patrick.net

dajanara says

In my book, if I chose to live here and I didn’t have to, I’d be stupid. And that I am not.

And finally, I never expected for this place to go up in value 20% annually. I did expect it to at least maintain the price I paid. It didn’t happen. AH well. At least we never refinanced so bank is out of luck. I could almost cry for poor banks. And the fact that the government is taking your money to bail out the banks is not my problem.

Cheers.

OK, I think this paragraph is telling us what kind of person she is, and what's up with her situation. I was kinda reluctant to say anything so far though, now here we go.

Two things first before go any further.

Her loan is IO. so she technically haven't repaid a dime at all so far.
The loan will reset soon and the payment will shoot up.

Thus, her taking SD now means she could almost cry for poor banks as she said, right?

If that is the part of the reason why she is thinking about SD, she is trying to get away without paying her obligation. She definitely is a deatbeat and so be it. She decided to have baby in early 2009, when the home price is dropping like hell. So, don't say you didn't know, don't put your baby up on our faces, or freakin complain about what happened as if you're all innocent because you smells like crap.

Now let's suppose that is not the case, she in fact is innocent, and really in need of doing something.

What's going to happen when she does SD and ultimately foreclosing? She won't be able to get another home for a while. So, She'd better buy another home before she pulls it off. She'd better have some cash aside enough to live outta it for couple years, because the record will be on her record for next 7 years to haunt, and first couple of years will be very inconvinient. But, she will do fine since she said she earns a lot. What she needs is keeping her job, because she will have hard time to find new job once got laid off. And this SD thing will affect her chance of future promotion or scout offer.

So, is it the risk worth taking?

I'd say yes if she is poor and she can't pay her mortgage.

But her case, well... Not sure what to say.
She and her guy earns over 300K/yr, so couple thousand dollars won't be a big problem for her if she is willing to pay. She is able to afford another home, she is more than capable of go thru this without defaulting. Yeah, she is in underwater, but she is not in financial danger at all. I just don't see that willingness or sense of urgency, so...

I think she knew what to do before even asking the question.

Schizlorsays

I’m not saying I would never strategically default either. If I owed 3 times what my house was worth (I do not currently own) I would consider it too. But rest assured, it would be with a bit of shame, a touch of humility…

Then you are a schmuck.

Lending with a home as collateral FOR PROFIT is no different than lending with jewelry as collateral at a pawn shop. If the lender lends too much, and the pawn shop customer decides not to pay up and claim ownership of the jewelry, it’s the pawn shop’s own f***ing fault for lending too much if they take a hit on the resale.

Nomograph says

Your right. She should have had an abortion because house prices were dropping.

Just out of curiosity, what were babies going for in early 2009? Has the baby market experienced a bubble burst?

dajanara, personally I'm against "strategic default." If your condo had increased in value, you wouldn't have shared the profits with the bank. Strategic default sticks the bank with the depreciating asset.

but you say that you live in a crappy area that's getting crappier. lack of pride in the home ownership/rentership, meth cooking (one place that you know of...), and you're not happy there. you're staying 'cause the rent is cheaper... If you bail, you can afford another place but are staying for financial reasons.

If you call the cops on the neighbors, they'll be looking to retaliate against anyone that they suspect. So you'll have pissed off meth freaks to contend with.

So, either buy another place now because you're preauth'ed and lose more money (short or long-term, who knows?); or rent in a better neighborhood. But from what I can tell you're not considering strategic default because of the financial benefits - it's because the place isn't what it once was and you can't sell to get the hell out.

Or, you can consider selling the baby to make up the difference. But if the baby market is down that's not a good option and I'd wait... ;)

“strategic default” just another made up marketing term made up by RE industry. Screw you into buying and scew you into selling so some can churn the property over. Banks are the brokers, they dont have the staff, so they have been using Realtors.

The foreclosure process as applied to residential mortgage loans is a bank or other secured creditor selling or repossessing a parcel of real property (immovable property) after the owner has failed to comply with an agreement between the lender and borrower called a "mortgage" or "deed of trust". Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property.

"Failed to comply" .."violation of the mortgage"... breach of contract.. pretty cut and dry here.
What ever that Civil Rights attorney said is meaningless when it comes to UCC and Common Law.

Bankers and lawyers have been using the term "Strategic Bankruptcy" for decades so they just jumped to the next logical term for strategic default..........I doubt that the real estate industry was bright enough to come up with that term LOL.

rob918 says

“Strategic Bankruptcy”

There was no such thing as Strategic Bankruptcy.. You can look back to Braniff Airlines to Lehman, its the same. When you fail you fail. SV is peppered with bankrupties over the past 10 years. They just close the doors and sell the assets. No matter how you cut it ... its a breach of contract as regulated by the UCC and Common Law.

There are a couple of differences between standard foreclosure and strategic foreclosure as I see it.

1. In a strategic presumably the owner can make mortgage payments, he is CHOOSING not to. With a regular foreclosure, this isn't the case

2. Many times the owner will just give the keys back, allowing the bank to save all the costs of a foreclosure.

I think the term is meant to apply to #1 though. It's strategic because it's a choice.

dajanara says

pull 300k+ annually combined.

If you make that much, you obviously can afford the package from youwalkaway.com to help you make a decision. And retain a lawyer and pay some fees for advice / guidance.

As for my advice, obviously do not refinance the loan. Keep paying the interest only until you are ready to find another place (depending on family situation and complex deterioration.) Most likely your recast on the loan would lower the payment depending on what index the mortgage is tied to - check with your bank to find out the index the loan is tied to and what the recast would be. But consider one other option - trying to qualify for a loan on a second house while still paying the mortgage on the first place. That way you can buy the house you want with a good credit rating and get a good interest rate - then hit the strategic default option. Otherwise, default and wait a little for the bank to follow the foreclosure proceedings. Save enough money to offer a new landlord the entire years rent in an escrow account - and I bet they won't even check your credit report.

dajanara,

you saw how quickly some folks on here outed that Tivo millionaire. Probably not wise to write on blogging (or social networking) that you earn 300 K per year. Next thing you know, something could happen like your car will hit a pedestrian, or some identity theft will occur.

It may not sound like much to Cool and Hip Bay Areans, but 300K per year is a fortune to a lot of people, like street scammers who could step (or ride their bike) in front of your car, or some Eastern European hackers perusing the web. Reminds me of the posts some young Hip and Cool real estate investor made here, identifying himself by the address of his rental property investment and boasting about his 100K cash that he has in the bank. Particularly frightening when one considers that in San Jose certain groups prey on their own in home invasions.

Please, in these public forums leave out such specifics.

I find it hilarious that she and her hubby make that much money and she had the nerve to play the flying appliances excuse to justify bailing on their mortgage. The question of affordability and family's safety are now in effect null. It's all about wanting to stick someone else with your easily affordable house's loss because it's not generating the short term profit you expected when you purchased it to flip. This is textbook case of a wealthy deadbeat that doesn't want to live up to their commitments and stick their losses to everyone else.

I think SD in general is fine, but this particular poster is getting out of hand. How do you make $300k+ and live in a condo complex with a meth lab and other crap going on? Fine, conditions may change unexpectedly, but you seem to be doing nothing to address these issues. At this point, I'm going to have to agree with Klarek's earlier comments about the OP being a deadbeat parent and borrower. That just isn't right to keep the baby there when you clearly have the means to move.

HlthCrPr says

I owe over $300,000 in student loans from my education. Average income for those in my chosen field was $165,000 per year. By the time I had gotten the prereqs in college and gone through 4 years of grad school that had all changed. With an income contingent loan, my original total loan of around $150,000 multiplied over the last 15 years to a pay-off of over $307,000. Life changes, along with circumstances. Marriage, divorce, health issues, failed businesses, etc. Why should they be allowed to walk away from their “mistakes” any more than I can? Even with bankruptcy I am still liable to pay back every cent, principal and interest. These buyers hoped to capitalize on the unbelievable doubling and tripling of values. It didn’t work out. Now they should be required to live with their choices just as I am required to live by mine.

Because that's how the financial contract was written.

At that income, why don't you squat? I rarely see banks foreclosing on Condos in SJ. They really do not want to pay HOA dues. Stall if you have to by offering a fake short sale like everyone else just to squat longer. By the time they get you out of there, you should have enough to make an all cash offer on something you want.

The short sale condo my friend's family is trying to buy - there has been no payment made to the bank for almost 2 years. Not even a notice of default.

tatupu70 says

HlthCrPr says

I owe over $300,000 in student loans from my education. Average income for those in my chosen field was $165,000 per year. By the time I had gotten the prereqs in college and gone through 4 years of grad school that had all changed. With an income contingent loan, my original total loan of around $150,000 multiplied over the last 15 years to a pay-off of over $307,000. Life changes, along with circumstances. Marriage, divorce, health issues, failed businesses, etc. Why should they be allowed to walk away from their “mistakes” any more than I can? Even with bankruptcy I am still liable to pay back every cent, principal and interest. These buyers hoped to capitalize on the unbelievable doubling and tripling of values. It didn’t work out. Now they should be required to live with their choices just as I am required to live by mine.

Because that’s how the financial contract was written.

Exactly.

Unfortunately, your life was pretty much the collateral for your loan. When buying a house, that's the collateral. These are the rules of the game.

I think you are in a good situation, you have a big enough place where you are not on top of each other and it sounds like you are in a nice new condo. I think you could probably rent for a little cheaper, but not by much and the ramification of ruining your credit score are much worse then losing a few hundred dollars every month. I have heard from other sources that the foreclosure will stop hurting your credit after 7 years but it is never off your report, which means lenders will always see it. Stay put for as long as you can, save up your money and either sell at the point you want to buy something new or rent it out.

Also if you strategically default after you buy something else the bank will sue you with fraud!

I'm in a similar situation as you, we are basically paying about $1000 too much every month to stay in our condo vs renting something else out, but we have a 1/1 670 sq ft home and we can't handle it anymore. As I said before, given you are in a comfortable living space, stay put for now.

Hope that helps.

I wanted to make an additional comment after I read some negative comments by others.

1) Everyone is to blame for the housing bubble, and it really makes me upset when people only blame it on the buyer. People that are in dajanara's situation are not "deadbeats" they were doing what was best for their families at the time. Dajanara put money down on his home and wanted to buy something he could afford. I empathize with him as I am in a very familiar situation. Dajanara is not complaining in my opinion, rather he is asking for advice due to his situation. In hindsight I'm sure knowing what he knows now he would not have bought. It's easy to say that buyers should have known better, but the majority of the population had no idea this would have happened.

2) I think the government needs to make a better effort to lower home payments on underwater homes to prevent further foreclosures.

3) The economy is completely unpredictable at this point and everyone should be very concerned about how they are spending their money. Police departments are laying off officers, schools are laying off teachers, we are in a jobless recovery and things seem to be going into a very bad spiral. Even though Dajanara and others who are underwater could and can still afford their payments why should they continue to throw away money that should be saved for unpredictable bad situations?

Just by two cents.

Sorry for the typo!

*Just my two cents

Condohelp says

Everyone is to blame for the housing bubble, and it really makes me upset when people only blame it on the buyer.

Yes, everyone who bought or atm'd is responsible to some degree. The banks who loaned without vetting the buyers are also responsible, as is Wall Street and politicos.

But when one makes a purchase, he/she is entering into a contract that says that it'll be paid back according to the terms. When I bought my house, I wasn't aware that my neighbors had a barking dog that came onto my back porch and barked all night long (no exaggeration there, seriously). I wasn't aware that my house would more than double in phantom value within five years, nor was I aware that value would drop dramatically... I wasn't aware my job would end, that another job would begin... Wasn't aware of any of this...

Don't know if I'd term it "deadbeat... but this person is choosing many different reasons to support the fact that the house isn't what he/she wanted and would like to bail, now. It might affect the credit, it's possible that the bank will sue for fraud when there's a bail & new purchase at the same time.

Condohelp says

It’s easy to say that buyers should have known better, but the majority of the population had no idea this would have happened.

Bullshit - if people bought without considering their ability to pay it back (interest only ARMS) or grew out of the place, or bought in a neighborhood they didn't realize wasn't the best... they didn't do their homework and/or make smart choices. It's their responsibility.

Condohelp says

I think the government needs to make a better effort to lower home payments on underwater homes to prevent further foreclosures... we are in a jobless recovery... bad spiral...

The government is us. And I don't feel like paying to lower someone else's house payment merely because it's worth less than they owe. Should people who atm'd be able to modify the same as those who lost their jobs due to the economy?
Condohelp says

Even though Dajanara and others who are underwater could and can still afford their payments why should they continue to throw away money that should be saved for unpredictable bad situations?

Because they gambled & lost and should be held responsible to pay it back. If they had sold at the height of the bubble they wouldn't be sharing the profit with the bank. It goes both ways.
Just my two cents. :)

tough call

Condohelp says

Everyone is to blame for the housing bubble, and it really makes me upset when people only blame it on the buyer. People that are in dajanara’s situation are not “deadbeats”

No, read what dajanara said. They can EASILY afford the place, which was purchased as a flip (or very short term residence), and she's pissy that it hasn't continued appreciating in value. She wanted to profit, hasn't yet, and wants to stick the banks and the public with her decision.

Nobody forced her to buy.

Condohelp says

I think the government needs to make a better effort to lower home payments on underwater homes to prevent further foreclosures.

I think the govt needs to make the pain of strategic default so severe that every greedy housing gambler out there will think long and hard before bailing. No more wasting OUR tax dollars to subsidize THEIR fucking half-million dollar houses. That's absolutely ridiculous. Punch yourself in the face for saying such a stupid thing.

klarek says

I think the govt needs to make the pain of strategic default so severe that every greedy housing gambler out there will think long and hard before bailing. No more wasting OUR tax dollars to subsidize THEIR fucking half-million dollar houses. That’s absolutely ridiculous. Punch yourself in the face for saying such a stupid thing.

No-your post is ridiculous. The government should break up the banks so none are too big to fail. Then if lenders make risky loans and they don't get repaid, those banks or S&Ls go under. I imagine they'd figure out that they need larger down payments at that point. And no negative amortizations or interest only loans.

Again--nobody forced the bank to make any loans. They knew that it was non-recourse when they made it. You can't change the terms of a contract after it's signed. Banks should have been well aware of the possibility of falling home prices and strategic defaults and factored this risk into their loan analysis models. If they underestimated the risk, then they should feel the pain. Otherwise it's a moral hazard situation for the banks...

I think the govt needs to make the pain of strategic default so severe that every greedy housing gambler out there will think long and hard before bailing. No more wasting OUR tax dollars to subsidize THEIR fucking half-million dollar houses. That’s absolutely ridiculous. Punch yourself in the face for saying such a stupid thing.

I'm not going to "punch myself in the face" LOL!!! Donald Trump, Country Wide, and millions of other big firms and investors have foreclosed on properties simply because it was a bad investment. They did not even get a slap on the wrist for foreclosing. This happens all the time in the business world. I'll try and find the link but 60 minutes did a special featuring the company "You Walk Away", you should watch it. It's about how more and more Americans are opting for a strategic default and their rationals.

Here you go: http://www.cbsnews.com/video/watch/?id=6470184n&tag=related;photovideo

Yeah, I saw that video before.
And they are pussies.

When you buy a thing in the store, the price includes the cost of returning it too. That's additional cost out of your wallet, because someone will return it and the company should take care of it. But in financial matters, no one takes responsibility for what they have done, and no one wants to take loss. Bank has no reason to make cut on your loan, and you don't feel like to take loss too. Someone has to pay for it, but who pays for it? So government asks bank take the hit by giving them some incentives, and where those money come from? Tax payers. And that made some banks too big to fail. When they fail, whom government ask take the hit to? The fact is, walk away'ers contributes banks to stay too big to fail by letting government spending other people's tax money for their action. Immoral? Yes. Irresponsible? F--k Yes. Illegal? No. That's doable especially in 9 states.

So, walk away when it is possible if you choose to. US should limit the recourse action in some degree and in exchange of that, make walkaway illegal purnishiable crime like many other countries in the world do.

Condohelp says

I’m not going to “punch myself in the face” LOL!!! Donald Trump, Country Wide, and millions of other big firms and investors have foreclosed on properties simply because it was a bad investment. They did not even get a slap on the wrist for foreclosing. This happens all the time in the business world. I’ll try and find the link but 60 minutes did a special featuring the company “You Walk Away”, you should watch it. It’s about how more and more Americans are opting for a strategic default and their rationals.

I saw it when it first aired. 60 Minutes does a good job of showing the crass selfishness of our decaying population.

Just because Donald Trump and the most unsavory businesses do something, that doesn't mean it's the right thing to do. Buying a house was never supposed to be about short term games. People are pissy that they're not turning immediate profits, and they're showing their lack of integrity by bailing, the cost of which you and I have to pay for. I'm not saying they shouldn't do it, but if they do, they're scumbag deadbeats.

seaside says

US should limit the recourse action in some degree and in exchange of that, make walkaway illegal purnishiable crime like many other countries in the world do.

Amen.

klarek says

Buying a house was never supposed to be about short term games. People are pissy that they’re not turning immediate profits, and they’re showing their lack of integrity by bailing, the cost of which you and I have to pay for.

I don't know the motive of everyone who walks away, but I don't think it's because they havne't made profits. But when you buy a place for $700K and it's worth $250K now, it does seem futile to continue to throw good money after bad, doesn't it?

tatupu70 says

I don’t know the motive of everyone who walks away, but I don’t think it’s because they havne’t made profits.

By definition, that's exactly what a strategic default is. I'm not referring to the people that lost their jobs or were stupid when they bought beyond their means. I'm talking about being able to afford the house, and bailing because it lost value.

tatupu70 says

But when you buy a place for $700K and it’s worth $250K now, it does seem futile to continue to throw good money after bad, doesn’t it?

Their mistake was buying the overpriced house to begin with. They ought to focus on paying the debt down, not running away from it when they KNEW that's how much it was going to cost them.

klarek says

Their mistake was buying the overpriced house to begin with. They ought to focus on paying the debt down, not running away from it when they KNEW that’s how much it was going to cost them

I agree that their mistake was buying the overpriced house. No doubt about it.

But I don't agree that they should continue to throw their money away. They signed a contract that spelled out the terms and consequences of default. Now all of the sudden you're saying those terms are wrong? Well, too late.

If you want to change the laws, fine. But don't get mad because people are following their best interests. That's a free market.

tatupu70 says

But I don’t agree that they should continue to throw their money away. They signed a contract that spelled out the terms and consequences of default. Now all of the sudden you’re saying those terms are wrong? Well, too late.
If you want to change the laws, fine. But don’t get mad because people are following their best interests. That’s a free market.

I didn't say the laws or terms are wrong. But don't fall for the charade that defaulting on one's loan is somehow fulfilling their obligation. It's not. Rather, they lose their house and get a credit hit as a consequence of their action.

And it's not "throwing money" away any more than me paying rent would be, or you paying only a tiny percent of your first several mortgages would be. You're only looking at it that way if you're an immediate profit-seeker. They aren't paying one more cent now than they thought they'd be paying when they bought years ago. So how is it all of a sudden throwing money away?

E-man says

One has fulfilled his/her contract by giving the house keys back to the bank/lender and left the house in good condition.

Giving back the house is a consequence of NOT fulfilling their obligation.

E-man says

Look at the contract. The bank is giving you a loan, and the house is the collateral. If you don’t pay, the bank forecloses and takes the house. What’s not to understand?

So if I have a child that I forget to feed and child services takes him away, is that fulfilling my obligation as a parent?

I'm in the process of buying a house. Because I don't have a magical crystal ball I don't know the future. The future may hold quick hyper inflation or quick hyper deflation. There may be a slow recovery or a slow degeneration into depression. I don't know if the house I'm buying is over valued or under valued. But if some point in the future I'm 90% upside down because of deflation I would walk away in a heart beat. It's not worth debating with someone who disagrees. I have one life and refuse to suffer 30 years worth of consequences because of the opinions of another regarding the state of a RE market that no one can control

In my perfect world, not only would strategic defaulters lose the home but the lender would be able to chase them for any deficiency between what they borrowed and what the lender is able to recover. Make all mortgage and consumer loans full recourse with exceptions possibly allowed for documented hardships like catastrophic illness, extended job loss, etc. If there were actual penalties or real consequences, these people wouldn't be so casual about this. If the young couple in the 60 Minutes piece knew that the bank could actually recover that deficiency and this isn't a debt that magically disappears, dings their credit score for three years, and makes them renters for a while, then maybe we wouldn't be having this discussion. Sorry, but I quit believing people would act responsibly just because it's the right thing to do a long time ago. Attach no consequences to a behavior you wish to discourage and this is what you get.

klarek says

And it’s not “throwing money” away any more than me paying rent would be, or you paying only a tiny percent of your first several mortgages would be. You’re only looking at it that way if you’re an immediate profit-seeker. They aren’t paying one more cent now than they thought they’d be paying when they bought years ago. So how is it all of a sudden throwing money away?

OK--we can argue about this til we're red in the face, but let me go at a different way. If the government hadn't intervened and it were just bank shareholders that lost, would you still feel the same way?

klarek says

E-man says

Look at the contract. The bank is giving you a loan, and the house is the collateral. If you don’t pay, the bank forecloses and takes the house. What’s not to understand?

So if I have a child that I forget to feed and child services takes him away, is that fulfilling my obligation as a parent?

You've used this analogy before - it's not even close. Come up with something new.

mthom says

You’ve used this analogy before - it’s not even close. Come up with something new.

So long as the misused consequence of defaulting is equivocated with fulfilling one's financial obligations, I'll use this apt analogy.tatupu70 says

OK–we can argue about this til we’re red in the face, but let me go at a different way. If the government hadn’t intervened and it were just bank shareholders that lost, would you still feel the same way?

It would take more than just that. If, let's say, in addition to that our govt was NOT using billions of dollars to stop people from foreclosing, then I would have no objections. Doesn't mean they're much less of a deadbeat, but I would hold no personal scorn towards them for doing so.

Frankly I couldn't care less about the shareholders of these banks, even though they probably make up a part of my 401k.

klarek says

mthom says

You’ve used this analogy before - it’s not even close. Come up with something new.

So long as the misused consequence of defaulting is equivocated with fulfilling one’s financial obligations, I’ll use this apt analogy

mthom says

It’s not apt.

Yes it is. They don't evict your ass because you are fulfilling your obligation. They don't take the house because you satisfied the terms of the contract. Go look up the term "default" yourself if you don't believe me. It's a failure to meet one's legal obligations. To call it a fulfillment is simply absurd.

It's a false moniker being pushed right now by ambulence-chasing, fly-by-night lawyers and peddled on their infomercials. Then the shlubs hear them and start repeating the talking points about "fulfilling the contract terms" just like five years ago they were saying "buy now or be priced out forever" while cutting their clients' hair.

klarek says

It would take more than just that. If, let’s say, in addition to that our govt was NOT using billions of dollars to stop people from foreclosing, then I would have no objections. Doesn’t mean they’re much less of a deadbeat, but I would hold no personal scorn towards them for doing so.
Frankly I couldn’t care less about the shareholders of these banks, even though they probably make up a part of my 401k.

OK--I think I understand your position. Stop with the whole deadbeat thing and right/moral BS then. You're mad because some people are walking away from their house and you can't/aren't. They get to walk away--why can't you?? Guess what--life isn't fair.

It seems like your focus is on the word "fulfillment." I think you are the only one who has used this word on this thread. No one is saying SD is fulfillment of the obligation. Yes, fulfilling the obligation would be to pay the entire loan. BUT, the contract states that if you do not fulfill this obligation, the banks only recourse is to take the house and a secondary effect is that the borrower's credit will be adversely affected. Until the law changes, that is how mortgage contracts work. Abiding by the terms of the contract (to which both parties agreed and the banks specifically drafted themselves) is a better way of phrasing the relationship between bank and borrower and what happens when the borrower defaults.

Your analogy is still completely wrong since there are no contract terms with being a parent.