Posted on 01/26/2010 8:16:22 AM PST by TheThinker
Developers don’t just walk away. The end up bankrupt. Returning the collateral (typically ALL of the developer’s assets) to the lender intact is a better solution than a pointless chapter 11 or a chapter 7. In either case (giving back the property or the chapter proceeding), the borrower typically doesn’t leave with assets that the lender has a right to. With the developer’s assets in hand, the income stream then goes directly to the lender.
The “little consumer” who “walks away” is often getting away with something the developer can’t - he has trashed the property and retains income (and sometimes assets) that were obligated to the lender. In any event, these “little consumers” aren’t victims, and the developers aren’t getting away with anything.
BK law?
Pay them off and be done with them if you don’t like their business practices.
its even worse than that their are lawyers out there that for $1 per day $30 per month will intervene and deliberately delay a foreclosure action, which is not all that difficult given the overwhelming backlog of cases, at least for the near term indefinitely.
My apologies BK = Bankruptcy.
Ahhh, The Forgotten Man or maybe we are Obsolete Man. So what happens to the system if everybody (and I mean everybody) decided on Friday I stop paying?
The lendrs weren’t allowed to use normal credit standards, because those are “racist”. Just ask Barney Frank and Franklin Raines.
It would collapse and make a few people very happy.
I agree that banks should not be able to simply change the terms of the credit card agreement. But that’s a bit different. First off, the agreement with the credit card company will disclose that the terms might change (not that its right.) For the mortgage, the terms did not change one iota. The house declined in value.
A prudent purchaser would have not assumed that home prices would continue rising astronomically. Like in the old days, you put 20% down and made sure that the payments were no more than 25% or so of your take home pay. Had we stuck to that old-fashioned principal, much of this real estate blow up would have been avoided, IMO....
Add to this: "And, your knowledge isn't worth as much as it was when we contracted with you. With the economy, there are lots of guys who would do it a lot cheaper, so we figure why should we pay that price for something that is worth less? So, we're walking away."
Short sales are a joke. The banks often take so long to realize that they need to stem their losses NOW, vs haggling into the future. Went through all the ways to buy a cheap home, tried REO's, Shortsales, Foreclosures, and then I finally scored by going downtown and purchasing a house at auction. Not for the faint of heart.
I owe nothing on this house, except taxes and insurance, and my payments are very, very low. My sister, who is of similar means in a town 90 minutes away, pays something like $3000 per month on her just purchased home. I have another sister who re-fi'd her house to add improvements, but now she is upside down by hundreds of thousands. I must say that it is tempting for them to just walk away and start over, do something like I did.
But not in all cases. I've seen all types, actually mostly non-minorities, trying to pull the same stunts. I have no doubt though that it was the credit standard policies that got the ball rolling, especially if Fanny and Freddie "had your back".
You’re right. That is exactly how my father and grandfather explained it to us kids 35 years ago. Save 10%, Tithe 10%, House 25%, put 20% down on the loan.
That is a good formula, IMO.
Its not that people aren’t hurting, and that some have to walk away from the mortgage. I understand that.
The point of the article, though, is that this is some kind of good strategy to homeowners who find themselves underwater.
Absurd. Its like saying if I finance a car, and then the car gets dented up and declines in value, I’ll just “walk away” and screw the greedy banks.
Pure rationalization of welching on your debts, intentionally, IMO. And screw someone else, like the bondholders (who might be someone elses pension fund investment or similar important asset).
Yes, some of them tried and did pull the same stunts - but that was because the new “standards” forced the banks to do it (the regs couldn’t be lawfully written to require only uncreditworthy “minorities” to get loans)
For those with strong hearts, I recommend what you did. And congratulations! I envy savvy buyers. But it was not for us and we resolved never to try that again. Fortunately, we found the house we wanted soon after, and we had been looking for over 10 years. We tried to be smart on this one. We hadn’t sold our house and had to carry both for a year. When we sold the first one, interest rates had gone down, so we refi’d at lower interest, put half of the proceeds from that sale on the new house and are using the rest to update our new property. So for less than $100 per month, we have a 15-year mortgage and we plan to pay it off as quickly as possible. So we purchased the traditional way, but plan to make it work for us.
Well for the last 2 weeks banks have become the new demon in the Dear Reader's world. They paid back the money they took (sometimes after being forced by congress to take it). They paid interest on it and now they have to pay an extra tax as punishment. No wonder it's fashionable to stiff the banks especially among 0bamas core supporters.
Why should individual homeowners have any moral or legal qualms about walking away from a $200,000-$400,000 mortgage when a private equity firm can walk away from a $3 billion mortgage on a major apartment complex in New York City like that?
Some people made a fair amount of money from flipping houses. The lenders made money on them too, through origination fees on a relatively short-term loan. A prudent lender probably wouldn't have assumed prices would always rise, or assume they didn't need to require a 20% down payment because prices were always going to go up.
I don't see a problem with having a system where borrowers and lenders can take a risk where they see they might be able to make a profit.
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