Upside down on house (looking ahead)

golfer79 said: HumDoHamaraDo said: If you ever refinanced then it became a recourse loan and they can come after any of your assets.

I thought that was only if there was equity taken out or a second taken after the purchase.
Most refinances become recourse loans

HumDoHamaraDo said: golfer79 said: HumDoHamaraDo said: If you ever refinanced then it became a recourse loan and they can come after any of your assets.

I thought that was only if there was equity taken out or a second taken after the purchase.
Most refinances become recourse loans

Interesting, obvioulsy there is a lot more research that is needed to see if this would be wise financially or not.

Again, thanks to everyone who has replied and offered legitimate advice. A quick note since it's been asked several times. We have excellent credit -- scores in the 760s.

Houses in the immediate neighborhood have been on the market / selling in the low-mid $300s. Obviously, the trend is going down, as this place (the one that happens to be next door) is asking $290. I don't know if this is a short sale, but I do know that the place is in good condition, inside and out.

Now to recap some of the options suggested to date:

 - Pay down the 15yr since it has the higher rate.
   * This is what I had planned initially, so that I would be in a position to refinance the 5/1 ARM in ~2 years.
 - Hold onto the $$ and wait and see.
   * This helps protect us in case the market continues to tank.
 - Ask the lender to convert the loan to a 30yr fixed.
   * I will definitely look into this.  Our lender (American Home Mortgage) filed for Chapter 11
     a few months ago though..
 - Live rent free and eventually walk away when they evict.
   * This is NOT an option and is completely irresponsible. I have a wife and child and would not
     want to subject our family to the fear of losing our house at any moment.
 - Buy another house and walk away from this one

This is the interesting one. We can probably afford a 10-20% down payment on a similar house in the area. Since our credit (currently) is excellent we would qualify for the new loan. Once we close, it's envisioned that we start foreclosure on the 410k house. Since we've already secured housing elsewhere (w/ 30yr fixed for the love of god), we'd be "okay" if our credit were to take a big hit.

The downside here, is that the eventual sale of the 410k house could be interpreted as income by the IRS, and thus, we'd be left with a hefty bill.

I definitely need to talk to financial advisor's / accountants / lawyers if we decide to go down this path -- thinking about your assets while under going foreclosure.

I think it might have been stated earlier, but basically you bought a property at 410k. The bank loaned you the money to buy the property. You're the one actually purchasing the property and you did of your own free will and under no duress. The value of the property declined and your property is now worth less than it was when you originally purchased it.

Now with anything besides houses, this is the normal course of events. Buy a car, a computer, a TV, camera, it will all depreciate. The bank just lent you the money and secured promise of payback by saying they'd take your home if you didn't pay the money back. If the house went up in value by 100k or 200k, they would have no share in the profits. Now the big question is "Why should they have to share in the loss?"

As this is somewhat new, I think the other argument that can be made here is that this amounts to fraud if you intend to walk away from the purchase and leave the bank holding the property even though you can afford it. They typically don't pursue the buyer because one of the first rules for lawsuits is never sue anyone without any money, usually a waste of time so people are used to the bank not coming after people. Wouldn't this also be similar to writing bad checks? Don't people who write bad checks go to jail? If it's an innocent mistake it's one thing, but to do it intentionally, that's really the question here.

And what do you tell your kids? Well back in '08, I stiffed the bank on about a 100k and got away with it. Pretty slick huh?

Let's keep morality out of this.

A mortgage is secured by its collateral. Typically a 20% down payment is required to protect the bank from market fluctuations like this. The down payment ensures that the borrower has skin in the game. The lender chose to accept a 5% down pmt. In turn they receive more interest for the higher risk they are taken on the 15% loan.

The adverse situation has occurred. The property is upside down and its in the best financial interest of the OP to walk away from the house.

tdf2001 said: Let's keep morality out of this.

A mortgage is secured by its collateral. Typically a 20% down payment is required to protect the bank from market fluctuations like this. The down payment ensures that the borrower has skin in the game. The lender chose to accept a 5% down pmt. In turn they receive more interest for the higher risk they are taken on the 15% loan.

The adverse situation has occurred. The property is upside down and its in the best financial interest of the OP to walk away from the house.

Ahh If you throw out morallity you can justify doing anything. If the ends justify the means, What can we not justify? If you are in my way, Instead of going around you, I'll run you over... My problem solved.

If I need a new car, the best way to do it, is to steal it, since then my cost is 0.

kenblakely said: tdf2001 said: Let's keep morality out of this.

A mortgage is secured by its collateral. Typically a 20% down payment is required to protect the bank from market fluctuations like this. The down payment ensures that the borrower has skin in the game. The lender chose to accept a 5% down pmt. In turn they receive more interest for the higher risk they are taken on the 15% loan.

The adverse situation has occurred. The property is upside down and its in the best financial interest of the OP to walk away from the house.I agree. The difference between this and nicking a loaf of bread is that mortgages are collateralized, and the basis of the contract is that if you don't pay, the bank gets the collateral. No morals - simple equation.

you do agree?

Then answer me this:

If the value of the house goes up 50%, should the lender comeback and say, Hey, house is worth 50% more now. Pay ME 50% more for it?

We need new forms of car loans too. Since the cars value drops over time. Why should the loan amount be based on the orginal value?

The fact theres collateral is just part of the reason you were allowed to get such a huge loan. It doesnt absolve you from paying for you debt.

Stealing money is stealing money. Adding gray to it, is just to help yourself sleep better at night.

sinik said: michal1980 said: If the value of the house goes up 50%, should the lender comeback and say, Hey, house is worth 50% more now. Pay ME 50% more for it?Again with this inane argument.

OP can ASK for a change to his loan terms from the bank but the bank is NOT OBLIGATED to accommodate him.
In your "hypothetical" scenario, the bank can ASK for a change in the loan terms, but the borrower is NOT OBLIGATED to accommodate them.

Got it?

nope because you and others are pushing the theory that the buyer can just walk away. And take a credit hit. Thats the same as the bank raising the payment, while getting a fine for doing.

Theres no asking in walking away.

FWF is now turning into a CreditBoards for mortages, might as well ask time to get some ad money from those walking away websites.

michal1980 said: after this thread, I'm going to rip everyone that says pay you bills dead beat. Same difference, the market changed for me... I bought stuff on credit thinking i'd have more money next month, but bad thing a,b,c, happened to me, if the big business can write it off, heck so should I.

Its funny when the difference is 100k+ its a smart buisness move, when its a few grand your a dead beat. Theres lots of true deadbeats that come in and ask for help, and people around here are probably correct to be cold as all hell. But I see now that its all just hot air, reach a limit and everyone wants to get out from the contracts they signed.


And why doesn't the following make sense:

Next time the housing market goes up, lenders should be allowed to re-write the loans for the higher value of the property.


If you are arguing it should be allowed to re-write the loans when the value goes down, then the opposite should be correct as well?

Do you work for a collection agency? Giving up the house is perfectly acceptable in the context of the note (legal contract) OP signed when she bought the house. Raising the rate would not be allowed under that same contract. Walking away is within the contact. Get it?

And as far as raising rates, lenders do it all the time on credit cards because the contracts they have with consumers allow it.

HumDoHamaraDo said: golfer79 said: HumDoHamaraDo said: If you ever refinanced then it became a recourse loan and they can come after any of your assets.

I thought that was only if there was equity taken out or a second taken after the purchase.
Most refinances become recourse loans

Did you read the article? One person says that refi's become recourse loans and another says "However, Roger Bernhardt, a professor at Golden Gate University School of Law, says there is no California case law that definitively establishes this as fact."

So basically, there is no agreement on the matter which means that a bank most likely will not come after you for a deficiency judgement.

tdf2001 said: Who is to blame?I can't take this argument anymore. I admit it. I did it. I am to blame. (I also caused 9/11, shot JFK, and hid the Holy Grail.)

I feel so much better now.

gosocks said: Giving up the house is perfectly acceptable in the context of the note (legal contract) OP signed when she bought the house. Raising the rate would not be allowed under that same contract. Walking away is within the contact. Get it?You're totally wrong. Perhaps some mortgage lenders agree to this, but I've never heard of one. Here's what one of my recent ones says. It's from the Note, page 1:

A standard mortgage contract said: 1. BORROWER'S PROMISE TO PAY
In return for a loan that I have received, I promise to pay U.S. $ [amount] (this amount is called "Principal"), plus interest, to the order of the Lender. The Lender is [lender]. I will make all payments under this Note in the form of cash, check or money order.
I understand that the Lender may transfer this Note. The Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note is called the "Note Holder".The only options are cash, check or money order. The collateral property is not equivalent. The whole note is only 3 pages of big type, go check any you have. Is there a section in the agreement that says forfeiting the property is satisfactory?

There are a lot of other forms in all of my mortgages, but it's not in any of them.

You need to stop responding emotionally about this.
I dont complain when the govt takes my hard earned tax dollars and subsidizes farm workers in Iowa.
The bank knew all along that it is an option for the borrower to return the collateral and walk away from the house and they included this in their interest rate calculations.
If the borrower has put in a downpayment of 80% instead of 20% , the interest rate would be much lower. I mentioned previously to read the Basel II agreement that acts as the foundation for risk management at financial institutions. Not every FI follows it but they follow the Basel theory in general. Then come back and I'll answer the rest of your questions.

michal1980 said: kenblakely said: tdf2001 said: Let's keep morality out of this.

A mortgage is secured by its collateral. Typically a 20% down payment is required to protect the bank from market fluctuations like this. The down payment ensures that the borrower has skin in the game. The lender chose to accept a 5% down pmt. In turn they receive more interest for the higher risk they are taken on the 15% loan.

The adverse situation has occurred. The property is upside down and its in the best financial interest of the OP to walk away from the house.I agree. The difference between this and nicking a loaf of bread is that mortgages are collateralized, and the basis of the contract is that if you don't pay, the bank gets the collateral. No morals - simple equation.

you do agree?

Then answer me this:

If the value of the house goes up 50%, should the lender comeback and say, Hey, house is worth 50% more now. Pay ME 50% more for it?

We need new forms of car loans too. Since the cars value drops over time. Why should the loan amount be based on the orginal value?

The fact theres collateral is just part of the reason you were allowed to get such a huge loan. It doesnt absolve you from paying for you debt.

Stealing money is stealing money. Adding gray to it, is just to help yourself sleep better at night.

So how is it theft? The bank is getting the house back.

Frankly, if I was $120k underwater in a house, I would have a very hard time not walking away. At least these days you wouldn't be alone in the decision.

goofygrin said: So how is it theft? The bank is getting the house back.

Frankly, if I was $120k underwater in a house, I would have a very hard time not walking away. At least these days you wouldn't be alone in the decision.

minus the 120k you said you'd pay them.

is this going to be the model for the new america? The repo everything?

cant afford the house... get it repo'd.
cant afford the car... get it repo'd.
--------------------------

as for Chairman Bernanke. he seems lost, and alot of the problem wasn't created by him. Greenspan was a geinus, set a time bomb, jumped out before it went off.

goofygrin said: So how is it theft? The bank is getting the house back.

Frankly, if I was $120k underwater in a house, I would have a very hard time not walking away. At least these days you wouldn't be alone in the decision.
The bank gave you a certain amount of money and you promised to pay it back, and now you want them to have $120k less? How could that not be considered theft?

You don't "walk away" just because it is worth less than you owe. Its one thing if you cannot afford the house and cannot make panyments and they take it back, its another to walk away when you can afford it and agreed to pay back a loan.

tdf2001 said: I want to publicly thank Chairman Bernanke for coming forward and supporting my argument, right here

"Far too much of the lending in recent years was neither responsible nor prudent," he said.

Thanks, Ben, you always chime in at the right moment. whoa there, tex. ben is not saying banks are the ONLY ones to blame, he's saying stupid banks aren't blameless. I highly doubt that someone signing a liar loan for a $800,000 who doesn't make $50k/year is blameless in Mr Bernake's eyes. Far from it.

Borrowers are idiots if they lie on their loan apps.
Lenders are idiots for not verifying the information.
Borrowers are idiots if they get loans they can't afford.
Lenders are idiots for lending money to those that can't afford it.

Match made in heaven that unfortunately is spilling over into the general economy.

HumDoHamaraDo said: gosocks said: HumDoHamaraDo said: golfer79 said: HumDoHamaraDo said: If you ever refinanced then it became a recourse loan and they can come after any of your assets.

I thought that was only if there was equity taken out or a second taken after the purchase.
Most refinances become recourse loans

Did you read the article? One person says that refi's become recourse loans and another says "However, Roger Bernhardt, a professor at Golden Gate University School of Law, says there is no California case law that definitively establishes this as fact."

So basically, there is no agreement on the matter which means that a bank most likely will not come after you for a deficiency judgement.

Did you do more research?
Bankrate link

The first link you posted had the relevant fact. There is no case law in California that establishes, as a point of law, that a refinance converts a non recourse loan into a recourse loan.

Besides, the link you posted to the bankrate article also makes the point that deficiency judgements are rarely pursued.

So, basically, to get a deficiency judgement in a non recourse state on a refinanced loan, the bank would have to A) Pursue judicial foreclosure and get a deficiency judgement which they rarely do and then B) Have the court create new caselaw so that the court can render such a deficiency judgement. Not likely at all.

Incarnate said: tdf2001 said:
The adverse situation has occurred. The property is upside down and its in the best financial interest of the OP to walk away from the house.
So? Its also in the best financial interest to walk away from a car loan the moment you sign it, and to walk away from your credit card debt. Its also in the best financial interest to go steal food from the store instead of paying for it.

BS. There are consequences to any of these courses of actions. If you walk away from credit card debt (which is unsecured), you get sued and you can't get credit for a while. If you walk away from the car, they repo your car and your credit is wrecked for a while. If you walk away from a collateralized debt, they take the collateral and your credit is wrecked for a while.

Honestly, OP would probably be better off moving his family and paying rent for a few years (it would probably take 3 years before OP could get another home loan). Right now, OP is likely paying far more toward the mortgage than he would pay in rent. If he could buy another home now, which I have known to happen, that would be the ideal scenario...but this home is not likely to be worth the amount of money that he owes on it over the next 30-40 years.

If you walk away from a house in a non recourse state, is the lender legally able to sue you for the deficiency? The answer is no. That's what I meant by "What I should have said is that walking away satisfies your legal requirements to pay the note."

If this were a big business, they would walk away from a business venture that was insolvent. As a matter of fact, companies structure business and debt all the time so as to limit their legal liability and so that they don't keep throwing good money after bad. But since it is a homeowner, they're expected to play by different rules?