patrick.net

Although I agree that this Home Debtor is in a Bad Situation, I am not feeling too sympathetic.
Two Years Ago, he made the decision to purchase this home.
At that time, he obviously felt the price was going to continue to increase in value.
The fact that he put down $190,000 tells me he was comfortable with the $595,000 price tag.
I have been renting, because I felt buying a home was not affordable, even though my salary was just above the Median Salary of $46,000
I was confused, wondering how everyone was buying these $375,000 - $500,000 homes if the average Salary is only $46,000
It was "Responsible" people like this person, who contributed to Housing Bubble.
Question: If you read absolutely nothing about Housing Prices, would you still have purchased the home for $595,000 based on your Salary?
If the answer is "NO" then you shouldn't have bought this place.
If the answer was "Yes", then you obviously felt "Good" about allocating your Salary towards the Purchase of this home and should "Suck it up".
YOU helped drive the prices up, be Responsible!!!!

I suggest you purchase an e-book by George Ure of www.urbansurvival.com called HOW TO LIVE ON $10,000 A YEAR OR LESS. The website is: http://www.liveontenthousand.com/

I say that because he has excellent street smart advice on your situation. I'd give it an A+. It is only $10.00.

Housing is still overpriced, way over priced. All you are doing is throwing good money into a rat hole. The banks have made their money with the lending and paper fees and sold your loan.
Your loan has been bundled and sold many times.

Gather up all the information you can about the current state of the economy, the bail-out bubble, etc. Read, read, read.

Your home will never be worth what it is now because the wages of families are going down, not up.

I personally would walk and follow the advice George gives in his little priceless e-book.

Ccurtis, I focused on John in my last post because this article was about his mortgage woes. I agree with you about holding the bankers accountable too. Unfortunately the bankers have de facto immunity by being "too big to fail". The way capitalism was supposed to work was that debtors face recourse and bankers face failure. In the face of real consequences both parties must bend and find a solution. Nobody has any incentive to work together when it's so easy to walk away and bailout funds and social programs sit at the ready. Regular people like me are the ones left cleaning up after the mess, again.

The fact that John and some lender set up an ARM when there was a 30% down payment just boggles my mind. The only excuse for doing that at such a high dollar figure is because you expect to make a quick buck before the rate resets. Given how fast that area was increasing in value I'm convinced that's what they both wanted. They both got burned. I can't help but get irritated at John for wanting to walk away, but I am likewise angry at his lender for making such a dangerous loan. They both made bad bets. They should both face consequences. They both have made it harder for me to buy a property by artificially inflating values and limiting the supply of properties that can sell at real market value. Unfortunately, he'll probably walk away (which is the best option) and his bank will siphon even more taxpayer money. Very frustrating. Even more frustrating when letters start showing up in my mailbox telling me of rate and fee increases because of "market conditions" caused by bankers and people like John instead of my financial history.

You never learn not to touch the stove if you don't get burnt.

ex-realestateagent,

( How endearing? ) Nice plug but the good folks here at Patrick.net have the art of frugal living down to a fine science. We appreciate your concern.

Hey, any of you guys remember a true PITA that used to post here as Rick Schmendrickus, or Rick of Schmend etc? I went through the blog search and evidently I've no idea how to make it work. Just curious if any one can access the archives to find some of those "golden" posts? TIA.

DinOR, you're right, a search for Schmendrick turns up nothing, but there was a "Schmend Rick" and some of his comments are here:

http://patrick.net/wp/?p=408#comment-362759

Weird, because I remember a Schmendrick who was a more prolific writer.

If you can buy the same house for less than you owe on your current house and have the ability to do so, I'd say go for it. Buy the new house, move, and mail the keys to the bank.

John,

Sorry to hear about your situation. The drop from your appraisal peak of $618,000 to $260,000 is a 58% decline! What's even more scary is that in order to get your value of 618,000 back, it would take a total of more than 137% appreciation. If values were to start going up at 5-7% annual appreciation, it would take you almost 20 YEARS to get your value back. A foreclosure is gone off your credit in just over 7 years. FHA will allow you to buy a new home with little down after 3 years. I talk about this more here at http://blog.youwalkaway.com/?p=192

Good luck to you John. The decision is ultimately yours, but that kind of decline would make my decision to walk pretty obvious.

You took a dumb decision to buy at that time.
Now you have 2 option
1. You may take a smart decision to walk away
2. You may take a dumb decision to keep paying

previously you took a dumb decision and others with vested interest encourged you.
Do you want to take another dumb decision with encouragement from same people or do you want to take a smart decision.
Choice is definitely yours.
- PBS

DinOR, you can find all of Shmendrick's 564 comments like this:

http://patrick.net/wp/wp-admin/edit-comments.php?s=shmend&submit=Search&mode=view

Sorry the regular search box searches only posts and not comments. I'll have to fix that.

This whole thing is a scam NOONE owns anything the banks do. Lets see how long you would be able to live in your "own " home if you didn't pay the property tax...not long! We are ALL renters no matter what any of you may think or say. I say walk your just wasting your money and time being a slave to this house and that totally sucks!!!

Patrick,

Oh thank you so much! And no need to jump through any hoops whatsoever, it really is a one time request. Again, thanks.

Here's the problem I have. I this person buys the REO down the street for $260k and then walks away, they are competing against other buyers.

The market needs to fall further, but just as during the bubble some people will gladly over-pay for a house. $260k is still over paying. So these folks again are aiding the banks at keeping RE over-priced.

I think if they are going to walk away then they should go rent for 7 years. Spend that time thinking about making a sensible purchase next time around, not one that impoverishes others and enriches banks.

They should have to take a basic economics course and learn about tulips, before being able to put an offer in on another home. I want truly affordable housing, prices that will leave enough money left over to drive consumer spending and lift us out of this depression. Bubble types had free reign and they ran up prices to absurd levels and pretty much wrecked our entire economy. We should look at keeping them from making grown-up decisions for a while.

Hmmm... what is wrong with all of you moralizers?
Of course, John should walk away - and sleep like a baby.
Talking about integrity when all of you made bets buying houses, and now depend on people not walking away in order to cash in your gains, no matter how much smaller they have gotten to be ... give me a break.
We live in a country where bank CEOs can deliberately run the economy into the ground, and then walk away with hundreds of millions, and no prosecution. And John is supposed to suck it up? Why?
John should do what is in his best interest, as long as it is legal. The bank was stupid enough to lend him too much money for such a crappy house. Too bad for them. I should really feel sorry for Angelo Mozillo likes who pumped and dumped, and now live nice lives inside their country clubs. You have to make a choice - either we will regulate everything, and codify our morals into the laws... or we will continue to live in the wild West society.

Austin Housing Bubble? There isn't a housing bubble here. This is just a normal real estate cycle in Austin. Prices are off in the 5%-10% range. Bubbles are blow offs of 30% or greater.

Seriously, a decent house here goes for 200K. Not much downside at all.

"Don't go away mad, baby, just go away"

You looked at your home purchase as an "investment" and lost. To bad...So sad...Now man up and pay your bet!!!

You should be ashamed of your self for even asking what to do. If you had the cash and bought the house outright there would be no question as to what to do. You should not blame the bank for the current value of the house. You went to the bank for a loan, the bank approved your loan and now you have a responsibility of paying that loan back. The property and its current value have nothing to do with it. People are losing their jobs and as a result losing their homes all around us and you are whining because you think you should what? If the house was to jump to $1 Million dollars in value instead of going down do you think the bank would be able to adjust the terms. No This is the decision you made. Do what I did. Find a way to turn this economy around in your favor. If your house looked good at $650.00 then it probably looks better at $250.00. Buy a foreclosure in your neighborhood and watch how thing start turning around. Rent one or both of your houses even if for a loss for a couple of years. Focus your money into paying off all your debts. Pay your mortgage off early. There is your real power. I own 3 houses and am paying a mortgage on a 4th that I just bough this year. The money that the 3 bring in as rent combined with my salary is going to pay this back in 5 to 7 years. Things may look bad now but that is going to change. When we look back at all this in 7 years we are going to be saying boy I wish I did this instead of that when I had the chance.

"Watch how thing start turning around?" Dude, really? Please tell me the forces that will come about to buy up all this excess inventory. Is it going to be credit based? Come off it, man. "Focus your money into paying off all your debts. Pay your mortgage off early" Really?! Why do any of this when deflation will be grinding away the value of the underlying assets. Walk away, file bankruptcy, and in 7 years you will be better off.

Curt and BigDragon are right. I'm surprised at what Patrick suggested, actually.

Consider this: If you stay in your overpriced home, which you apparently can continue to afford, then you will keep your 800+ credit rating. Yeah, it arguably doesn't mean much, but you gotta ask yourself what kind of person you are. Are you a punk, willing to f*ck whomever and game the system in order to have your cake and eat it too, or are you a stand-up citizen with a spine, willing to admit your own greed and pay for your own damned mistake?

Wake up Y'all. California is bankrupt! Real Estate is over priced from 25 years of over appreciation. More people are leaving for a better lifestyle elsewhere.

We are looking at the reaction to many years of mass migration as though California is the promised land. Boom and Bust. History repeats itself.

I must say John is one anashamed loser. He's working his tail off to see how much he can lose. He's mentally paralyzed like all the rest of CA property owners who are watching gains from decades disappear in a few years.

As they say, EASY COME, EASY GO

EgoRidge,
All I can say is you are right on the money. This place is done, stick a fork in it. I still like the weather here and the ocean but it's an economic mess that will be that way for at least the next 10 years.

California is non-recourse. That means that the legal agreement John made was to A) Pay off the loan. B) Given them the house.

There is nothing morally reprehensible about option B. It's perfectly legal and entered into by mutual agreement. Ff the bank didn't want to possibly wind up with B, they shouldn't have loaned him the money. John is following the contract that he and the Bank agreed to. If you get a fixed rate loan at 8% and the rates drop down to 4%, the bank doesn't 'do the right thing' and adjust your rate down. You agreed to 8%.

The only thing that annoys me is that Bush cut the forgiven debt tax out for people like this. That is the price you're supposed to pay. Tax on the forgiven debt and a bad credit report. Lucky John, he can get away with only a credit report ding.

Billiam,

>>Here’s the problem I have. I this person buys the REO down the street for $260k and then walks away, they are competing against other buyers.

True, but as long as the original house is kept off the foreclosure market, then there is less supply of foreclosures as well.

I really enjoy Patric.net for its housing market information. However, a disturbing trend is evident in these comments. With only a few exceptions, people are sliding down a very slippery moral slope.

Walking away from a legal and lawful arrangement such as a mortgage is the same as cheating, stealing from someone, etc. Furthermore, taking a position that others do it (or perhaps others, such as the bankers, get away with their bad behavior), tips that slope and sinks down into the bog of moral toxicity.

In all these comments I read between the lines the ego-driven statement that landed us all in this mess: "I am above everyone else, and I want mine (who cares about anyone else)." So, if someone else does something egregious, you can justify your own behavior.

Criminals frequently justify their behavior through downward comparisons of even worse behaviors. "At least I didn't kill him," or, "everyone is stealing from you- just look at the crooks on Wall St.; I only take what I need."

Think of the bigger picture here. Think beyond yourselves.

Sorry about your situation. My opinion, walk, no, RUN AWAY from it... the sooner the better. The market is not going to recover, now or ever. It is experiencing a favorable upswing now, but it isn't going to last. Go rent, pay off all your credit cards and get rid of any auto loans. This country is going down just like Argentina and many other countries of recent history. God is withdrawing his hand of protection. The stench of sin in this country has reached the throne room. He's going to allow a great tribulation to come over this country. The only way out of this coming tribulation, is for every man, woman and child to get on their knees and repent. Since that isn't gonna happen, you had better get prepared. Get out of debt NOW! There isn't much time left. Don't worry about your credit history... it will be history anyway. One last suggestion: You and yours might seriously consider repentance also. We have all sinned and fallen short of the Glory of God. Don't wait until things get really bad, because God has given you grace to repent and you haven't, there will come a time when he's not going to offer it again.

Did you return your 401K to your broker when it failed to achieve your expectations? Do you cease making payments to the bank which loaned you the funds to buy your car when it dissappoints you? Do you steal from merchants when you feel their price is excessive? Would you have returned *any* selling windfalls to your mortgage lender?

Dear poor "injured" man. Before this hellride is over - you and people like you will be paying off your deeds with interest. KARMA. This is the curse of reality.

And get this: EVERYONE will know what you are. Clarity is coming.

I would walk out. Go with your hunches. If you think the market won't come back - it probably won't. You 2 make good money and have a good chance and time to re-establish your credit reputation. You may be better off renting anyway - more mobile and rent is generally going down. Save $'s to purchase a "steal" in cash in the future.

Stay if you plan to live in the house 10 yrs or more or if you think we are going to get hyperinflation - esp if you love the house and the community. If this is going to be a lost decade I would walk out.

To God be the glory,
TJS

It doens't matter who anyone calls wrong. The fact is the prices have to come down and it is pain that is going bring the prices down.

SF bubblebuyer is correct. The banks knew what the contract is and what is possible in all situations.

On top of state bankruptsy, California spends millions trying to get homosexuals to have marriage licenses. It ain't gonna happen in Texas. In fact the joke in Texas is that if homosexuals want to get married, just go to California.

On top of all this..... Isn't the San Andreas due to dance?

What's with all this self righteous crap? You sign the agreement to make payments on the house. You put your signiture there and you were made aware that if you dont make the payment, you will lose the house. You did not say that under no circumstance will I not make this payment. The agreement is that you make the payments and you get to keep "your" house. There's no moral dilemma in that. This aint the old west and buying a house is not like getting a line of credit at the corner market. It's much more like a pawn shop deal. You want the house? Fine, keep making those payments or we WILL take it back.

Having a foreclosure like divorce, isn't a social stigma any longer. Do I agree with either behaviors? No, definitely not. But I'm not the one who is in the situation itself. If you think the bad behavior of the bankers justify your own misdeeds, then go ahead, rent a nice apartment on the side, rent out your house for $2000/mo and stop your mortgage payments. This way you can salvage an extra $24,000 over 1 year.

Egoridge -- How did I know you were from Austin? Let me also guess -- are you involved in Real Estate? Or just have a vested interest in an overpriced home/condo?

200K for a house -- but where? Hill Country? That's Kool-aid straight from the RE propaganda teet. A modest 1100 sq ft blue-collar block house in Crestview is presently valued at 275K -- the same homes which were going for 135K to 170K tops back in 99. I have the numbers on hand to prove it, if need be. No housing bubble, though, right?

The rates of appreciation around central Austin are more in the neighborhood of 5 and 10% a year, which is plain zany. It seems that all you need do is put in an Ikea sink, a stainless steel fridge and some bamboo cabinets, and you can flip a granny shack that was 167K on a good day for 385K. And chances are, it's a refugee from SF or LA that will be buying it! If not that, then a giant prefab cubist duplex, where one side is half a million. No joke. Granted, as the Statesman recently reported, there is no correction expected for the next two years as more people relocate here from the West Coast (the mere mention of a correction presupposes something far afield of normal appreciation) but a bubble there is. The local salaries are not even remotely in tandem with uptick in house prices here, and there several layoffs slated over the following two quarters in our manufacturing sector. Don't take my word for it - a Google search will yield plenty more hum about this mess elsewhere on the web.

In short, Austin, and Texas in general is not the panacea people tout it as -- it's quickly become overpricedand the property tax is through the roof now, thanks to these new bubbly valuations perpetuated by phony equity tansplanted from some of the more heinous markets from the years past.

...and again, even a cursory glance at the valuation charts on Zillow for the zip code 78704 will help illustrate the staggering hike in prices.

No, not as bad as California or Florida -- but give it time. I think I estimated five years in my original post.

A mortgage isn't really a personal debt since the house is the asset not one's integrity. It would be incorrect to discuss walking away in any moral terms as a mortgage is simply a business transaction between two parties that entered into the contract open eyed.

Ending the mortgage contract by walking away can be thought of as a business decision since the impact of what would happen if one takes the action is clear. The bank gets the house. The fact that the house is worth less is really the bank's problem first. They are the ones who made the bad bet since the homeowner can walk away. They made money on fees and now they have the house. I can't see this as a theft at all as the homeowner never actually owned the home.

John will suffer in a pre-determined way and as was mentioned by another poster, the foreclosure on your record doesn't have the impact it might have in the past. However you have to be sure you don't need to change jobs since some employers do run a credit check on candidates.

If John strips the house bare of fixtures and removes the copper wiring from the walls then he is stealing from the bank. Handing the house back in proper condition is acceptable.

The credit score will let other lenders know the risk of lending to John.

I am sure he is hiding a few details because an interest only mortgage doesn't match with his view that renting is giving some else his money. I guess he feels better giving money to a bank rather than a landlord.

People confuse investment with utility. The hypnotic forces that forced people into buying a home when they probably shouldn't have, simply tricked them into thinking that this was a wonderful investment. When they would have been better off just renting.

BTW I did sell my house in June last year and have enjoyed renting since. The home I am living in has dropped 40% in value but the owner bought it 20 years ago so no foreclosure worries here.

Austinhousingbubble,

I sold out of CA in 2006-2008. The last in the east bay hills of SF just in time before the economy collapsed. I would say I missed selling the tip top by within 3%-7% on both properties which is phenomenal. I purchased just north of Austin in 78664 last year. A new home can be bought for $80-$90 per square foot. So run your numbers with that zip code. I'm done with cities with overcrowded down towns, Austin included. My life is worth more than spending an hour in traffic just to go 5 miles.

If the USA goes through a depression the downside here is minimal. A 20% decline is the basically the value of a new car. On the flip side, I don't see prices shooting up here into oblivion because land is plentiful. The bottom line is that life is better.

Wrong. Taxes are way cheaper here. While property taxes per dollar of the house are higher the over all tax bill is way cheaper and the services from those tax dollars is excellent. Add to that, there is NO state income tax and the state of Texas is NOT bankrupt. Nor is the state of Texas morally bankrupt. Religion is alive and well and the positive culture from it still exists.

Now you may be able to find pockets in Austin which are bad buys but if that's your goal you are loser. Look for the good buys. There's lot's out there. Soon I will be buying a rental with a positive cash flow but I have to do my homework to find a good one.

To reiterate. There is no housing bubble in Austin. It's just a normal real estate cycle.

The bubbles are on the coasts and where coastal investor's speculate.

Sadly, tb has only reinforced my point, and makes a spurious argument about "assets" and "(personal) integrity." It is this type of thinking that has produced the Gordon Gecko generation on Wall St.

Tell me tb, where would you stop with your "it is just business" philosophy? Perhaps it is "just business" when a predatory lender goes after at-risk groups? Perhaps it is "just business" when a company produces a product harmful to children/animals/adults? What about businesses we do not condone? There are more holes in this moral side-stepping argument than there are realtors in Southern California.

Just Wondering, is John going to post any decisions he has come to after reading these Blog Comments.

The way I see it, you are always going to have Opposite Opinions on pretty much Any Subject.

I believe John is going to walk, but wants Everyone to make his Conscience feel better.

The whole disturbing read, is that the Corrupt People of Power (Bankers, Politicians, etc...) have Created this Absurd way of Thought.

It truly has become a World of Dog eat Dog in which these Family Values are being Passed on to the Next Generations.

Has the Obsession with Outdoing ones Neighbor or Workmate become the Soul of Society?

When GREED Stops becoming an Obsession with So Many, maybe we can Regain Real Values, instead of these Artificial Materialistic Obsessions.

Egotonic.

It appears that a few people on this blog need to mark thier calendars to celebrate a new holiday, Francine Hardaway's Birthday.

For those who may not remember her:

http://www.huffingtonpost.com/francine-hardaway/open-letter-to-my-mortgat_b_164693.html

California is non-recourse. That means that the legal agreement John made was to A) Pay off the loan. B) Given them the house.

Wrong. The agreement in a mortgage contract is that the bank will supply the money, and the borrower will pay back the loan. The bank taking the house in forclosure is a remedy for non-performance by the borrower. Creating schemes to live in the house for an extended period without paying the mortgage is merely opportunistic welshing that takes advantage of the forclosure remedy's time span.

HeadSet, actually, I'm right. A) Pay the loan or B) Bank gets house. That's exactly what you said above.

However, I wasn't advocating living in the house without paying the mortgage. I was advocating moving out and mailing them the keys. No foreclosure, no eviction, they get the property back. Deed in lieu of foreclosure is what it's called.

Here's a link : http://www.mcfarlinlaw.com/foreclosure_deedinlieu.htm

Of course, the bank doesn't have to agree to it, and then foreclosure becomes the standard course. Given that John can afford the house, the bank might not be willing to do the Deed-in-Lieu and hope that he's not willing to have a Foreclosure on his record.

Note that both options used to carry a tangible penalty beyond the credit it as if the house was sold for less than was owed, you had to pay taxes on the forgiven debt. Bush got rid of that temporarily, so effectively the only stick the bank has is a record blemish. No carrot exists given that the house is worth far less than what is owed on it.

TB is correct. When the banks set up the contracts they know all possibilities.

The moral problem we are facing is that not one of the thieves who set up corrupt financial instruments are going to prison.

Bottom line. The sooner you leave the sooner prices will fall to real values and the economy will then move forward.