2010, 5:34 PM Reply   
@Shawndoggy- the commercial market has already fallen and made a gnarly thud when it hit the floor. Look around you, how many commercial spaces are vacant? SHIIITLOADS!!
Unfortunately I do own a commercial property (a strip mall with 4 other investors). We paid $4.4 mill, we put down better than 20% in the end of 2008. As it stands today, Blockbuster went dark on us (and stopped paying rent), our jewelry store stopped paying rent, our dry cleaner raped us on a contract re-up after threatening to move, Hair Cuttery was set to go if we didn't concede to term changes, and the other 3 tentants are good (thank God). We have annual taxes of $300k plus in addition to our monthly note. As it is, the mall is valued at $2.2 million. If we could fill our anchor space that value would go up--fat chance of that happening anytime soon though.

We continue to reach into our own pockets every month to make this payment. At somepoint we are going to have to "walk away" from it. To that end, our lawyer has advised us that the bank MAY agree to a short sale. IF they do, we can be damn sure, she says, that they will come after us for the remainder as things settle down and the chips start to fall back in place for us investors. The residential market is no different, people who get a short sale are seldom just "relieved" of their obligation to pay the difference. In fact there are a lot of articles out there that speak of this. Banks come back to the creditor after a few years of getting back in good standing so they have a better chance of recouping their losses.

For us--they are going to be screwed, we probably let this mall tank us for the next 20 years!!! lol
Old    Train (ttrigo)      Join Date: Dec 2004       08-31-2010, 8:03 PM Reply   
no offense Jason, as I respect anyone willing to take a shot of being a business owner of some sort, but "walking away" form your obligation just screws over everyone else. you have a moral obligation to fulfill, regarding your loan. it is no ones fault but your own for investing in property at the worst possible time. walking away is just wrong.
the real estate market is a gamble. it rises and falls. if you are in it to make money, you better have a good idea of when to buy and sell.
Old    Shawndoggy (shawndoggy)      Join Date: Nov 2009       08-31-2010, 9:13 PM Reply   
Quote:
Originally Posted by jason_b View Post
@Shawndoggy- the commercial market has already fallen and made a gnarly thud when it hit the floor. Look around you, how many commercial spaces are vacant? SHIIITLOADS!!
Unfortunately I do own a commercial property (a strip mall with 4 other investors). We paid $4.4 mill, we put down better than 20% in the end of 2008. As it stands today, Blockbuster went dark on us (and stopped paying rent), our jewelry store stopped paying rent, our dry cleaner raped us on a contract re-up after threatening to move, Hair Cuttery was set to go if we didn't concede to term changes, and the other 3 tentants are good (thank God). We have annual taxes of $300k plus in addition to our monthly note. As it is, the mall is valued at $2.2 million. If we could fill our anchor space that value would go up--fat chance of that happening anytime soon though.

We continue to reach into our own pockets every month to make this payment. At somepoint we are going to have to "walk away" from it. To that end, our lawyer has advised us that the bank MAY agree to a short sale. IF they do, we can be damn sure, she says, that they will come after us for the remainder as things settle down and the chips start to fall back in place for us investors. The residential market is no different, people who get a short sale are seldom just "relieved" of their obligation to pay the difference. In fact there are a lot of articles out there that speak of this. Banks come back to the creditor after a few years of getting back in good standing so they have a better chance of recouping their losses.

For us--they are going to be screwed, we probably let this mall tank us for the next 20 years!!! lol
It varies from state to state and lender to lender (or more specifically CDO to CDO) but there are in fact lenders that are waiving a right to pursue a deficiency judgment in the context of a residential short sale. Additionally, many states have accelerated limitations periods for bringing suit on a foreclosure (here in NV, a deficiency action must be brought within 6 months of a trustee's sale in foreclosure). Anecdotally, at least in my neck of the woods, lenders are not bringing deficiency actions within that six month window.

Quote:
no offense Jason, as I respect anyone willing to take a shot of being a business owner of some sort, but "walking away" form your obligation just screws over everyone else. you have a moral obligation to fulfill, regarding your loan. it is no ones fault but your own for investing in property at the worst possible time. walking away is just wrong.
the real estate market is a gamble. it rises and falls. if you are in it to make money, you better have a good idea of when to buy and sell.
ttrigo, I don't disagree with you... but I'm not sure I agree with you either. The masterminds of the MBS / CDO obligations got TARP... they did effectively walk away (or force the government -- that's you and me) buy unsellable collateralized debt obligations. Was that immoral? Maybe, maybe not. The argument is that it had to be done to keep the economy from going into a tailspin. On a much smaller scale, there are a lot of people out there who bit off a lot more mortgage payment than they can chew and they are choosing to walk rather than slog through to break even later. An argument can be made that they are acting in the same way that the lenders did, just in the micro scale.

I'm still thankfully "above water" so I don't really have a dog in the fight. Yeah, my neighborhood has declined in value, but I never took cash out during the boom, so it's hypothetical gain and hypothetical loss. But I can personally sympathize with my neighbors when I hear that quite literally 60%+ are upside down by 20% or more. There is a moral component to borrowing money and promising to pay it back. But some of the "moral" connection is lost when you don't really even know who you are paying... when your loan has been sliced and diced and sold and resold so many times that you aren't really stiffing a real person when you walk away.

Its complicated.
Old    Train (ttrigo)      Join Date: Dec 2004       08-31-2010, 9:28 PM Reply   
I agree with you that it is complicated, but it still does not make it right to walk away from something that was a bad business decision. my house is currently worth about $40k less than what we paid for it. but you know what? we planned ahead. we did not buy expensive toys and go on lavish vacations. we also took out a normal 30 year fixed rate loan. so many people nowadays feel like they are entitled to own a home, instead of renting. no document loans where people who are making $30k a year are buying $700k homes is ridiculous. the banks are definitely partially to blame, but so are the people who signed the contract.
I honestly have no stake in this, since I am not worrying about walking away from anything. it just pisses me off when so many people take advantage of the situation, and stock up on toys prior to bailing.

"you aren't really stiffing a real person when you walk away."
IMO, you are stiffing your neighbors and friends who are not walking away from their obligations.
Old    Shawndoggy (shawndoggy)      Join Date: Nov 2009       08-31-2010, 10:09 PM Reply   
Quote:
Originally Posted by ttrigo View Post
"you aren't really stiffing a real person when you walk away."
IMO, you are stiffing your neighbors and friends who are not walking away from their obligations.
Nice guys finish last... Those same people who are bailing now are the ones who were re-fi'ing all of the equity out of their home in 2005 to buy the escalade (and getting a tax deduction on the interest) while I was being taxed on the interest income on money I saved for a rainy day rather than spend.

Can't let it make you mad what others are doing... Someone will always be gaming the system to our detriment.
Old    Nickbot (nickbot)      Join Date: Feb 2007       09-01-2010, 7:27 AM Reply   
people who walk away will hopefully suffer by means of bad credit and the fact that they will eventually be evicted and have to find a new place to say. i wouldn't do it, but i can understand why people do...they are doing nothing illegal, just gaming the system.
as for fixing the problem long term...no more government intervention please!!! a lot of people are going to have to take the hit for buying houses at inflated prices. no one forced anyone to buy $700K houses that were only "worth" $400K. people wanted to take out risky loans on over priced houses and banks wanted to give out those loans...both parties need to take the hit for this market to "reset". i feel that government intervention will only prolong the inevitable reset and perpetuate angst against those being "bailed out". in 2005 i almost bought a house but came to the conclusion that it was just NOT worth that much money. i met with a mortgage broker for 2 hours trying to understand what he was selling me...it didn't make any sense so i chose to continue to rent. 3 years later when all the sheep tanked that market I got a nice house on a lake for what I considered to be a "fair" price while many others were crying unfair and looking for someone to blame. why would any bank want to refi a house that is now worth less than you owe...even it you were never late, yadda, yadda, yadda...it makes no sense. you made your bed, now you have to lay in it...
Old    Paul (psudy)      Join Date: Dec 2003       09-01-2010, 7:59 AM Reply   
The Fed buy back of unmarketable securities and TARP are two different things. TARP cost the financial firms 9%(in a 3% world) dividends on prefered stock. A lot of firms that got TARP have already paid it back to get the gov. out of their companies.
Old    Paul (psudy)      Join Date: Dec 2003       09-01-2010, 8:02 AM Reply   
Quote:
Originally Posted by jason_b View Post
@Shawndoggy- the commercial market has already fallen and made a gnarly thud when it hit the floor. Look around you, how many commercial spaces are vacant? SHIIITLOADS!!
Unfortunately I do own a commercial property (a strip mall with 4 other investors). We paid $4.4 mill, we put down better than 20% in the end of 2008. As it stands today, Blockbuster went dark on us (and stopped paying rent), our jewelry store stopped paying rent, our dry cleaner raped us on a contract re-up after threatening to move, Hair Cuttery was set to go if we didn't concede to term changes, and the other 3 tentants are good (thank God). We have annual taxes of $300k plus in addition to our monthly note. As it is, the mall is valued at $2.2 million. If we could fill our anchor space that value would go up--fat chance of that happening anytime soon though.

We continue to reach into our own pockets every month to make this payment. At somepoint we are going to have to "walk away" from it. To that end, our lawyer has advised us that the bank MAY agree to a short sale. IF they do, we can be damn sure, she says, that they will come after us for the remainder as things settle down and the chips start to fall back in place for us investors. The residential market is no different, people who get a short sale are seldom just "relieved" of their obligation to pay the difference. In fact there are a lot of articles out there that speak of this. Banks come back to the creditor after a few years of getting back in good standing so they have a better chance of recouping their losses.

For us--they are going to be screwed, we probably let this mall tank us for the next 20 years!!! lol
You should be talking to your bank. They can often times help by reducing rate, or stretching the AM. We have done this more than once to help get people through slow periods. They would much rather get less income from you than the property back.

If Blockbuster was still under lease, you need to be talking to your lawyer though.

Last edited by psudy; 09-01-2010 at 8:10 AM. Reason: le
Old    Jason B (jason_b)      Join Date: Feb 2008       09-01-2010, 9:02 AM Reply   
Quote:
Originally Posted by ttrigo View Post
no offense Jason, as I respect anyone willing to take a shot of being a business owner of some sort, but "walking away" form your obligation just screws over everyone else. you have a moral obligation to fulfill, regarding your loan. it is no ones fault but your own for investing in property at the worst possible time. walking away is just wrong.
the real estate market is a gamble. it rises and falls. if you are in it to make money, you better have a good idea of when to buy and sell.
We have been meeting our obligations to this point. I/we HAVE done the "moral" thing. No worries there. Unfortunately, at SOME point, I stop having anything more to give. We don't want to walk away, we HAVE to walk away. We have been perfect withour obligations through all the times our tenants have not shared our "morality." You can only ring soooo much water from a turnip before it's dry.

@psudy--We have been speaking to our bank. They did do interest only for 6 months--and then accelerated the maturity date by 4 months. They're taking a hard line--which is fine, they gotta do what they feel is best and we in turn will do the same.

@shawndoggy- We haven't hit the point where we have talked about waiving any rights to deficiency actions-yet. We will soon though I'm sure. lol I'll let ya know how that goes.

Part of the problem we are having is that, as unfair as it is, 3 of our 5 investors are disgusting rich. Mega rich. Not me though. The bank is well aware of all of our financial situations and our lawyer has advised us that she feels confident the 3 mega-rich partners will be on the line, pursued aggresively for the remaining debt. We have an operating contract among us and our individual LLCs, but the bank/courts do not recognize the fractional ownership in regards to collecting debt. The main LLC that owns the mall is obligated to pay regardless of % ownership distributions of that main LLC. Worst case, my friends and co-investors get stuck paying and I--out of good conscience and a moral obligation to do the right thing-- would be indebted to them for more than I could really hope to be able to pay back in a lifetime.

To boot-- I lost my life savings and retirement fund. Thank goodness I am only 36 AND my boat was paid for with cash!!!! The boat was put in my father's name at the first sign of this mall going downhill.

and to the others talking about Escalade's, vacations, and luxuries. I drive a 10 year old truck with almost 200k miles and live in a $200k house. I have not taken a vacation AT ALL in 6 years
and I have basic cable. My boat is my ONLY luxury. I have done things right (saved cash, borrowed responsibly, paid bills, etc...) Sometimes the good guys just get sucked down with the bad ones- it happens.
Old    John Anderson (fly135)      Join Date: Jun 2004       09-01-2010, 9:43 AM Reply   
Jason, the LLC doesn't insolate you from personal liability? This talk about moral responsibility is horses**t. There is no moral responsibility in the business world, where morals are nothing more than lip service and law is the only consideration.
Old    Shawndoggy (shawndoggy)      Join Date: Nov 2009       09-01-2010, 10:51 AM Reply   
@Jason, I hope you're pursuing Blockbuster vigorously. I'm working with a client in the same boat with Blockbuster (bailed on lease), and the Blockbuster in my neighborhood also went kaput. I don't think Blockbuster is long for this world.

Best of luck. Sounds like you are doing the best you can in a bad situation. It's cold comfort, but you aren't alone.
Old    Shawndoggy (shawndoggy)      Join Date: Nov 2009       09-01-2010, 10:52 AM Reply   
Quote:
Originally Posted by fly135 View Post
Jason, the LLC doesn't insolate you from personal liability? This talk about moral responsibility is horses**t. There is no moral responsibility in the business world, where morals are nothing more than lip service and law is the only consideration.
My bet is that the loan docs were personally guaranteed by the principals.
Old    C.I.E..... Evan (guido)      Join Date: Jul 2002       09-01-2010, 11:20 AM Reply   
Yup... business bites sometimes. We closed doors on our company last year in the midst of the economy faltering. The remaining debt was to be paid out of pocket from 4 partners. When we sold the vehicles we paid out cash to one of the partners to pay down his portion of debt (he was carrying some personal debt for the business). After we paid him out cash he claimed bankruptcy and settled all of his personal debt. He ended up coming up on the cash we paid him. Just stuck it in his pocket. Meanwhile those of us that didn't claim bankruptcy are still paying down the debt. Some people have different ideas of morals. If I were planning on going bankrupt I would've left the money in the business so as to minimize the blow to the other partners, but that's just me. This same guy bailed on a house that his parents put the down payment on. Bummer for them.

It's interesting...... I could easily stop paying payments on my rental property and collect rent until the tenant is evicted. Would it be wrong? Absolutely. Would a lot of people do it? Probably. Did a lot of people buy way over their heads and spend equity that didn't exist? Sure.

It's just kind of funny to me. 10 years ago claiming bankruptcy had a major stigma attached to it. Now it's no big deal.
Old    D. Cooper (dcooper)      Join Date: Mar 2005       09-01-2010, 11:23 AM Reply   
Evan, check your index and margin on the 5/1 ARM. If it's a FNMA or FHLMC loan, chances are it will decrease in the near term while the indices are low. Eventually when the economy heats up the indices will go up and thus the rate. My bet is for the next couple of years you will be lower or close to the same in rate. You may also have a conversion feature to that ARM which would allow that to convert to a fixed rate at a .50% or .75% higher than the FNMA 60 day rate with a $250-300 fee. As long as payments have been on time for the preceding 12 months. All that info will be in the Note and ARM Rider to the Note.
Old    Jason B (jason_b)      Join Date: Feb 2008       09-01-2010, 12:22 PM Reply   
Quote:
Originally Posted by shawndoggy View Post
@Jason, I hope you're pursuing Blockbuster vigorously. I'm working with a client in the same boat with Blockbuster (bailed on lease), and the Blockbuster in my neighborhood also went kaput. I don't think Blockbuster is long for this world.

Best of luck. Sounds like you are doing the best you can in a bad situation. It's cold comfort, but you aren't alone.
We are negotiating a buyout now for pennies on the dollar with Blockbuster-better than nothing, but it won't help that much.

There were personal guarantees from the other investors, not from me. I have a self-directed IRA set up for this particular investment. All of my $$ dealings are done through a trust and part of the law governing SDIRAs is that you can not collateralize investments with personal assets, nor can you sign a personal guarantee for anything. The group was ok with that. Techinically, I could walk away and be fine. I WILL NOT do that though. My parents raised me well enough to know that's a horse shiiit move to pull on somebody. My word and my principals mean enough to me that I won't hang strangers--leave alone friends. It really isn't an option for me. If the mall had killed it as (like it was when BB was rocking) I would not have walked away from profits--I can not in good conscience walk away from losses.

@fly135- You and I are going to have to agree to disagree on morals in business. This has broken me financially, but not personally. I will be ok. In the end I'll walk out with my pride intact and my conscience clear-no looking over my shoulder. There are too many stakeholders relying on moral behavior from business everywhere. Just because something is "legal" it doesn't mean it is moral or socially acceptable in practice. What the banks did the last few years with selling bad CDOs was legal, financial giants paying out bonuses to staff after taking bailout money was legal, insurance companies denying claims for pre-existing conditions is legal, speculators running up commodity prices is legal..... The attitude you took in your post is a reason we are ALL struggling right now with a depressed economy. But eff it right!!?? It WAS "legal." Screw the neighbor..... That's just not my style brother.
Old    John Anderson (fly135)      Join Date: Jun 2004       09-01-2010, 1:17 PM Reply   
Jason, nothing to disagree with. Your post just confirmed what I said. There are no morals in business. You have to watch your back at all times. I'm not implying that you should screw over your business partners, as you probably have a personal relationship with them and you are all in it togeather. You've seen it yourself. Major corporations have no moral code.

I personally am not a risk taker. So I've never gotten myself into situation where I couldn't fullfill my obligations. But businesses only follow the law, and that's if they can't get away with breaking it. Heck, the GOP in Florida just elected in the primaries a candiate for Govenor an ex CEO of a Healthcare corp that was fined $1.7B for Medicare fraud under his watch. People don't hold businesses to their moral obligations. They'd rather complaint about welfare moms or some poor smuck that lost his job and had to walk on his underwater home.
Old    Paul (psudy)      Join Date: Dec 2003       09-01-2010, 1:51 PM Reply   
"@psudy--We have been speaking to our bank. They did do interest only for 6 months--and then accelerated the maturity date by 4 months. They're taking a hard line--which is fine, they gotta do what they feel is best and we in turn will do the same."

Obviously I don't know the whole picture, but it appears they are taking a hard line with you and that doesn't make since. You said it was worth 4.4 when you bought it and now its 2.2. If you bought it in 07, you probably still owe a great deal more than the 2.2, so the bank will obviously take a large hit if it becomes OREO. (they won't even get the new appraised value once its bank owned anyway). If you try and do the right thing and they are unwilling to work WITH YOU, let'em have it. BTW, a bank can't come after retirement funds in the event of a deficiency. They are exempt assets.
Old    Sean M (magic)      Join Date: Mar 2002       09-13-2010, 9:12 PM Reply   
Bringing this thread back up.
We put an offer in on a Short Sale house that was accepted by the current mortgage owners. We'll see if the bank wants any part of it or not. Did $388,000 with up to $12,000 closing (so $400K offer). House last sold for > $650K and they currently owe $630'ish with a first and second on it. Whole process is such a PITA and the bank could counter offer in 2 months or reject the whole deal.

Also found an other house where the owner foreclosed on it, and still claimed his mortgage and property taxes on his 1040. How's that, free house, larger tax return... kinda funny what you can learning from an angry ex-wife and public records.
Old    Brett Yates (polarbill)      Join Date: Jun 2003       09-13-2010, 10:16 PM Reply   
Quote:
Originally Posted by magic View Post
Bringing this thread back up.
We put an offer in on a Short Sale house that was accepted by the current mortgage owners. We'll see if the bank wants any part of it or not. Did $388,000 with up to $12,000 closing (so $400K offer). House last sold for > $650K and they currently owe $630'ish with a first and second on it. Whole process is such a PITA and the bank could counter offer in 2 months or reject the whole deal.

Also found an other house where the owner foreclosed on it, and still claimed his mortgage and property taxes on his 1040. How's that, free house, larger tax return... kinda funny what you can learning from an angry ex-wife and public records.
Sean the biggest reason you will or will not get the place is the listing agent. If they truely aren't someone who knows how to deal with a short sale it wont happen. The real estate agent I used to buy my condo is one of the guys who actually is a short sale specialist. The agent has to be an absolute bulldog with the bank(s) to see any progress. There are way too many agents who say they specialize in short sales but have only done a handful.
Old    Jonathan (TheSarge)      Join Date: Apr 2010       09-13-2010, 10:49 PM Reply   
Real estate agents ARE and equal SCUM in any market. Sorry, flame away for the few that are on here.
Old    Sean M (magic)      Join Date: Mar 2002       09-14-2010, 12:28 AM Reply   
Quote:
Originally Posted by polarbill View Post
Sean the biggest reason you will or will not get the place is the listing agent. If they truely aren't someone who knows how to deal with a short sale it wont happen. The real estate agent I used to buy my condo is one of the guys who actually is a short sale specialist. The agent has to be an absolute bulldog with the bank(s) to see any progress. There are way too many agents who say they specialize in short sales but have only done a handful.
There is a 3rd party that the seller enlisted to manage the short sale side of things. I looked and looked and dug into things, to get someone that knows their way around this whole process is typically $3K or about 1% of the selling price (which is ever more). They spend all of the time with the bank(s) doing the selling agent's work for them. Since the seller has brought a 3rd party to do this and wants me to pay for it, I'm going to either take them to arbitration post sale to get the fee back (recent NWMLS changes may allow for me to do this), negotiate at the end that the agents take a commission hit to cover the 3rd party, or begrudgingly pay for it since we're keeping everything in the house (entire nice kitchen, really nice washer and drier, wooden blinds, custom curtains, A/C, custom shelves) and getting a killer deal.

This is of course if the deal goes thru, not holding my breath. Come 60 days or whatever it takes the bank to get around to replying, new construction may be the same price. It's been trending down in the same area and we have found a brand new house being built that we like for the same price. Just like the schools and neighborhood of the short sale home a bit better. But the new house has a Subway and Teriyaki within walking distance...
Old    Sean M (magic)      Join Date: Mar 2002       12-16-2010, 6:31 PM Reply   
Thought I'd bring this old thread back up.

We just gave up on the Shortsale house we had an offer in on. It's just over 95 days and counting now with no word back from the bank. They have ordered several broker appraisals and that is it. In the mean time we've negotiated with three other houses. Two bank owned and one normal.

Was out bid on one of the bank owned house and we walked from the second one due to a host of problems (messed up whole home automation/wiring), damaged dry wall, crap paint, nasty carpets, swampy yard, messing some appliances and one of the exterior walls was very wet (like water stains on the window sills in side the house and you could push a key thru the exterior wood frame on the windows). Poor house is only 6 years old and it is trashed.

I will say on the two bank owned houses the banks got back super fast to offers. The one that we walked from was even going to front 3.5% towards closing (more than covers closing costs).

In the end we got a good price on a normal sale home that is in great shape. We even got their fridge, washer and drier. All very nice appliances. The loan process is WAY harder with so much more paper work than I remember before. They got all hung up on a $4K check I deposited and the difference between my gross and taxable earnings. I'd think that mortgage biz would be very used to people with sizable differences between gross and taxable earnings. And the $4K check was returned earnest money on one of the other houses. How hard is that to figure out?

Anyways, Saturday I'm off to find some cash only laborers to help unload the PODS and move in!

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