Grim choice: Walking away from a mortgage

[BassBoy]

For many, it's either pay the mortgage or put food on the table

http://www.msnbc.msn.com/id/28300438/

[Faithfullymovin]

Great article! I needed to read this post today. Especially the last two paragraphs!

Thanks!

[shabam]

Walking away from a mortgage yet paying ones credit cards is silly.

While I understand and agree that someone who walks away is not the "villan", there should be some sort of consequences for doing so. Liked being forced into bankruptcy. It is this sort of crap that has fueled this financial crisis. Much like theft, everyone ends up paying for it through higher interest rates and higher loan fees.

Most home owners knew what they were getting themselves into. And if they did not, well it is up to them to learn about it prior to signing up for a $200k to $600k loan. There are certain situations where walking away is justified but certainly not for someone who bought a $600k house and then loses their job and cannot pay. Well you should have thought about that before buying a $600K house with nothing down. It's not rocket science and your arms, ironically, certainly were not twisted to get you into the loan.

This is not going to win me any friends but if I was a bank I would black list people that walked away as what proof do they have that they will not do it again. With some exceptions, anyone who walks away should not be able to apply for a mortgage within x years and without a 25% deposit.

[Minnymouth]

Shabam,
What about "blacklisting" the banks and loan companies that appraise property "higher" than its actual value will ever be....... just to get a loan to go thru......??? They know the property will "never sell" for this amount, but they can get a loan signed, sealed, and delivered, for that high amount!!!

That too, could be considered "fraud", on the part of the bankers, lenders.......

Or what about bankers, lenders that allow loans to go thru even though they KNOW the party cannot meet the monthly payments if something did happen in the future...... That too, could be considered a form of 'hidden fraud" on the part of the lender.

Only a certain "percentage" of a persons income should be considered when applying for a loan...... but yet most lenders will go extremely high in that ratio just to get the loan to go thru.... And underneath it all they realize that it can be defaulted on very easily by the borrower. One disaster, one job loss, sickness can cause the default.

Lenders should never be allowed to lend more than the borrower can easily repay without complications.

And yes, I agree that banks should require downpayments (for good faith) when taking out loans..... If you have something invested, your not so likely to give it up so easily.

It's a two way street......................

So why should a citizen be penalized and forced into bankruptcy due to the lender overextending themselves deliberatly just to make a loan go thru.

Most bankruptcy cases where a home is foreclosed is due to major job losses, or major medical bills...... not to everyday expenses of the homeowner.

And what about cases like mine, where homes are "seized and sold" because some lender failed to do and file the correct paper work at closing........
I did NOTHING WRONG, yet my home was seized and sold by the Trustee due to the negleience and stupidty of the lender. Yet the lender is the one that come out smelling like a rose, got paid most of what he was owed, and I took the "BLUNT LOSS" FINANCIALLY.......

Their should be penalties for the stupidity of the lenders also.............for neglience and deliberately overextending loans for people.

Force the "individual" into bankruptcy, penalize them?, but no penalty for the corporations that help cause the problem, huh???

Bail-out the corporations? Why should we? Why should my tax dollars BAIL OUT a corporation or a bank who has bad practices when the same thing can't be done for a private individual who has met hard times temporarily.

Restructure and reorganize a corporation, but not a private individual......

Remember, without the borrower, there is no-need for the lender......

[JRScott]

I do agree with Shab that it is smarter to pay your mortgage before the credit cards. Though if you can't afford your home it is time to look to other housing means and let it go if there is no way to afford it.

I do agree with Minny though that some banks have indeed done things of that nature.

[BassBoy]

Shabam,
What about "blacklisting" the banks and loan companies that appraise property "higher" than its actual value will ever be....... just to get a loan to go thru......??? They know the property will "never sell" for this amount, but they can get a loan signed, sealed, and delivered, for that high amount!!!

That too, could be considered "fraud", on the part of the bankers, lenders.......

Or what about bankers, lenders that allow loans to go thru even though they KNOW the party cannot meet the monthly payments if something did happen in the future...... That too, could be considered a form of 'hidden fraud" on the part of the lender.

Only a certain "percentage" of a persons income should be considered when applying for a loan...... but yet most lenders will go extremely high in that ratio just to get the loan to go thru.... And underneath it all they realize that it can be defaulted on very easily by the borrower. One disaster, one job loss, sickness can cause the default.

Lenders should never be allowed to lend more than the borrower can easily repay without complications.

And yes, I agree that banks should require downpayments (for good faith) when taking out loans..... If you have something invested, your not so likely to give it up so easily.

It's a two way street......................

So why should a citizen be penalized and forced into bankruptcy due to the lender overextending themselves deliberatly just to make a loan go thru.

Most bankruptcy cases where a home is foreclosed is due to major job losses, or major medical bills...... not to everyday expenses of the homeowner.

And what about cases like mine, where homes are "seized and sold" because some lender failed to do and file the correct paper work at closing........
I did NOTHING WRONG, yet my home was seized and sold by the Trustee due to the negleience and stupidty of the lender. Yet the lender is the one that come out smelling like a rose, got paid most of what he was owed, and I took the "BLUNT LOSS" FINANCIALLY.......

Their should be penalties for the stupidity of the lenders also.............for neglience and deliberately overextending loans for people.

Force the "individual" into bankruptcy, penalize them?, but no penalty for the corporations that help cause the problem, huh???

Bail-out the corporations? Why should we? Why should my tax dollars BAIL OUT a corporation or a bank who has bad practices when the same thing can't be done for a private individual who has met hard times temporarily.

Restructure and reorganize a corporation, but not a private individual......

Remember, without the borrower, there is no-need for the lender......

I agree Minny, especially with the first few paragraphs of your post. My sister and her husband over paid for their first home, and when they went to sell, the got less than what they paid for it a few years earlier. They were building a new home, but everything is fine with them as far as finances are concerned. It got a little nerve racking carrying 2 mortgages though. But here's where I think they went wrong. The loan officer/mortgage broker told them to "lie" on their documents about how they could afford the second mortgage. Well, they listed that their soon-to-be old home would be rented. The loan officer/mortgage broker said the lender would never check, but they could always have a friend or family member sign a lease agreement. IMO, knowingly and willingly falsifying this information is fraud. ANd I don't care what anyone else (my friends or family) says. THEY COMMITED FRAUD, PERIOD! Anyways, I was a little irritated with them about that because after all, this country has seen enough already and they just about added one more stastitic.

My brother and his friend also over paid for a home shortly after my sister bought her home. BTW, both my sister and brother paid about $25K too much in my opinion. Anyways, my brother and his friend bought the home with $0 down and did 100% financing. They also bought a home that had a disclosure about an outside wall that had been shifting. That was first mistake. As the wall began to shift even further to the point where the gas meter was in jeopardy, they dedided to have it looked at. Unfortunately, the cost to repair the failed footer was too much, so they looked into an equity line. Now, this was recently and with the current crisis, the home's value had fallen and the appraisal was $14K less than what they paid for the home. Then he and his friend attempted to file an insurance claim, claiming the wall was struck with a snow plow. #1: It would be impossible to do that considering where the wall buckle was at. Granted, it was the outside garage wall, but still, you'd have to ram into the house extremely hard to even bucklethe wall. And it's inpossible to fail a footer by hitting the house as they claimed they did. #2: The problem was disclosed. DUH! Now these 2 could face some serious consequences for attempting to de-fraud their home owners insurance. It's gone further than just denying the claim and cancelling their policy, but I won't divulge anything about it right now.

My point is, it was way too easy for homeowners to pull this off and IMO, the lenders and brokers didn't help matters much by contributing. It was all about money! No one was regulating what was going on and it spun competely out of control and now it's too big for anyone to correct.

[mrbsf]

...can result in authorities coming after other assets.

Since when did we start referring to CA firms as "authorities"?

That means it's not illegal to walk away in those states, but what about the ethics of such an act?

In which states is being foreclosed upon illegal? The "buzz" words in this article sound like they're coming from the mouth of a banking industry lobbyist. Oh wait, maybe it is!

[DisneyGirl]

My point is, it was way too easy for homeowners to pull this off and IMO, the lenders and brokers didn't help matters much by contributing. It was all about money! No one was regulating what was going on and it spun competely out of control and now it's too big for anyone to correct.

This is how I feel. I really do believe most of the responsibility falls on the homeowners though. It's our responsibility to know what we are signing and to understand it to the fullest. Even if that means seeking the help of an attorney. Unethical lenders will always be out there. If someone says "lie" then you should probably take your business elsewhere even if it means you won't qualify for the home you wanted.

I saw a report about a woman who took out a mortgage and her monthly payment was MORE than what she made per month. Yet SHE signed the papers. Now she wants bailed out and to keep this home that she clearly cannot afford. This isn't a single incident. It's happening over and over again.

Anyway, I've got to run but I wanted to say Minny, I'm sorry for what happened in your situation. That just plain stinks and I hope that lender gets caught for their wrong doing.

[Minnymouth]

Yeah, you hire a lawyer for his professionalism and expertise and often you get 'nothing" in return....................except another problem...........

My case (chapter 7) was unusual and very rare...... and lasted almost 3 years before it closed and I got my house back.

But its all over, settled and done with...... and I still have my home. I was able to purchase it back from the guy that bought it at auction....... Believe me THAT COST ME!!!

I can't fully say trust your attorney, cause I should have been a lot more aware of what mine was doing!!!! Or not doing!!!!

[shabam]

Shabam,
What about "blacklisting" the banks and loan companies that appraise property "higher" than its actual value will ever be....... just to get a loan to go thru......??? They know the property will "never sell" for this amount, but they can get a loan signed, sealed, and delivered, for that high amount!!!

That too, could be considered "fraud", on the part of the bankers, lenders.......

Or what about bankers, lenders that allow loans to go thru even though they KNOW the party cannot meet the monthly payments if something did happen in the future...... That too, could be considered a form of 'hidden fraud" on the part of the lender.

Only a certain "percentage" of a persons income should be considered when applying for a loan...... but yet most lenders will go extremely high in that ratio just to get the loan to go thru.... And underneath it all they realize that it can be defaulted on very easily by the borrower. One disaster, one job loss, sickness can cause the default.

Lenders should never be allowed to lend more than the borrower can easily repay without complications.

And yes, I agree that banks should require downpayments (for good faith) when taking out loans..... If you have something invested, your not so likely to give it up so easily.

It's a two way street......................

So why should a citizen be penalized and forced into bankruptcy due to the lender overextending themselves deliberatly just to make a loan go thru.

Most bankruptcy cases where a home is foreclosed is due to major job losses, or major medical bills...... not to everyday expenses of the homeowner.

And what about cases like mine, where homes are "seized and sold" because some lender failed to do and file the correct paper work at closing........
I did NOTHING WRONG, yet my home was seized and sold by the Trustee due to the negleience and stupidty of the lender. Yet the lender is the one that come out smelling like a rose, got paid most of what he was owed, and I took the "BLUNT LOSS" FINANCIALLY.......

Their should be penalties for the stupidity of the lenders also.............for neglience and deliberately overextending loans for people.

Force the "individual" into bankruptcy, penalize them?, but no penalty for the corporations that help cause the problem, huh???

Bail-out the corporations? Why should we? Why should my tax dollars BAIL OUT a corporation or a bank who has bad practices when the same thing can't be done for a private individual who has met hard times temporarily.

Restructure and reorganize a corporation, but not a private individual......

Remember, without the borrower, there is no-need for the lender......

The bank did not force anyone to take on the loan. As the banks did not force anyone to use their credit cards and get into debt. People also have a choice of banks.

How many posts do you see where people cheer being approved for cc's again once discharged. After all people who have filled for bankruptcy are known to go bankrupt twice. Your personal case is extreme and doesn't apply to all. We cannot assume the banks are out to get everyone.

Yes I know the seller, real estate agent, mortgage broker, bank will do anything to make the sale (loan) but ultimately it is up to us to look through the paperwork and crunch the numbers ourselves. I am guilty of this myself but do not look for someone to blame for my situation. If an individual has a $200K credit line, should they max it out and then claim, "well you should not have approved me". Yes, the entire mortgage industry needs to be regulated but it is extremely hard to do without someone complaining or interfering. How many of these loans were handed to illegal immigrants who are not even citizens in this country? How many loans were handed out to people with no verification of their income?

At the same time, no one should be able to simply walk away because they made a bad call. While I am not saying we should hold them in bondage, there has to be some sort consequences. Definitely against individuals pulling a "buy and bail". Yes, such offenders should be forced into bankruptcy. I think most people don't have an issue with this. If I make a bad call, I should feel the consequences rather than bail and let someone else to deal with it. Then again being a responsible adult, responsible individual, went out the window many years ago in this country. Very few give a crap about others let alone their affect on others anymore.

Why should someone else pay for my irresponsibility with money or circumstances. If people are not financially savvy, well, time they read up on it. That is no excuse. Only people who find themselves in circumstances beyond their control have a legitimate excuse. Like someone born with a disability. When it comes to everyone else, come on, in most cases it was preventable. For example, someone who has zero down yet buys a brand new 5,000 sq ft home should have known better.

[treehugger1]

I think that others (adults and the new modern working youth) do care a great deal about others. Its just that their value of their sanity, family, freindship, health, and love ones is far higher than any sense of "financial responsibility. I understand the feelings that many of us older (50's and 60's age) folks might have toward so much emphasis being placed on financially getting ahead. However, I don't get the sense from my daughters and the thousands of young college students I communicate with every year, that their sense of responsibility puts as much emphasis on finances as I or my parents, or gradnparents did. All one had to do these past few years is watch some big energy companies, airlines, and industrial corporations go belly up or declare bankruptcy to see what type of behavior has been modeled for our youth. And, it continues. The current example is the downfall of the automobile industry. I traded automotive stocks for a few years and read through much corporate financial records and it seemed clear even 8 - 10 yers ago that the auto manufacturers were walking on thin ice and could not continue to pay their own debt. Hell, many of them even got their own financing arms (much of which they probably borrowed.) If these companies, and the big financial institutions can be irresponsible and assume risk, then so can the modern consumer. It always takes two sides to sign a contract.

Give this economy another 10 - 18 months, and you are going to see defaults on unsecured debt go through the roof. The effect is that folks will destroy their credit, but then again the economy will stall even further as folks stop buying. I don't intend to shed any tears for lender or borrower. I do expect to possibly see deflation as cash (full cost or 20% down) keeps people from continuing to build a false consumer economy based on credit. Perhaps credit cards should be issued the same as an old-style mortgage. The consumer eithers needs to "invest" 20% "down" to buy their credit limit, or unsecured credit cannot be granted. In other words, if you want a card with a $1000 limit, then you put up $200 as a security against the possible risk of your default. JMHO

[shabam]

Very interesting points treehugger. Having lived and traveled overseas I can identify one noticeable difference on the matter of credit. In a number of countries you cannot even secure a $1,000 credit card without three pay stubs and a reasonable salary. It is also more difficult and costlier to acquire and use credit cards. As I said earlier, I do not blame the banks but being that we are humans, if the temptation is there we will use it. The banks deploy clever marketing tactics to ensure we continue to do so. As once did the cigarette companies.

Excuse the French, I also agree that shit will hit the fan once people without a job or for various other reasons start defaulting on their unsecured lines of credit. We are yet to see any major delinquencies in this area. It's a ticking time-bomb considering that so many people are now relying on it to get by. What happens when their lines of credit are cut, their interest rates are increased or they fail to secure a job in the next 24 months.

I also do agree that there are two sides to a contract. Therefore, if a lender takes on a loan knowing that the customer may have trouble paying it back then it should be fair game if the customer defaults. Pursuing them for technicalities about certain transactions should not be an option for the creditor. After all, they could ensure that a customer reports any job loss or require reporting their annual income accordingly. If creditors fail to taken on this responsibility themselves, then government regulation is the key.

[Genenco]

Well, yes there's more then enough blame for each side.

I remember that when applying for a cc, it asked what the "Total household income" was at the time. Now we all know that this is a broad grab by the CC's, but I didn't lie. I did make $15K a year, of course, my mother made $32K and my older sister (During seperation from husband) made $25K

So, having 5 CC's at an average of $5K each was not a surprise was it?

If the CC companies had been something like 1940's where you had to show a VERY good history and then it was "Slow growth" in regards to rasing limits, then there's something that would have been a stopping measure for bad debt.

The tricks realtors/brokers/mortgage companies did to get the loans passed, wouldn't have flown in the 1940's, but greed, simple greed and loopholes made it possible.

I think if they reverted to the old 20% down of purchase price, would make it more likely, that people would actually save their money, be tight and squeeze every penny till abe cried, we'd be still the major world power and could reclaim being the world most trusted economy.

Till then....???

[treehugger1]

And keep in mind that there appear to be many folks who are walking away from mortgages similar to the manner they dump bad stock investments. I don't think it helped that so many folks were convinced that housing was the ticket to fast growth investing.

The mortgage issue has affected all socio-economic levels. The reasons for defaulting may be different among the levels, but default is default. It doesn't need to be the case that every large financial decision we make has to be for future monetary gain; how about simple pride of ownership, stability, etc. I sometimes think that the low-middle class folks bought for pride and stability, and it was others who ultimately turned home ownership into "investing."

[Doghouse]

Shabam, what you are saying is like telling Plaxico Burress that guns are dangerous right after he accidentally shot himself. You are restating the same discussion Flamingo did in a similar thread a while back about personal responsibility.
I say don't confuse financial irresponsibility with truely unforseen or hardship cases. Why not talk about the ridiculous cost of health care, for example, that has forced many into bankruptcies because of high medical expenses? There are many people that managed their CC's responsibly and bought homes within their affordability but still got whacked with medical bills that forced them to lose the house and default on debt.

Or job losses. Many here that had stable, reliable jobs when they bought their homes are now caught in the economic mess with layoffs, reduced pay etc. Tell me that in 2002, 2003, 2004, 2005 you predicted the incredulous economic mess that we are now in. Not just the US, but a worldwide mess. Heck, Iceland was on the verge of bankruptcy. To say otherwise is playing Monday morning quarterback. Heck, McCain solidly lost the election by virtue of the economic tsunami. If you did predict the economic mess back then then I want you to give me the six numbers for next week's California lottery.

Anyway, we are all aware of what we signed, the fine print, blah, blah, blah and what homes we bought and items we charged back then. Companies write off bad debt and bear the consequences of their action. Consumers are making a business decision to walk from their debt too. And the hit on credit scores and limitations on future purchasing ability is a price we already do pay.