More California homeowners walk out on mortgages

Fresno Bee ^ | 27 May 2010 | Tim Sheehan

[Lorianne]

In areas hardest hit by plunging real-estate values - including the San Joaquin Valley - some people who can afford their mortgage are opting to walk away from their loan and let their bank repossess the house.

"It's very stressful to get to that point," said James Graham, a 48-year-old power-plant worker who walked away from his home in Bakersfield last fall. "You're raised up to do the right thing and pay your mortgage, pay your bills."

"But when you get to that point where it's time to walk, it's time."

It's called "strategic default," and experts say it stems from frustration with home values that have plummeted since buyers bought or refinanced at the peak of the real-estate boom, and banks dragging their heels on loan-modification requests.

[perfect_rovian_storm]

You mean everything ISN’T about Mitt Romney? Coulda fooled Mitt! ;p

It’s good that you were smart in making your home purchase. We did the same and the realtor and bank people tried to get us to spend more too, but we didn’t bite.

But why should this guy not take advantage of his contractual right to get out of his mortgage? Why should he keep paying twice as much as his house is worth? Just so you’ll feel better about the smarter choice you made?

[CodeToad]

No, you’re wrong. This isn’t about subprime and never was and neither did I say so. This is about banks making loans for properties that were never worth the price being paid. This places the loan at risk as property values decline and makes that collateral worth less than the loan amount. That is the banks responsibility every bit as much as the buyer’s.

[GOP_Lady]

IT’S IMMORAL, that’s why.

He made a promise and didn’t keep it.

In other words, he STOLE the lending institution’s money.

[DB]

Talk about “thick headed”.

Did you even read the article?

They guy CAN afford the house payments. There’s no threat of “debtor’s prison” and there is somewhere for this guy to go - to his home HE purchased.

Are that clueless?

The contract he signed does not say “or return the house”...

The house is collateral if he fails to live up to his obligations as in BREACH OF CONTRACT along with other legal remedies.

[FormerACLUmember]

Stupidist move imaginable.

The IRS and state tax guys give you an imputed value of the money you pulled out over the years over the value of the money you put in.

You then receive tax bill on this difference, plus interest, plus penalties.

Immune to bankruptcy relief as well I might add.

In any case, you need to consult a very, very knowledgable tax/bankruptcy attorney before you do anything.

That being said, God Speed in the cursed Era of The Obama Regime.

[perfect_rovian_storm]

You know what was immoral? For the government to create a real estate bubble and completely destroy our financial system for a few years of a phony boom. It was immoral for them to tell everyone that it was sustainable. It was immoral for the slime on CNBC to tout it every step of the way.

In the scheme of things, this guy taking advantage of his contractual rights seems quite a bit of a lesser evil.

[GOP_Lady]

The #1 lesson in life is not to think that home values will continue to increase. I NEVER have.

The #1 thing is not to mess up on a mortgage.

[DB]

Well you say that, but where exactly are you holding the buyer equally responsible?

Nowhere.

And I do not agree with you.

The buyer is the first person responsible, the bank is second.

[longtermmemmory]

no they are living up to the terms of the contract.

The bank said if you don’t pay you don’t keep the house.

So people are holding the bank to those terms.

THE CAUSE of all this is the sham modification programs. Banks are not watching the lawyers and they are so awash in stimulus money that they just don’t care about haing performing loans.

[GOP_Lady]

EXACTLY.

[NVDave]

And, in the same papers, it laid out what would happen if they quit making payments: the bank would take the house, the bank would take any equity that has built up in the house (or the down payment), etc.

The default scenario is laid out in the mortgage contract too.

[DB]

That is NOT a “contractual right”.

He is in fact BREACHING the contract.

[GOP_Lady]

Yep. It sure was in mine. And my credit would tank if I defaulted.

[Oceander]

There really ought to be a permanent “no credit for you EVER” list for people like this.

No, not just for walking away. He's not necessarily trying to connive his way out of his obligations - those obligations included either paying on time and keeping ownership of the house, or not paying, losing the house, and having to make up any residual deficiency when the bank sells the house in foreclosure. He's walked away from the house - essentially, transferred the house to the bank by quitclaim deed (possibly in lieu of foreclosure, if the bank accepted it as such) - but so far hasn't avoided his obligation to make up any deficiency.

No, the "NO CREDIT EVER AGAIN" list goes for those sorry sad-sacks who have not only defaulted on their obligations, but have gone crying to the fascist liberals to use coercive political force to let them keep the house and have the bank alone eat the loss. Those people should never again be allowed to borrow so much as a library book, let alone real money.

[GOP_Lady]

BREACH OF CONTRACT is correct.

And you don’t have to be lawyer to know that. :-)

[longtermmemmory]

no not just that.

They signed papers which said the bank has the house as a guarantee of payment.

So people are holding to the letter of the contract. They give the collateral and they are square with the bank.

Don’t forget the banks pushed through parts of the 2005 bankruptcy reform law to REQUIRE this type of surrender.

[perfect_rovian_storm]

My apologies. I thought that the conversation we were having here could be followed by even the slowest among us, but I appear to have overestimated your abilities. I won’t let that happen again.

So what if the guy CAN afford the payments? Does that mean he shouldn’t be able to take advantage of his contractual rights to get out of his mortgage? The BANK SIGNED THE MORTGAGE TOO. They were fully aware that the guy could walk away if he wanted to at any time.

Yes, the house is collateral. Wow, you really are learning the big words, aren’t you? That means that if he walks away, they get the house (or he RETURNS it if you want to put it another way) and that’s that. They made that deal with him. If it wasn’t good enough for you or for him, they should have made some other deal.

[NVDave]

The penalty is what the banks set it at. As a result of the 2005 bankruptcy “reform” legislation (which was passed by a GOP congress and signed by Bush), the hierarchy of loans on which you can or should default goes like this now:

1. Your mortgage. You can default on your mortgage easier than...

2. Your credit cards, which you can still get adjusted in a BK filing, unlike...

3. Student loans. These are now non-discharge loan obligations in a BK proceeding, so the bankers have effectively elevated student loans over mortgages on the scale of what will be the highest quality loan out there.

Bankers also wanted low to no down payments on mortgages, so when the ruthless default happens, they get less money and are completely exposed to price changes in the housing market.

The bankers brought this on themselves. They’ve stepped on their own cranks while wearing golf cleats. They *asked* for this outcome.

Well, they got it.

[CodeToad]

“The buyer is the first person responsible, the bank is second.”

The bank has the money and the fiduciary responsibility of that money. The buyer has no authority other than to take responsibility of the loan if the bank allows them to assume the responsibility.

Resposibility = Authority.
Authority = Resposibility.

The ball starts in the bank’s court.

[DB]

Try again.

Penalties/repossession is the result of BREACH of contract.

The terms of the contract are not either/or.

Jeez... Is it any wonder we are in such a mess...