Posted on 02/23/2010 4:03:22 PM PST by rumrunner
So, after waiting for more than five years to finally buy a house that I thought was fairly priced in socal, and having paid out about $150,000 in rent over that time period, I'm about to close on a short sale.
The banks/investors (BofA, Citi) are going to "lose" about $400,000 on the house. The guy that's selling the house never lived in it. He never put a dime of his own money it. He will still have his own house in a different part of the county. He will keep that house. He is out nothing.
I did a little digging about short sales and came upon this gem this month:
Guy buys a house in Florida. $290k mortgage. Takes out a Heloc of $140,000. Uses it for his S corp business. He asks that his loan be modified. Citi says "sure". He settles the entire Heloc for $15,000 and the Heloc is now extinguished. Yes, 10% on the dollar. He still has his business and other assets.
This was his reply in that forum:
"WOOOOOHOOOOOOOOOOOOOOO!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!! I just got my letter!!!!! $15,000.00 or 10% whichever is greater!!! I just settled 140K for 15K!!!!
THANK YOU xxxx You guys are the best!!!! I'm sooo happy right now!!!!!!!!!!!!!!!!
I was never behind on my 1st or 2nd. My credit is still good, the only remark will show paid in full but less than agreed on my credit file."
>> The sad thing is, from that forum alone, there are thousands of these gambling homeowners that are being bailed out, while those who scrimped and saved, and played by the rules get shafted.
This is just what they mean by “moral hazard”.
So, what’s the “hazard”, you might ask?
I’ll hazard a guess (sorry for the bad pun).
1) It CORRUPTS society’s morals. People of low character learn they can get away with it. And people of good character learn that good behavior screws them in the end, so why should they?
2) It really pi$$es off HONEST people. Sometimes they get fed up and react in ways that mess up certain segments of society.
What’s that old slave poem or song:
Massa thinks I’s workin’
I’s sleepin’ neath a tree.
Stealin’ from a thief’s
All right by me.
parsy, who don’t remember where he heard it
I totally agree!
>>You’re kidding us, right? I would never think of doing that, agreements are agreements........<<
Yes they are. It is why, before recently, loans required a downpayment. If you pay 20% down on a $100,000 home, you have $20,000 skin in the game. The contract virtually always says that you are promising to do one of two things: pay off the loan or give back the property. And since real estate always went up or, if it did go down it really never approached the 20% mark, the banks were happy with these agreements. Only people that were really, REALLY in trouble would give their house back, and the bank could recoup their investment, PLUS all those “mostly interest” payments the “homeowner” made before they defaulted.
So, now we have an environment where the bank was playing by the exact same rules, but not protecting themselves from the shift in prices - caused by their on sloppy loan practices. So the “homeowner” today sees that he is paying $3,500 a month on a home he could rent for $1,600 a month, and it is worth $200,000 less than what he owes. He simply exercises the “plan B” in his contract and gives the house back.
The bank risked it’s own money and lost. There is nothing whatsoever immoral about what the lendee on the home loan did. The fully honored the contract by giving the bank the home back. It’s not their fault that the home lost value to the point that the home was worth less than the skin they had in it. It was the banks responsibility to adequately protect their investment from market forces.
This type of attitude has been used to prey on people for ages; poor robbing rich, blacks robbing whites, illegals robbing nationals.
A man’s word should be good. Period.
We pretend to work, they pretend to pay us.
>>Wait until the tax bill comes, isn’t that treated as income for tax purposes?<<
I believe it is. Except I suspect it is more complicated. After all, the borrower gave back what he got the loan for.
My Dad taught me that stealing is wrong, that I should keep my word and pay my debts. It’s worked well for me so far, and I think I’ll just keep doing it.
Add me to the list.
Only my ex got the house, the new car, and the kids.
All I got was the privilege of paying her 1500 a month. And we have the credit cards, which were all run up to pay for shoes and lawyers.
And now she is dating an attorney. I’m unemployed and paying a guy making 250,000, just so he can bang my wife and steal my daughter away from me.
Ain’t marriage beautiful?
I feel your pain. LoL, what can ya do?
>>A man’s word means diddly squat these days.<<
Sometimes. With most of these contracts, giving the keys back is fully honoring the contract. It is why the banks were stupid to give zero down loans.
DU? Daily Kos? Local DNC meeting?
>> A man’s word should be good. Period.
Yes, and there is RIGHT and WRONG. Good and evil.
Society seems (again) to have largely corrupted itself to the point where it confuses “what you can get away with” with “what is right”.
They are not the same.
It’s disappointing to see that some who consider themselves conservatives have fallen for this situational ethics thing too. I expect it from liberals, but not from principled conservatives.
There is a “Yankee banker” and “Big corporation” exception to that rule.
parsy, who says, surely you have heard ofit.
>> I should keep my word and pay my debts. It’s worked well for me so far
A good night’s sleep is an essential part of healthy living, yes? :-)
As is the ability to look oneself in the eye with respect.
FRegards
I just can’t see how he can stay in his house for that settlement but if he indeed gets off scott free, more power to him.
Bravo!
What, not smart enough to figure out a contract? I hate deadbeats. They are all over apparently. Even conservatives!
RobRoy is correct but let me add to it that calling a contract a “man’s word” does it disservice.
A contract is entered into by 2 (or more parties) and everyone should understand the risks associated with that contract. If a homeowner opts to walk away, then they honored the clause in the contract providing that option. The bank knows the risk they took and certainly knows the rewards of interest. They borrow at a low amount, lend at a higher amount and hope for the best.
When I promised my friend I would pay for a charitable gift, that is my word to him. It isn’t a contract but I honor that debt. A mortgage? Between me, my wife, and the bank.
BTW, I have never missed a payment and don’t intend on doing so but this is not an ethical issue. It is merely a contractual issue.
Ha! I had a FSU guy tell me that one a couple of years ago. I still use it today.
You can rationalize it all you want but if you can't honor an agreement, either verbal or otherwise, you are not a person of honor........sorry.
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