0
0

In the Mind of a F@cked Borrower


 invite response                
2006 Aug 7, 4:53pm   26,473 views  224 comments

by HARM   ➕follow (0)   💰tip   ignore  

FB's mind

If there's one thing that distinguishes your average Patrick.net blogger from your typical robotic SDCIA.com perma-bull, it's the ability to consider your opponent's P.O.V. and to see things from others' perspectives. This thread is dedicated to this proposition. I want you to put yourself into the mind of a F@cked Borrower.

Peter P has already suggested this concept --in jest-- with his thread, "A cry for help". I would like this one to be approached from a more serious mindset. Image for a moment that you --as our hapless friend from the SDCIA-- find yourself saddled with 14 underwater properties, all bought on margin with exotic financing, and are now unable to make the ARM-reset payments on your night manager's salary from Taco Bell. Never mind that you could have avoided your unsavory predicament by merely applying a modicum of logic, some cursory market research and a dash of high school math to the dubious principle of "it always goes up". It's too late for regret now --you let your greed get the best of you, and so here you are. You now have a "diversified" portfolio of 14 equity-negative properties in different states, and all of them are heading in one direction: down.

So, let's assume you've gotten past the denial, anger, bargaining and depression stages, and have picked yourself up off the floor (after spending several days there whimpering in the fetal position). You've finally reached "acceptance" and are ready to rationally assess your sorry situation with cold, hard-eyed reason, and you must determine a course of action before events progress to the point where your creditors begin making all your decisions for you.

At this point, you have basically three options, none of them particularly good from your P.O.V. Which one do you take?

1. Confront your creditors (MBS shareholders) and request permission to start making "short sales" (i.e., selling the property for less than the amount owed).

This option has a number of attractive advantages, particularly the ability to avoid bankruptcy and/or liens and legal actions against you, as well as the ability to be quickly rid of those 14 "equity alligators" before they eat your alive. If your creditors agree to this, it amounts to a non-BK debt forgiveness, and you will not owe any money after the sales.

It also carries a few drawbacks: (a) Exactly whom do you negotiate with? Your loans got bundled up as MBSs and sold off before the ink even dried. Do you call Fannie Mae, Fredie Mac, the Bank of China, Fidelity, Vanguard, CalPERS --other? (b) Your creditors will undoubtedly require you to bring your entire life savings to the closing table in order to minimize their own losses. Of course, being a reckless speculator who used other people's borrowed money, you're not likely to have much anyhow, so no biggie. But there's another drawback: (c) your creditors will have to report the amount forgiven to the IRS as "cancelled debt", which will be taxable as income. Given your 14 underwater properties, this amount may be quite large. Bailing on your creditors? Relatively easy. Bailing on Uncle Sam? Not so easy.

2. Leave 14 sets of keys on 14 granite kitchen counters and walk away.

Pros: Perhaps your creditors will eventually realize you have no money, no reasonable chance of paying off the debts, and just write them off and leave you alone. To borrow a phrase from J. Paul Getty, “If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” Even better, if all of your mortgages are "firsts" (no refi's) and you live in a non-recourse state (CA), then your creditors basically have to eat the loans. You'll still be on the hook for tax on the cancelled debt, however.

Cons: Aside from trying to sue you for any current assets and garnish your future earnings (assuming any of your mortgages were refis/recourse loans), your creditors may also try to intercept your tax refunds, ruin your credit (ha-ha, I know --like you care!) and generally harass you and try to make your life miserable.

3. File for Chapter 7 bankruptcy.

Pros: Means a "clean start" no more debts, and no tax liabilities --if you can get it.

Cons: Thanks to the new creditor-friendly Bankruptcy "reform" law, you have to qualify for means-testing and prove you did not commit fraud to obtain the loans in the first place. Uh-oh. That last part could really bite you in the a$$. How much did you inflate your Taco Bell night manager's salary to get those 14 $0-down NAAVLPs? Don't remember? Better consult with an attorney first. If you can't qualify for a Chapter 7 under the new rules, then your only option is to file for Chapter 13 (repayment plan --not good) or reconsider options #1 & 2.

Discuss, enjoy...
HARM

#housing

« First        Comments 186 - 224 of 224        Search these comments

186   Randy H   2006 Aug 10, 8:57am  

Phil,

It used to be alot worse than that. Guys would form LLCs, give the H1B guys stock (not options) and make them "employees", sponsor their visa, and designate them as member-managers. Then, when Mr. Bossman paid all his taxes but $15-$18/hr h1b guy didn't, the IRS would go after h1b guy. Meanwhile the real consulting company was charging $150/hr blended rates or $1000-$1200/day rates, and 1099-ing all the help back to the sham LLC.

187   DinOR   2006 Aug 10, 9:09am  

Glen,

That link was valueble, refreshing and welcome! OIC has been so abused (as has the 1031 Exchange). It's became another stall tactic. A favorite amongst contractors etc.

"OK, you got me". But you know what? I'm flat broke but I DO employ a lot of people. (Every contractor that hires college kids and illegals "thinks" he's a big employer). If you hit me with that tax bill ALL out once I'm out of business, then I'll never be able to pay you back!

In truth, so many of these guys owe so much they WON'T LIVE LONG ENOUGH to pay it back anyway! So tell you what Mr. Cheat, we'll take 20% UP FRONT and you continue to make non-refundable payments until we straighten this thing out! God, I love it! About time. This old world will press forward somehow with one less contractor in it.

188   e   2006 Aug 10, 9:30am  

Could someone explain 1031 exchange in really easy terms? I saw it in an MLS listing the other day...

189   DinOR   2006 Aug 10, 9:32am  

Phil,

I realize in the BA comments gravitate toward the tech sector and your definition of contractor is different but how many of you guys heard this one? Really typical for landscapers, tire shops etc. The "bookkeeper" shows income tax withholding for the employees but they never pay the employer's share? Then the bookkeeper (who's been listed as an officer of the corp.) gets stuck holding the bag when these sleazes split town! Very common occurence.

190   DinOR   2006 Aug 10, 9:37am  

1031 is another preferential treatment we in this country extend to Real Estate! All Hail the United States of Real Estate!

Basically if somone owns a property and WOULD owe cap gains if they sold it they can exchange (within generous guidelines) for a property of an equal value even in another state. Since it's considered a "like for like" exchange there is no taxable event.

191   Peter P   2006 Aug 10, 9:38am  

1031 is another preferential treatment we in this country extend to Real Estate! All Hail the United States of Real Estate!

I though 1031 applies to many things:

http://www.1031x.com/aircraft_equipment_livestock.cfm

192   Peter P   2006 Aug 10, 10:41am  

I know you jest, but this terrorism threat is very real. And very serious.

I agree.

193   requiem   2006 Aug 10, 10:47am  

You could try an "economics vs. terror: which kills more?" a la the MOD lunch buddies in "Thank You For Smoking". (Can any grammar pedant finish this analogy: 'less : fewer :: more : ..."?)

194   requiem   2006 Aug 10, 10:48am  

Err.. as a thread topic, I meant. But with a housing connection.

195   Peter P   2006 Aug 10, 11:37am  

I am surprised that I am not hearing about how the latest foiled terror attack is virtually identical to the Boijinka Project which was foiled in 1995, and barely made news.

I did see such comparison in Google News.

I remember the exact date of that dinner party, it was September 10th, 2001.

On September 10th, 2001, I had chicken kabob for dinner. I do not know why I remember. Sometimes, my food memory is pretty strong.

196   Randy H   2006 Aug 10, 1:34pm  

the libs are pissed because:
#1) no Americans or Christians or non-Arabs got killed

If you don't see the tragic irony in your own statement, then you have my pity.

I am disgusted by all extremists, but most so by our own extremists who are destroying this country by politicizing everything, regardless of basic decency. I wonder how much longer this seething hatred between the fringes in this country can go on before it rips us apart.

197   astrid   2006 Aug 10, 1:57pm  

Randy,

I know this is way OT but I resent this lumping in of the left and the right fringes as if they're equally at fault. The radicalized left fringes in the US pretty much burnt themselves out by the early 70s and is now mostly composted of ignorant college Marxists with little knowledge about economics or organizing terrorist activities. They are tiny in number and have no influence on the more mainstream left.

Most of today's so called left holds values that would be considered mainstream 20 or 30 years ago, eg religious and racial tolerance, greater economic equality, avoiding colonial entanglements, questioning their own elected government. While they might not go about these goals in the optimal way, these are admirable goals nevertheless.

Outside of a few extremely fringe anarchist groups whose identification is as much to the right as to the left, nobody on the left advocate indiscriminate killing of civilians, and most folks on the mainstream left wholeheartedly supports the American troops, even if they don't support their actions.

On the other hand, the antidisestablishmentarians who calls anyone questioning any of Bush administration's activities a traitor, are a much more prominent fixture in the national landscape. It's the GOP operatives and leadership and FoxNews who is doing the vast bulk of politicizing and demonizing.

198   astrid   2006 Aug 10, 2:08pm  

SP,

Ugh, yes.

(If only because the alternate line of reasoning leads to a US government or its agents actively colluding to have a continual "War on Terror.")

Are the Americans just getting the crappiest intelligence ever (oh, say the kind of intelligence provided by an Iranian double agent) or what? When this whole mess began, I thought the Delta Force would discretely administer a few well positioned shots and we'd move on to a whole new generation of terrorist leadership.

Sorry, I know, totally OT. Maybe I can venture a speculation about FBs becoming a rich ground for recruiting domestic terrorists and criminals. That's certainly happened in the 1930s, when massive numbers of foreclosure lead to more bank robberies.

199   Randy H   2006 Aug 10, 2:12pm  

new thread Unity

200   Randy H   2006 Aug 10, 2:19pm  

astrid,

I was careful to not use "left" or "right" in my statement. I think the linear polarization so popular today is nothing more than cynical self-identification. In reality, there is no "left" or "right", but an entire universe of opinion that largely overlaps in huge areas. To say McVeigh was conservative somehow doesn't seem to work, even though he was a self proclaimed patriot and religious fundamentalist conservative. The kneejerk "environmental" legal groups that sue to stop every single infrastructure improvement project are equally not liberal or progressive.

201   astrid   2006 Aug 10, 2:28pm  

SFWoman,

I was thinking of Ahmad Chalabi, a Iraqi with confirmed ties to Tehran. The US's lack of intelligence assets (along with US's own mistrust of French and German information, precisely because of the fear of politicizing) covered up many of his lies and lead the US leadership to believe that we'd be welcomed with flowers and cheering crowds when we entered Baghdad.

I wasn't even aware of the lack of actual Iranian intelligence. That's really unbelievable, given that America has a large Persian emigre community and had extensive dealings with Iran since the 1950s. I guess before 9/11, we were only prepared for the threat of global Communism.

The New Yorker just did an article this week on US's defense expenditures, it's really chilling how the DoD (especially Rumsfeld) never stopped fighting the Cold War.

202   astrid   2006 Aug 10, 2:32pm  

Randy,

Fair enough. Sorry for blowing up like that. I'm getting awfully jumpy and defensive from many years of other people characterizing my positions as "fringe" or "extreme".

203   astrid   2006 Aug 10, 2:33pm  

SFWoman,

I forgot to add the New Yorker link.

http://tinyurl.com/nvobk

204   Peter P   2006 Aug 10, 2:38pm  

I’m getting awfully jumpy and defensive from many years of other people characterizing my positions as “fringe” or “extreme”.

What is your position on ceramic knives again? :)

205   astrid   2006 Aug 10, 2:41pm  

The US better just keep Musharrif in place. At least he's not posturing in an openly hostile manner and might be persuaded to help with the right inducements. He also seems a bit better for the Pakistanis than his predecessors.

206   astrid   2006 Aug 10, 2:44pm  

"What is your position on ceramic knives again? :)"

I'd still go with a set of MAC knives or nicer Japanese knives, maybe a ceramic vegetable peeler. Ceramic knives appear to be too fragile as ordinary kitchen knives.

207   Randy H   2006 Aug 10, 2:45pm  

astrid, sfwoman, sp, et al

I am not drawing any moral equivalency between your statements here and Bap33's. I find anyone who is willing to dismiss any group as a stereotype pathetic and dangerous. There are always exceptions. Often it is those very "exceptions" that are the great people who accomplish great things if they aren't killed or imprisoned first. Bap33 might find his own faith is based upon such an exception if he'd stop looking for "libs" hiding in the closet.

astrid,

I'm not sure I agree with your dismissal of the effect of "the other side", as you put it. These are the same people convincing parents to not immunize their children, managed health care to include aromatherapy and fringe homeopathy on insurance plans while well baby care gets cut, governments not to invest in GMOs which could feed millions in Africa, and policy makers not to hold a reasoned debate about solving our energy problems for fear that someone might say the taboo word 'nuclear'.

I think everyone on the fringe is doing plenty of damage to our country.

208   e   2006 Aug 10, 2:56pm  

the libs are pissed because:
#1) no Americans or Christians or non-Arabs got killed

I hear that Conservatives are pissed because
#1) no Americans or Christians or non-Arabs got killed

Now there's no justification to nuke Iran - they're probably as much involved as this as Iraq was on Sept 11th.

209   astrid   2006 Aug 10, 3:00pm  

Randy,

When we move out of political or militaristic fringes, then I'm a bit more uncomfortable with the assumption. A lot of the problems you mention stem from people's spiritualism and superstition, and it's an area that I, as an atheist, am extremely uncomfortable addressing. They also seem less than fringy to me, I seem to meet more people who are against nuclear energy than I meet people who are for nuclear energy. Ditto GMO crops, even though the econlogical dangers are exaggerated and the ecological advantages (less fertilizer, less pesticide) are proven.

The more general problem with the public (that I am comfortable talking about) is that very few social activists have any systematic knowledge about economics, statistics, or history, or even have the curiosity to try. Thus, they're constantly setting up false dichotomies to help their case, while condemning the other side as heartless kickers of puppies.

210   Peter P   2006 Aug 10, 3:04pm  

A lot of the problems you mention stem from people’s spiritualism and superstition, and it’s an area that I, as an atheist, am extremely uncomfortable addressing.

So you think astrology is superstition? :(

211   astrid   2006 Aug 10, 3:30pm  

"So you think astrology is superstition? :("

I know the Romans, the ancient Greeks, the Ancient Egyptians, the ancient Chinese, etc, all treated it as a serious science.

Though when I mentioned superstition I was addressing people who refused to immunize their children on a tiny chance that it might increase their chance autism, or put their month old baby on a raw food diet. Those are obvious cases where people exaggerate one kind of danger while underestimating another kind of danger.

212   Peter P   2006 Aug 10, 3:48pm  

put their month old baby on a raw food diet

Sashimi at that age?

I know the Romans, the ancient Greeks, the Ancient Egyptians, the ancient Chinese, etc, all treated it as a serious science.

It is indeed quite amazing. I am surprised there are so few serious books on Chinese astrology compared to Hindu astrology.

213   astrid   2006 Aug 10, 3:50pm  

Ha Ha,

The author is not exactly an unbiased source of information.

http://en.wikipedia.org/wiki/Peter_Schweizer

Furthermore, just because Gore do more doesn't mean his points are untrue or unimportant. And distinguishing between carbon credit paid by Gore and carbon credits paid by the studio (who wanted Gore to fly the jet to promote his film) is pointless quibbling. While I found plenty wrong with Gore's film (mostly because it's overly optimistic and doesn't off real world solutions to the problems presented), the evidence he did present are backed by peer reviewed climate scientists and decades of data. The article debunked nothing and amply demonstrates GOP's strategy of demonize, trivialize, and marginalize any fact based dissent.

If you're going to start this line of representing personal attacks as critique on public policy, would you also like to talk about Bill Bennett's gambling addiction or Rush Limbaugh's drug addiction and divorces or Ralph Reed's ties to Abramoff?

214   Peter P   2006 Aug 10, 3:50pm  

I still think most people overestimate the effect of "free will". Fate is actually incredibly powerful.

215   e   2006 Aug 10, 4:11pm  

In many ways it's not surprising that we as Americans could not remember that housing prices don't always go up.

http://tinyurl.com/lxcq2

September 11 -- what year? 30 percent of Americans don't know

Some 30 percent of Americans cannot say in what year the September 11, 2001 terrorist attacks against New York's World Trade Center and the
Pentagon in Washington took place, according to a poll published in the Washington Post newspaper.

Ouch. Fortunately, the article did point out that 95% of the participants remembered the month and date. Phew!

I'll always remember - I used to have lunch there a lot.

216   Peter P   2006 Aug 10, 5:01pm  

My best friend was just a few blocks away from WTC on that morning. Thank God he was all right.

It was a sad day.

217   Different Sean   2006 Aug 10, 11:35pm  

Maybe I can venture a speculation about FBs becoming a rich ground for recruiting domestic terrorists and criminals. That’s certainly happened in the 1930s, when massive numbers of foreclosure lead to more bank robberies.

hmmm, yes, it's all connected... capitalism contains the seeds of its own destruction ;)

went to a very funny talk tonite by a national political newspaper cartoonist at the politics in the pub series -- he drew the wackiest cartoons on an OHP drawing together the threads of politics, modern life, and materialism, etc, including pictures of people having to pull dwindling resources out of the ground, etc. Just funny extemporising and drawing, very tangential but still connected, a good change from the more solemn speeches at that forum...

http://www.politicsinthepub.org/current.htm

218   astrid   2006 Aug 11, 2:53am  

I had woken up just when the first two planes crashed into WTC and they didn't know for sure whether it was an accident or a terrorist threat. I just knew it was a terrorist threat and felt like this is America's wake up call to the sort of threat faced by the Brits, the French, the Peruvians, the Columbians, etc.

I was actually surprised by how relatively few people had died and how orderly NYC was after the fact.

219   salk   2006 Aug 11, 3:57am  

Didnt the English have the Pakistani's under control and nuclear free in the 30's? Anybody know what happened to these peaceful people?

220   OO   2006 Aug 11, 3:46pm  

SP,

thanks for the link, I asked for it a while back.

221   Randy H   2006 Aug 12, 1:14am  

America is not a “democracy”, but it is a “republic”

The USA is governed as a democratic republic. Democracy is the ideological governmental basis; republic is the mechanism of that governance. There are also parliamentary democracies, autocratic republics, etc.

222   astrid   2006 Aug 12, 5:40am  

While conveniently ignoring GOP hypocrisy and the fact that GOP hypocrisy is a lot more destructive than the average Democratic hypocrisies... You're showing superior middle management skillz already.

Democrats don't support illegal immigration or open borders, the labor unions would see to that. Individual Democratic politicians in border states would know better than to utter such words, because they'd run out of town if they did.

Many Democrats simply believe (clumsily believing that doing so would win them favors amongst recent legal immigrants or rebuilt a grateful voting electorate akin to blacks) that amnesty is a better and less disruptive solution than sending them all back. The mainstream Republican solution is to make those illegals into second class citizens, who would still be paid very little and still strain the local government resources, but as a pliable labor force that would force down the low end wages.

I don't agree with either solutions. But saying Democrats support illegal immigration per se is truly ignorant.

223   surfer-x   2006 Aug 12, 9:49am  

tinyurl.com/hxeqa

Using computer resources to harass, assault, slander or libel another person, sexually or otherwise, is untenable, and may constitute a violation of University policy and State laws. Harassment may include correspond ing with another when you have no University business with them and they have asked you to cease, regardless of the nature of correspondence. Public display of offensive materials in any medium is considered harassment.

224   surfer-x   2006 Aug 12, 9:51am  

I.E., troll shall have my fucking size 13 boot right the fuck up his ass.

Oh, goes without saying that it shall be "sans lube", of course.

No kissing or fondling either, that's reserved for HARM.

« First        Comments 186 - 224 of 224        Search these comments

Please register to comment:

api   best comments   contact   latest images   memes   one year ago   random   suggestions