For a minute there I thought I had to get off my couch, when all the while the fact is we don't have to do anything much but keep things afloat for just a few decades more! In fact, we'd best shut up about PO, because if our offspring finds out we knew about it all along, they'll turn and wring our necks come 2036!
Posted: Tue Jan 22, 2008 4:27 pm Post subject: "Walking Away"
Ok, dumb question time.
Will somebody please explain the concept of "walking away" from a mortgaged home to me? Is there a standard clause in home loans that allows you to choose not to repay your obligation and forfeit the house? How is it possible that after borrowing money, you are not obligated to repay it? The entire internet seems to take "walking away" as an option for upside down borrowers. I guess I always thought that the purpose of collateral was that, in the event you were slow in your payments, the bank could recover some property. But how does that let you off the hook for owing the money in the case where the collateral is not worth the debt? Is there a law that says you are not obligated to repay the money you have borrowed?
Posted: Tue Jan 22, 2008 4:56 pm Post subject: Re: "Walking Away"
It is a good question, I would like some clarification too. I read different kinds of stories, in some places people are chased for the full loan amount, in other places the banks are stuck with the property and apparently cannot take it further. But I do not know how true this is. It is not true of the UK; in the event of a sale or default with negative equity you are "encouraged" to work it out with the bank, which depending on your circumstances may or may not be understanding. They have to take individual circumstances into account rather than applying a blanket policy though, otherwise the regulators get angry. The bank may be prepared to write off the difference, but it can chase you too. It is at their discretion really, and comes down to whether it is worth it or not. If you are capable of making the payments with ease, they could try to go for the lot, which could end in bankruptcy unless you have a lot of stuff to seize. _________________ "The American people are watching the numbers climb higher and higher at the pump and they're waiting to see what the Congress will do." - George W Bush
Posted: Tue Jan 22, 2008 5:01 pm Post subject: Re: "Walking Away"
mattduke wrote:
Will somebody please explain the concept of "walking away" from a mortgaged home to me?
I think walking away just means you stop paying the mortgage, abandon the property, and the house just goes into foreclosure by default and your credit rating goes into the toilet.
Joined: Sep 03, 2007 Posts: 598 Location: Sunny Virginia, USA
Posted: Tue Jan 22, 2008 5:18 pm Post subject: Re: "Walking Away"
Twilight wrote:
... in some places people are chased for the full loan amount, in other places the banks are stuck with the property and apparently cannot take it further.
One of the interesting things about the United States is that each state has different lending laws beyond the federal. In some cases it could be possible to simply "walk away" to another state making it difficult to be chased due to different laws.
In some states, if the house value falls below the mortgage value, they can foreclose on the loan. In others such tom-foolery is not allowed.
Twilight wrote:
The bank may be prepared to write off the difference, but it can chase you too. It is at their discretion really, and comes down to whether it is worth it or not.
And this is the crux of it. If I was suckered into a sub-prime loan, that typically means I have very little money beyond my last paycheck and probably way more debt than just the house. Credit companies would probably own the other part of my soul.
So lets say I live in California, lose my home because they foreclosed on me simply because my house value fell below what I owed (yet I never missed a payment). Perhaps then I'll move to Virginia (or Canada) or wherever the heck I want because I don't care any more and I can try to find work elsewhere. In the mean time have fun following me to recover your money from any judgement.
Now the bad news... since our beloved leader was elected, it is easier (though not a cake walk by any means) to track people to other states via information that is now legally shared between states and the feds. 15 years ago it was often times impossible to track dead-beats once they cross the state line unless you had good information on where they went.
Dead-beats.... sorry, that word is too harsh for the foolish borowers sucked into this debt trap. IMHO any bank that participated in the sub-prime mess has no business being in business and the people who put those loans out there deserve whatever pain we can heap upon them. Here in central Virginia, many banks were too conservative to get involved in the sub-prime scam and the effects of this entire mess tend to be more peripheral for us.
And yes, yes... many of the bankers will feel little pain as the feds simply write more checks to be paid by future generations...
I wonder how the common roman citizen felt as they watched their empire crumble to dust. The fault is ours, the common citizen What's ironic is we have the ability, every four years, to stop it, but not the brains.
Last edited by jlw61 on Tue Jan 22, 2008 5:35 pm; edited 3 times in total
Joined: Sep 19, 2007 Posts: 1090 Location: Land of the Tongva tribe
Posted: Tue Jan 22, 2008 5:20 pm Post subject: Re: "Walking Away"
Walking away is fine if you don't have any equity in the house. If you do have equity in the house then you are basically flushing all that money down the drain and ruining your credit at the same time. Trying to sell the house is your best option but in some places, California & Florida, that might not be an option because the market is flooded with vacant houses.
Banks only have to sell the house to cover the rest of your mortgage. Right now they are not looking to make a profit. They want to get rid of houses so they can clear their books. I have seen houses that are worth over $750,000 here in Los Angeles go to auction with beginning bids starting at $100,000 because that is all the bank needed to cover the remaining mortgage the previous homeowner left. Obviously they get bid up by investors but usually are far cheaper than buying the house from a homeowner. I bought my house for $120,000 less than what the previous owner bought it for then foreclosed.
joeltrout _________________ ENERGY is the basis of our industrial civilization and sustains our standard of living. It is the foundation stone of our national wealth. A nation starved of energy.....will be a nation of starving people.
Joined: Sep 19, 2007 Posts: 1090 Location: Land of the Tongva tribe
Posted: Tue Jan 22, 2008 5:27 pm Post subject: Re: "Walking Away"
jlw61 wrote:
Dead-beats.... sorry, that word is too harsh for the foolish borowers sucked into this debt trap. IMHO any bank that participated in the sub-prime mess has no business being in business and the people who put those loans out there deserve whatever pain we can heap upon them.
The people that bought ARMs should have known better unless they were just plain dead-beats and the mortgage companies that offered them DID know better.
If homeowners spent any time researching home buying on the internet or through books then they would have known to stay away from ARMs. I bought my first house early last year(before the subprime mess was MSM) and knew that ARMs were the devil because I did some research.
The problem is everyone wants more than they can afford and what they can afford they don't appreciate. Stop being so greedy America!!!
joeltrout _________________ ENERGY is the basis of our industrial civilization and sustains our standard of living. It is the foundation stone of our national wealth. A nation starved of energy.....will be a nation of starving people.
Posted: Tue Jan 22, 2008 5:31 pm Post subject: Re: "Walking Away"
joeltrout wrote:
Walking away is fine if you don't have any equity in the house. If you do have equity in the house then you are basically flushing all that money down the drain and ruining your credit at the same time.
I agree, the thing is the system is split down the middle. Probably half have full ownership or have paid off most of their mortgage, they aren't going anywhere right now unless something really bad happens to their health. But a large part of the other half is going to owe more than their house is worth by the time this is done. That's probably everyone who bought in the last 5 years without putting down a substantial cash deposit. That's a lot of people. _________________ "The American people are watching the numbers climb higher and higher at the pump and they're waiting to see what the Congress will do." - George W Bush
Joined: Jan 24, 2007 Posts: 189 Location: Pacific NW USA
Posted: Tue Jan 22, 2008 5:32 pm Post subject: Re: "Walking Away"
Another interesting wrinkle is that the IRS will come after you for any difference in what the house sells for in foreclosure, and what you paid for it.
So if you bought a house at the peak of the market for $500k, then walk away when the market value drops to $400k, and the loan is foreclosed and the house sells at auction for $350k, the federal government will consider the $150k to be a "gift" from your mortgage company, and you will owe taxes on it!
I have also read that you may be liable for some legal fees incurred by the mortgage company. You have to read ALL the fine print in your mortgage agreement.
Joined: Sep 19, 2007 Posts: 1090 Location: Land of the Tongva tribe
Posted: Tue Jan 22, 2008 5:45 pm Post subject: Re: "Walking Away"
NWMossBack wrote:
I have also read that you may be liable for some legal fees incurred by the mortgage company. You have to read ALL the fine print in your mortgage agreement.
Pretty soon you will need a lawyer with you at closing instead of just your realtor.
The fine print will hurt people but those that used ARMs knew their rate would adjust. I know some people were told you can refinance in a couple of years. That was misguiding but still the homebuyer signed the papers.
If lenders did not tell the homebuyer their mortgage would adjust then that would be grounds for a valid lawsuit but we haven't seen much, if any of that. Right now it is just people that are mad because their house didn't appreciate like they planned and they can't refi their house because it is worth less then their loan amount.
A good helping of common sense would have been benefical to a lot of people. You can stretch yourself now and hope the future will turn out in your favor.
joeltrout _________________ ENERGY is the basis of our industrial civilization and sustains our standard of living. It is the foundation stone of our national wealth. A nation starved of energy.....will be a nation of starving people.
Joined: Sep 03, 2007 Posts: 598 Location: Sunny Virginia, USA
Posted: Tue Jan 22, 2008 5:46 pm Post subject: Re: "Walking Away"
NWMossBack wrote:
So if you bought a house at the peak of the market for $500k, then walk away when the market value drops to $400k, and the loan is foreclosed and the house sells at auction for $350k, the federal government will consider the $150k to be a "gift" from your mortgage company, and you will owe taxes on it!
That can only happen if the loan is written off or forgiven and I believe its not that simple, but the idea is correct. Under the right conditions you could owe taxes for what I like to call the "but you could have made it!" amount.
And yes, the foreclosure fees, fines and taxes are usually added to your debt whle the bank gets to write it all off.
Posted: Tue Jan 22, 2008 5:53 pm Post subject: Re: "Walking Away"
As was said earlier, "walking away" is not a legal term, its not in the mortgage documents, its a practical solution. It just means the debtor decided to call it quits, quit making payments, and leave. People do that all the time with all kinds of debts like cars, credit cards etc., what has all the bankers dumbfounded is they never thought it would happen to them. The home used to be the castle, and bc of this long held belief, bankers started allowing people to buy houses with "liar loans." Well, surprise surprise that liars don't have any qualms about walking away from a bad investment, and as the banks are finding out in the foreclosure process, those "liars" don't have any personal credit to begin with, no assets, and thus, its not worth pursuing a personal judgment against them.
Many of these banks are only pursuing judgments "in rem" instead of "in personam" meaning, only pursuing a judgment against the property and not against the person and the property. They are doing this bc its simply not worth the extra legal expense to pursue liars that have nothing to begin with. Everything hinged upon this age old American belief that the home is the castle, but that was only true with Americans willing to document their income and put 20% down on a home, putting a stake down so to speak. The banks have no one to blame but themselves.
Posted: Tue Jan 22, 2008 5:56 pm Post subject: Re: "Walking Away"
Quote:
Another interesting wrinkle is that the IRS will come after you for any difference in what the house sells for in foreclosure, and what you paid for it.
This is only true if the debt is forgiven by the obligee (bank). It is then basically considered a gift of money. If its not forgiven, there is no tax consequence to it.
Joined: Sep 25, 2004 Posts: 4412 Location: Boston, MA
Posted: Tue Jan 22, 2008 6:40 pm Post subject: Re: "Walking Away"
seahorse2 wrote:
As was said earlier, "walking away" is not a legal term, its not in the mortgage documents, its a practical solution. It just means the debtor decided to call it quits, quit making payments, and leave. People do that all the time with all kinds of debts like cars, credit cards etc., what has all the bankers dumbfounded is they never thought it would happen to them. The home used to be the castle, and bc of this long held belief, bankers started allowing people to buy houses with "liar loans." Well, surprise surprise that liars don't have any qualms about walking away from a bad investment, and as the banks are finding out in the foreclosure process, those "liars" don't have any personal credit to begin with, no assets, and thus, its not worth pursuing a personal judgment against them.
Many of these banks are only pursuing judgments "in rem" instead of "in personam" meaning, only pursuing a judgment against the property and not against the person and the property. They are doing this bc its simply not worth the extra legal expense to pursue liars that have nothing to begin with. Everything hinged upon this age old American belief that the home is the castle, but that was only true with Americans willing to document their income and put 20% down on a home, putting a stake down so to speak. The banks have no one to blame but themselves.
Walk away if you want, but if the home sells for less in foreclosure than the mortgage...
You owe the difference and it could be huge.
Do you really want to be homeless and tens of thousands of dollars in debt?
Talking to your creditors is better than defaulting and running away. _________________ "www.peakoil.com is the Myspace of the Apocalypse."
Joined: Sep 19, 2007 Posts: 1090 Location: Land of the Tongva tribe
Posted: Tue Jan 22, 2008 7:04 pm Post subject: Re: "Walking Away"
Tyler_JC wrote:
Do you really want to be homeless and tens of thousands of dollars in debt?
Talking to your creditors is better than defaulting and running away.
Good advice. If you do run don't expect to qualify for a loan for several years. You can run but your credit score doesn't.
For all those people that did run, good luck trying to buy a house ine the next 5 years. Now that lending standards are tightening people who have a good credit score find it hard to borrow without at least 10 or 20% down.
In expensive areas such as SoCal, NYC, Chicago, etc... first-time homebuyers are screwed. Who has $100,000 for a downpayment on a small house/condo in relatively "cheap" areas of major cities.
joeltrout _________________ ENERGY is the basis of our industrial civilization and sustains our standard of living. It is the foundation stone of our national wealth. A nation starved of energy.....will be a nation of starving people.
Posted: Tue Jan 22, 2008 7:16 pm Post subject: Re: "Walking Away"
Unfortunately I know the law very well - because I am part of this mess. No, I do not have an ARM, in fact I have a great mortgage.
But, we are moving away and we haven't been able to sell the house for almost a year! Renting is not an option (too expensive and we are moving out of the country), so what should someone like us do?
I talked to a lawyer, and he said there are many people like us. People who can pay, but want to move, and can't sell their home.
In California, you can walk away without a deficiency if you didn't refinance. Unfortunately we did, and nobody told us that we would lose this protection! So in our case, the house price has tanked well below what we owe the bank. We are still trying to sell, but it looks grim.
So chances are that we will either have to continue to pay our second mortgage for 30 years(!) while not owning this home anymore (what a loss!), or else risk a deficiency judgement.
So of course I wonder if they would track us down abroad as well if we stopped paying. Does anyone know ?
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