The New Mortgage Revolution: Walk Away

aol.com ^ | January 25, 2010 | Alyssa Katz

[petro45acp]

“...So why are you still writing a check every month on that mortgage that’s much bigger than your home is actually worth? ...”

Uh, because you promised (signed a contract) you would. Because you had the option to NOT buy a house with a usurious variable rate. Because maybe you shouldn’t have been thinking along the lines of an investment. Because too many people have bought houses and too few have bought homes.

ruefully

[CSM]

In my opinion, anyone that walks away when they have the ability to make their mortgage payment should be barred from getting any future credit. Barred for life.

Dave Ramsey Fan Ping List.

If you would like to be added to the “Live like no one else, so that you can LIVE like no one else” list, feel free to Freepmail me.

[rlmorel]

"...University of Chicago economist Richard Thaler..."

Uh huh. Another POS from Chicago, with my apologies to anyone from Chigago who thinks this guy is a POS too. Shame. Shame that people even consider this in this light. On Free Republic, even.

If you have no money and cannot make ends meet, that is one thing. You do what you must.

But if you still have your 60" Sony, your five cell phones for everyone in your family, still drive the new $50,000 BMW and your spouse with the new car, then it is immoral to walk away from your obligations.

A-holes like this guy say that if it is financially advantageous, do it.

Scum. And in my opinion, everyone who agrees with him is as well.

When contracts mean nothing, then we are finished.

[steve-b]

Correct.

The two parties have a contractual arrangement: the party of the first part has the option to either pay X amount to the party of the second part each month, or to surrender possession of a building. As circumstances change, the latter option may become preferable to the former. It's a business decision, nothing more, nothing less.

[Milton Miteybad]

These walkaways are essentially deciding that, even though they have pledged via their mortgage or deed of trust that they will eat the loss occasioned by a decrease in the value of the real estate (yeah, mortgage instruments essentially say that, as a general rule), that they, the borrowers, will turn around and make the deficit not their own problem, but that of the lender, who fronted the purchase money in the first place. From where I'm standing, it's merely grand theft going under another name.

And articles such these attempt to excuse this type of theft not just on an individual basis, but on a societal scale as well. It's now fashionable, it appears, to stiff the lender (in essence, steal the purchase money and stick them for the loss) just because it's now inconvenient for the borrower to live up to his promises.

Of course, the taxpayer ends up eating the loss in the long run, since the lender probably gets bailed out.

[Cowman]

A lot of these strategic foreclosures are driven by job losses. The borrowers were qualified when they bought, had good credit now have no income or severely reduced income. Now the property has lost so much value that it can’t be sold & buyer is stuck. The ideal outcome is the bank & borrower renegotiate their contract, but that doesn’t happen much.

But MY point is that I have the needed funds to pay everything off if I could access my money. The government regs are so restrictive and confusing (I asked 4 different administrators about how to do this and got 4 different answers.) If the Tax Nazis would just let go I would be able to pay everybody -- including them. They just refuse to let go of anything.

I contend that if they just got out of the way and let people have their own money these mortgages and other debts would be paid.

[C19fan]

I not still legally obligated to come up with $20,000 to make up the difference?

As someone posted yes but the question is will the bank even bother trying to go after you considering the legal and other costs.

[paul51]

There is nothing moral about being a chump. When the banks and our own elected politicians set about shafting americans every way they can it makes more sense to do whatever you must to protect yourself and your family. It’s not about morality.

[joe fonebone]

lets play connect the dots.....one of the main tenets of the communist manifesto is the elimination of the ownership of private property.....banks own the houses, government owns the banks....anyone care to connect the dots?

[paul51]

There is nothing moral about being a chump. When the banks and our own elected politicians set about shafting americans every way they can it makes more sense to do whatever you must to protect yourself and your family. It’s not about morality.

[dearolddad]

Yeah. They were all “tricked” into buying a house! Some lenders even held guns to heads! ~sarc.

I wonder how loud this POS would scream if his boss should decide he had no "moral obligation" to pay has contracted salary?

[steve-b]

These walkaways are essentially deciding that, even though they have pledged via their mortgage or deed of trust that they will eat the loss occasioned by a decrease in the value of the real estate (yeah, mortgage instruments essentially say that, as a general rule)

Nonsense.

The bottom line of any mortgage instrument (by definition) is: The party of the first part receives a loan of such-and-such amount from the party of the second part. The party of the first part offers a certain building as security for that loan. Ergo, the risk that the certain building will lose value is inherently assumed by the party of the second part (barring the special case of the value loss being directly caused by the party of the first part's actions).

[CSM]

You really need to listen to Dave Ramsey. His advice would be very helpful for you. Remember, by cashing in your 401K you will have to pay the income tax, plus a penalty. Usually, that means you will lose 40% of the balance.

[Cowman]

lets play connect the dots.....one of the main tenets of the communist manifesto is the elimination of the ownership of private property.....banks own the houses, government owns the banks....anyone care to connect the dots?

Good point but for one thing. The government owns the money not the banks. Once you grasp that the government sees all money as theirs alone and any that you are allowed to use a small bit of it only by their good graces then you can see everything from their point of view.

Today Moses would be standing before the IRS director and be pleading "Let my people's money go!"

[Cowman]

You really need to listen to Dave Ramsey. His advice would be very helpful for you. Remember, by cashing in your 401K you will have to pay the income tax, plus a penalty. Usually, that means you will lose 40% of the balance.

35.3% actually, and this is on the advice of the tax attorney that is bringing the case to the IRS. They will be giving it back with interest.

[only1percent]

The most famous formulation of contract law is this: “a contract is the duty to perform or pay damages.”

You ALWAYS have that choice and anyone who performs at higher cost than their damages if they breach is, quite frankly, an idiot. If a corporate manager performs a contract which is cheaper for the company to breach, he actually violates his fiduciary duty to his shareholders.

The reason why this is rarely an issue is that well-drafted contracts will provide for high damages, and well-functioning markets will penalize you severely in denial of future customer / counterparty credit if you avail yourself of breach (i.e., another measure of damages). If banks systemically violated this basic risk-management precept, that’s their fault.

The “second wrong” in two wrongs don’t make right here is for a borrower to keep performing in the absence of any duty to do so, thus being as stupid now as his lender was to loan to him in the first place.

[hope]

Something better give...Unemployment reaching the highest levels in years and no end in sight..This only took a year for 0 to accomplish...If he goes another 3 years can you imagine the mass exodus of the unemployed walking away from their homes? *shiver*

[CSM]

“Because too many people have bought houses and too few have bought homes.”

I bought a house, but when I got a dog it became a home. The great Mocha Girl Dog (MGD) died suddenly in December and now all I have is a house. ;-)

Seriously, I did buy a house I could afford, took on a 15 yr fixed with affordable payments. I have been working Dave Ramsey’s TTMM for almost 3 years and now I have a mortgage balance that is well below the reduced value of my house. I am 100% against anyone, who can afford the payment, to walk away from their mortgage.

[rlmorel]

Here is a conversation I would like to see:

AUTHOR OF ECONOMICS BOOK: “Dick, I know that I contracted with you to provide me with 200 hours of consultation on economic matters, which you agreed to do contractually with 10% up front, which I have paid.”

RICHARD THALER: “Yeah? So, I know that we shook hands, and I signed the contract too. So what is the deal? I have already given you 200 hours of my time. When do I get the rest?”

AUTHOR OF ECONOMICS BOOK: “Well, here’s the thing, Dick. I need to use that money I owe you for something more important to me. My retirement account hasn’t been building up quickly enough, and my wife needs that new kitchen put in. She still has those old turquoise appliances from the Fifties in there.”

RICHARD THALER: “But, I put in my time! We signed the contract! You OWE me! The contract stated that if you didn’t meet your obligations, I could legally get any profits from the book to make it up! I’m gonna take every cent of profit right off the top...”

AUTHOR OF ECONOMICS BOOK: “Well, I’m not gonna finish the book. You can have it.”

RICHARD THALER: “But...but...”

AUTHOR OF ECONOMICS BOOK: Gotta go. My kid is calling me on his new iPhone. We all got em...great stuff, especially if you get the unlimited plan and the new top end models with 80GB, which we had to get...can’t scrimp THERE! Even though they cost $700 each, that was important to my wife and four kids, just as important as those high end sneakers they wear...”

[WoofDog123]

“Socialization usually thrives when a vacuum is created by crisis”

I would not single out socialism only.

In a crisis as you describe, ‘despotism’ with what are locally considered extreme measures by any name thrives. A good example is weinmar germany - one the one hand you have the communists, the other, the nsdaq (fascists), actively fighting it out. In that case, the fascists won, but I am not sure how different living in stalinist russia and mid-30s germany was to the tax serf.