I think this is the beginnings of an economy based on perpetual growth and fossil fuel energy running headlong into geological energy constraints. Basically I see an undulatory downward path for the rest of my life. From here out, I think any rallies in our economic condition are going to be met with spiking commodity prices that knock us right back down.
Posted: Tue Jan 22, 2008 7:25 pm Post subject: Re: "Walking Away"
korosten wrote:
So of course I wonder if they would track us down abroad as well if we stopped paying. Does anyone know ?
I don't know about mortgages, but a friend told me a story about someone they knew defaulting on a loan in protest when they moved to the far east. It wasn't long before they got flagged up as a credit risk over there. Banks talk to each other via credit reference agencies, and some are part of a multinational group to start with.
I think in years to come if enough people flee overseas to make it worthwhile, debt collection agencies will just open up an office in that country. I know someone licking their lips in anticipation at the opportunities that could open up. Might not happen, but you wouldn't want that sort of surprise five years down the line, not in a strange country. _________________ Volatility. When life isn't exciting enough.
Posted: Tue Jan 22, 2008 7:35 pm Post subject: Re: "Walking Away"
Quote:
In most jurisdictions, a lender may foreclose the mortgaged property if certain conditions - principally, non-payment of the mortgage loan - obtain. Subject to local legal requirements, the property may then be sold. Any amounts received from the sale (net of costs) are applied to the original debt. In some jurisdictions, mortgage loans are non-recourse loans: if the funds recouped from sale of the mortgaged property are insufficient to cover the outstanding debt, the lender may not have recourse to the borrower after foreclosure. In other jurisdictions, the borrower remains responsible for any remaining debt.
Posted: Tue Jan 22, 2008 7:48 pm Post subject: Re: "Walking Away"
The bank will file a 1099 on the part of the note they forgive. It gives them a tax write off. IRS can go after you. The only thing that stops the process is to file bankruptcy.
Joined: Oct 15, 2004 Posts: 2243 Location: Arkansas
Posted: Tue Jan 22, 2008 7:57 pm Post subject: Re: "Walking Away"
Quote:
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.
Tyler, you're not making any sense. If a person can't pay the debt, they have only two options: (1) Bankrutpcy or (2) "walking away" and let them try to collect a worthless paper judgment.
If the debtor files bankruptcy, Chapter 7 usually, all the above are wiped out.
If the debtor chooses to walk away (usually bc they can't even afford the $700 for the attorney to file bankrupty), they walk away and just let the debt holder try to collect - good luck.
The choice then becomes the mortgage holder, or the credit card company, or who ever else has a debt, Chrysler for example, to decide if they want to sue or not. That decision to sue comes down to, is it worth the time and money to try to collect? Usually, no. Lots of bad debt being written off these days. In the case of mortgage companies, they will foreclose against the home because it will always have some value; however, pursuing a personal judgment against the debtor is usually not worth it. The old adage, you can't get blood out of a turnip. So true so true.
I'm telling you from the f---- trenches the mortgage companies, more times than not, are not pursuing personal judgments bc its not worth it. Its not a question of principle, its all about dollars and cents, cutting losses as much as possible. Don't throw good money after bad chasing an uncollectible judgment. By the time a mortgage goes to foreclosure, the mortgage company has already run a credit check on the person and seen its not worth pursuing. Further, to pursue a personal judgment would push the debtor into bankruptcy anyway, and thus would be a waste of time. Last, pursuing a personal judgment means the mortgage company can't use a nonjudicial foreclosure process, meaning it will take a much longer time to get the property back. Further still, when a debtor is sued personally, they get pissed and kick the crap out of the property. In many cases, the mortgage companies are even agreeing to pay small fees to the debtor just to get them to move out ASAP without kicking the crap out of the property.
Sure, it will affect the credit rating of the deadbeat, but by the time the debtor is at a point where they can't pay payments, their credit rating is shot anyway, they don't give a crap. They will rent somewhere, because there is a ton of rentals on the frickin market, usually unsold homes bc the market has tanked.
Now, don't give me any moral argument about the moral obligation to repay one's debts, those morals went right out the window with the morality of the banks issuing "liar loans" and issuing credit cards to frickin college students without jobs blah blah blah.
There is no morality out there anymore, only greed and everyone doing what's in their own best interest. Everyone is paying for that now.
Last edited by seahorse on Tue Jan 22, 2008 8:09 pm; edited 2 times in total
Posted: Tue Jan 22, 2008 8:06 pm Post subject: Re: "Walking Away"
korosten wrote:
....
So of course I wonder if they would track us down abroad as well if we stopped paying. Does anyone know ?
Chantal
That's a really good question. There is one way to find out for sure if you REALLY want to know.
-------------------------
add on: All joking aside. I'm not an expert but I honestly believe it is best to work within the legal system. The law is the law. "Walking away" is illegal and therefore would technically make you a fugitive. Furthermore the USA has legal agreements with just about every country on this planet save for (Iran and North Korea) therefore there really is very few places to hide on this planet if you break the law in the USA.
Last edited by cube on Tue Jan 22, 2008 8:28 pm; edited 1 time in total
Joined: Oct 18, 2004 Posts: 2104 Location: kiwibush
Posted: Tue Jan 22, 2008 8:10 pm Post subject: Re: "Walking Away"
If the creditors are able to reach you and suspect you have an income source or valuable assets, they may well apply for an order to secure settlement of outstanding debt or institute bankruptcy proceedings. I think a lot depends on individual circumstances. _________________ Bugger me, I hear oil's runnin out mate!
Posted: Tue Jan 22, 2008 8:25 pm Post subject: Re: "Walking Away"
seahorse wrote:
Now, don't give me any moral argument about the moral obligation to repay one's debts, those morals went right out the window with the morality of the banks issuing "liar loans" and issuing credit cards to frickin college students without jobs blah blah blah.
There is no morality out there anymore, only greed and everyone doing what's in their own best interest. Everyone is paying for that now.
That seems to be where this society is heading. The grasshopper will eat the ants.
Posted: Tue Jan 22, 2008 9:14 pm Post subject: Re: "Walking Away"
Tyler_JC wrote:
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.
don't the terms of the loan dictate whether it is a recourse loan or not? that is, whether they are allowed to go after your other or just the house? i think this stuff is specific to the contract itself.
Posted: Tue Jan 22, 2008 9:22 pm Post subject: Re: "Walking Away"
Quote:
Does anyone know
This was actually a common practice back in the 80's as well, and the answer is: it depends on who you are.
The mortgage company is interested in doing what will make them the most money. So, if you have "equity" in your house, defined as the excess of potential selling price over the mortgage amount, you will be doing them a favor, because you are giving them something. So, they will be delighted to wave you farewell.
If you have no "equity", and take a hike, and have no other assets, they will give you a nasty on your credit rating, but in fact, you cannot get blood from a turnip, so they will not spend too much money to track you down to try to get the balance. We knew some people in the S and L crisis in the 80's that did this, and they thought it was the best thing they ever did. After a few years, the credit problem went away, and they bought another house no problemo.
Unfortunately, or fortunately, depending on your viewpoint, the ramifications of having bad credit are more serious now than they used to be. Prospective employers will look at your credit rating as a reason not to hire you, for example. Also, you will pay more on your credit cards, etc. So one strategy is to buy another place on the other end while your credit is still good, and let the chips fall where they may. This may not be successful in the current environment though.
If you do have assets, and you take a hike, the bank or mortgage company will weigh the legal fees in tracking you down in whatever jurisdiction versus the amount they think they can extract from you and make a business decision as to whether to go after you.
What the financial whizzes are advising people right now is to do a "short sale". You call the bank ahead of time and work this out; You lower the price to whatever it takes to sell, you tell the bank that is all they are going to get, and a lot of times they will take it and leave you off the hook, because they figure this is the way for them to make the most money, and they really do not particularly want to give you a nasty on your credit.
One thing working in your favor is that in some areas, there are so many foreclosures, and so much stuff flying around, that the situation is chaotic and it will take some time for whatever to happen. Some other areas, not so much, so you have to weigh this as part of the decision.
You have to weigh it from your point of view too: If you think the market has gone to crap to such an extent that you will never get out of it, you have to bite the bullet and take a hike. At one point, a few years ago, at least half of the members of the US House of Representatives had been bankrupt at one point or another, so this stuff happens all the time. The high rollers have all sorts of legal tricks to keep the heat off.
One other thing that might be of interest: There have been some cases lately to the effect that the mortgage company has bundled and traded these mortgages to who knows where to such an extent, that they can no longer prove that they own a particular mortgage. A successful defense can occasionally be made that if the bank or other institution forecloses, you ask them to prove that they own the mortgage, and they cannot, so they keep off your back for awile until they figure out which Chinese bank actually holds your loan. After all, they cannot foreclose if they do not hold the loan in the first place.
Joined: Oct 15, 2004 Posts: 2243 Location: Arkansas
Posted: Tue Jan 22, 2008 9:32 pm Post subject: Re: "Walking Away"
Quote:
A successful defense can occasionally be made that if the bank or other institution forecloses, you ask them to prove that they own the mortgage, and they cannot, so they keep off your back for awile until they figure out which Chinese bank actually holds your loan. After all, they cannot foreclose if they do not hold the loan in the first place.
So true, but with a caveat. In Arkansas, to sue on a note, any note, the holder of the note has to produce proof that they are the holder of the note or a valid assignment of it. Also, they have to produce an original copy of the note (Good luck boys). This is to prevent the original from being produced later and forcing the debtor to pay twice for the same debt.
Now, the caveat, the above rule generally does not apply in a nonjudicial foreclosure, which, in Arkansas, can only be taken "in rem" meaning, a judgment against the property only. So, a mortgage holder gets a faster turn around on the foreclosure and doesn't have to produce the original note.
Posted: Tue Jan 22, 2008 9:33 pm Post subject: Re: "Walking Away"
cube wrote:
korosten wrote:
....
So of course I wonder if they would track us down abroad as well if we stopped paying. Does anyone know ?
Chantal
That's a really good question. There is one way to find out for sure if you REALLY want to know.
-------------------------
add on: All joking aside. I'm not an expert but I honestly believe it is best to work within the legal system. The law is the law. "Walking away" is illegal and therefore would technically make you a fugitive. Furthermore the USA has legal agreements with just about every country on this planet save for (Iran and North Korea) therefore there really is very few places to hide on this planet if you break the law in the USA.
Wow. How long do you think a box of donuts would last around those guys?
Joined: Oct 15, 2004 Posts: 2243 Location: Arkansas
Posted: Tue Jan 22, 2008 9:34 pm Post subject: Re: "Walking Away"
As for bankruptcy hurting you? For many, including Donald Trump, its a minor inconvenience. In fact, I know a woman who filed bankruptcy maybe 3 months ago and gave up her house. The bank that foreclosed has now contacted her and is trying to work out a deal to sell her the house again. Times are tough when, 3 months later, the bank is calling the debtor that filed bankruptcy and trying to get her back into the house.
That's why this whole stupid mess isn't going to resolve itself. That's why this stupid rate cuts will not solve the problem. Because the banks are losing their collective asses and not profitable anymore!
Posted: Tue Jan 22, 2008 9:45 pm Post subject: Re: "Walking Away"
NWMossBack wrote:
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!
That may or may not be true. Essentially it depends on whether you are solvent after the forgiveness. If you are still insolvent (i.e. you owe more than the value of the assets you own) after the loan is forgiven, then the forgiveness is not taxable. If you are solvent before the loan is forgiven, the whole thing is taxable. If you start off insolvent, but become solvent during the forgiveness, then you are taxable on the amount by which you became solvent.
All joking aside. I'm not an expert but I honestly believe it is best to work within the legal system. The law is the law. "Walking away" is illegal and therefore would technically make you a fugitive.
That would only be true if someone could argue fraud. That would require that they give evidence that you took the loan with the intention of defaulting on it. Except for fraud, defaulting on a loan is a civil issue not a criminal issue. In theory they could sue you in your state, get a judgement, take that judgement to a foreign judge and try to get them to enforce the judgement. Unless you are a fortune 500 company, I really doubt that's gonna happen. _________________ "So while you sit and whistle Dixie with your money and your power.
I can hear the flowers a-growin in the rubble of the towers.
I hear leaders quit their lying
I hear babies quit their crying.
I hear soldiers quit their dying, one and all." - OCMS
Posted: Tue Jan 22, 2008 10:13 pm Post subject: Re: "Walking Away"
smallpoxgirl wrote:
...
cube wrote:
All joking aside. I'm not an expert but I honestly believe it is best to work within the legal system. The law is the law. "Walking away" is illegal and therefore would technically make you a fugitive.
That would only be true if someone could argue fraud. That would require that they give evidence that you took the loan with the intention of defaulting on it. Except for fraud, defaulting on a loan is a civil issue not a criminal issue. In theory they could sue you in your state, get a judgement, take that judgement to a foreign judge and try to get them to enforce the judgement. Unless you are a fortune 500 company, I really doubt that's gonna happen.
You're probably right smallpox. I certainly doubt they'll be sending black hawk helicopters after anybody because of a McMansion loan default.....but we're not talking about a $5,000 overdue credit card bill here. There are people who are at least $100,000 "underwater".
That's too much money to simply just let go. I'm absolutely certain a bank will attempt to do "something" even if they only get to collect 50 cents on the dollar when the dust finally settles. Maybe the bank will sell the loan default to a collections agency and the "former" home owner can spend the rest of his life being harassed with phone calls from a collection agency.
Joined: Oct 15, 2004 Posts: 2243 Location: Arkansas
Posted: Tue Jan 22, 2008 10:33 pm Post subject: Re: "Walking Away"
Cube, did you read anything I just posted above?
A bank can choose a nonjudicial foreclosure (meaning, don't have to go to court) or go with a traditional foreclosure - meaning sue the debtor in court.
This is important, so understand -
Non-judicial means the mortgage company cannot go against the debtor personally, they can only foreclose against the property. The debtor gets off scott free. Why would they do this? For several reasons -
(1) Non-judicial a heck of a lot cheaper - very little attorney time involved, no filing fee costs; If you file a suit in court, it will costs thousands in attorney's fees;
(2) Non-judicial is a heck of a lot faster, usually house back in their possession within 90 days as opposed to at least 6 months;
(3) If the mortgage company files a lawsuit against the debtor, at a minimum, the debtor gets pissed and tears up the place plus, if they can't pay the mortgage payments, they are usually close to bankruptcy, so if filing suit against them just pushes them into bankrutpcy and the mortgage company is out all the time and expenses it just incurred to get the personal judgment.
So, in short, there are lots of big debts on big houses being written off, thus we have this financial crisis Cramer is raving about. As the banks are forced to write off more and more bad loans, they are forced to increase more and more reserves, meaning, they can't loan out as much, meaning, they can't lower rates enough to get out of this mess, bc the amount the can lend at any rate is dropping, so we can't get rid of all this excess in the housing market.
Maybe millions of Chinese will come over and the Bank of China will loan them money to buy up all these unsold houses and houses in foreclosure, but seeing how China is forming its own special subprime reaction team to deal with the subprime fallout hurting their banks, I don't think this is very likely.
THIS IS THE PROBLEM, A PROBLEM CAUSED BY BANKS THAT HAVE BAD LOANS, ITS A VICIOUS CREDIT CYCLE THAT CANNOT BE CURED BY LOWERING SHORT TERM RATES.
Bernanke is taking a play from Greenspan's play book to try and inflate our way out of this mess, but once the vicious credit cycle crunch starts, I don't see how we can reinflate out. The handle on the toilet has been flushed, and we are all going down with the rest of the turds.
When Bernanke gets down to where Greenspan was, and realizes its not working, he will look at Japan's old 90s play book and continue to lower rates down to almost 0%. When that doesn't work, everyone will finally realize we have a deflationary spiral.
Sure, many debtors will walk away and their debts be written off, but we will all suffer for it.
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