Posted on 12/27/2010 12:56:17 PM PST by Atlas Sneezed
I know there are moral issues, and I don't mind if some wish to debate the moral question of whether the bank took the risk of a downturn, or the buyer did. Or if my taxes are bailing out banks that are giving benefits to other borrowers.
The real question is a cold financial or legal one.
We are maybe $500k upside down, but love our house (custom built for us), don't want to risk losing it, and can easily afford the payments, and have never been late (and have stellar credit).
Is there a sensible strategy for getting some financial benefit in terms of renegotiating the amount?
One person told me just to count my blessings, and don't add stress to our lives over losing a house that we have no risk of losing. But I wonder if there is a solid scenario that can put a couple hundred thousand dollars in our pockets.
Incidentally, a hit on our credit would not have a real effect, because we don't need to borrow any money.
Look at the comparables for recent sales of homes similar to yours, close to you. Is there actually a $500K deficit, between what you owe and what the home would likely fetch on the market? That’s one consideration. I’ve noted that very desireable properties with acreage haven’t been hit quite as hard as more ordinary ones.
Also, look at rents for comparable properties, in comparison to the cost you’re carrying for the note, taxes and insurance. Are you at a deficit there? Likely not as much as you think.
There are three likely possibilities, and one unlikely. The unlikely is that your mortgage principal can be renegotiated on a custom-built house with you as the original owner, never having ever demonstrated any difficulty with meeting the terms of the contract. Just dispense with that notion, imho, because it’s not going to happen.
One of the likely possibilities, very likely with stellar credit, is that you can refinance under more favorable terms, but that would involve fulfilling the original contractual terms and signing a new contractual obligation. This still won’t protect you from declining value of the property and it will do nothing to the principal owed.
Then, there’s stopping payment. intentionally heading into default, and then attempting to strongarm your mortgage holder into renegotiating principal. There are costs associated with foreclosure above and beyond a likely reduced price for the property in the current market. You say $500K underwater, add even more to that for them to foreclose and sell the house if you’re right. So, there is some leverage on your side in this but it’s a gamble.
The last would be to intentionally default, live in the house as long as you’re allowed and then buy it back. If it’s a desireable property, remember that it’s going to attract more interest at auction or as a REO sale than more ordinary properties, and this may be a gamble too, as a result.
So, the choices are:
1- Live up to the terms of the contract, admittedly not a problem for you, for your custom house
2- Fulfill the terms of the contract by seeking a refinance under more favorable terms
3- Attempt to essentially blackmail the mortgage holder to gain more favorable terms
4- Or, proceed into default and roll the dice that you can get your custom dream home back for $500K less than you currently owe.
I’d rule out option 4, personally. This would be tantamount to asking a question to which you don’t already know the answer in a court of law, bad strategy.
Option 3 could either be seen as shrewd and driving a hard bargain, or dishonorable. Either way, the mortgage holder is not going to view you in a positive light and do not be surprised at fallout from such an attempt.
Option 2 is the rational path. No taint of anything, honorable, goes toward solving the perceived problem.
Option 1 doesn’t do anything but continue on as you are. Is it really so bad?
You really need to look at the laws in your state, as far as foreclosure. Is yours a no-recourse state or would there be a deficiency judgment? If deficiency judgment, you run the risk of owing any shortfall between what was owed and what the property brought at auction or as an REO sale, so nothing would be gained but a lot of headache and legal wrangling.
Wow it took 43 posts for sensible advise to be given. A house is a business transaction, as you said and should be treated as such.
Most of the rest are bringing too much emotion to a business transaction.
Are they mutually exclusive? Nope. The decision to default is just business.
If your house GAINED in value, would you pay the bank the difference in your mortgage and the higher value of your house today?
Great post, but reading the original and some (few thank God) of the responses, I think they will not get your point. Actually, they will think that the evil developer is taking advantage of you. These are crazy times.
>> I would consider this a business deal
I consider it fraud.
>> I predict there will be a mania bubble and drop in gold. My rough guess is that it will peak at $4000, and settle to $2500. << ( http://www.freerepublic.com/focus/f-news/2639326/posts )
You obviously understand bubbles:
>> Pretty lame logic: because two markets had drops after rises, all markets that have risen will drop.<< ( same thread )
... But here is some good advice from a respected FReeper:
>> Having a $100,000 mortgage and a $100,000 bank account is as good as paid off (and better, because if you have a medical catastrophe and your house is paid off, you might not qualify for a mortgage). Having the $100k in precious metals that double in the next 5 years because of inflation means you can THEN pay off your mortgage with only half of what you saved, and keep the other half as profit.
But you have to accept that we are in and facing inflationary times, making your fixed rate loan essentially a fantastic asset. << ( http://www.freerepublic.com/focus/f-news/2626455/posts )
If you believe, like this FReeper does, you're in Fat City!
Never mind the Freepers that are calling you names. Good business sense NEVER prohibits you going back to any creditor and renegotiating ANY and ALL debts as long as you do not use fraudulent methods in that process. There is nothing amoral, unethical or dishonest about that process.
>> These are crazy times.
They are indeed, and the name of the game is:
“I keep all the upside for myself, but I spread the downside losses among my brothers.”
I am a chump; I never learned to play the game that way. Oh well, I sleep OK at night and my ugly mug still looks okay to me in the mirror. So I guess there ARE benefits to being a “fool” who pays his bills and lives within his means, after all.
>> Most of the rest are bringing too much emotion to a business transaction.
BS, BS, BS.
The homeowner promised to pay off the loan. If the borrower promised to default on the loan upon depreciation, no loan would be made.
The bankers are evil or stupid. Take your pick. Either way they deserve to take the loss.
Smart, honest bankers wouldn’t let themselves get in a pickle where the asset is worth much less than the mortgage. But in the end it’s a business transaction. Beelzebubb should make the legal decision that makes the most sense for him.
God knows the banks would in their position, assuming they even cared about legalities.
Luke 12:48 (Amplified Bible)
48But he who did not know and did things worthy of a beating shall be beaten with few [lashes]. For everyone to whom much is given, of him shall much be required; and of him to whom men entrust much, they will require and demand all the more.
To say you don’t or won’t need to borrow money when you’re at least 500k in the hole is pretty shortsighted. Actually, taking out a 500k plus mortgage is pretty short sighted too since you’re asking. I’m no MBA but I’ve always felt that folks who take out these big mortgages really can’t afford them. I’ll never understand why they don’t live in humbler accommodations for a few more years and save the difference for a big downpayment and a more reasonable mortgage.
Delapaz has given you the exact advice that I would.
Real estate investing DOES always pay off, if you bought a truckload of dodgy MBS's and are on Hank Paulson's and Timmy Geithner's rolodexes.
If you bought just a house or two, then yeah, not so much.........
probably never qualifying for a security background check for a financially sensitive position, including store manager or money handling
never qualifying for a security clearance
your credit rating will drop, potentially affecting auto and home owner's insurance rates, depending on the laws in your state
getting sued for the amount you owe minus what the house is worth, depending on the type of mortgage
I strongly suspect that whoever is carrying the note now is not the original lender.
As a matter of fact, in the current climate it may not be possible to know who is currently carrying the note.
Just a hunch...but did you find yourself in a position to buy such an expensive house....after flipping several others?
Is your current house just the last in a string of flipped houses? And yoou finally got trapped when the market went bust?
After all the expenses, you think a bank would prefer to foreclose? How would that work?
They not only stand to recoup a good % of their loss
How will the bank recoup the $500,000 they are underwater? Please walk through the steps.
they also get to borrow against it once they take it back.
They get to borrow against the house? Why would they want to do that?
The magic happens after they buy it back at foreclosure auction & it becomes labeled a “toxic asset.”
They bid on the house they already own at their own auction? They can borrow against a toxic asset? Why would they want to do that?
http://www.fdic.gov/bank/individual/failed/lossshare/
Your link is about a bank that fails and how the FDIC minimizes losses to the FDIC, it has nothing to do with your earlier claims.
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