Strategic Defaults Revisited: It Could Get Very Ugly

[albacore44]

wow...almost 200k down. i know our place is not even on the market yet...going on 3 years approx. 4 months...and i see according to zillow...(which is not the tell all, but a guide line), the property is down well over as of today...250k!

$200K is a pittance. Some of the houses around me lost $400-$500K after they topped out in 2006. The last time i refied my HELOC june 2007 my appraisal came in at $890K and there were solid comps to back it up. I paid $450K for it new in June 2003. it might fetch $400K now. there is a lot of shadow inventory here. i know for a fact, the banks have taken back several homes at auction recently, yet there is not 1 for sale sign, and the houses are still occupied. i think the banks are trying to fool the government about how bad their losses on books are. so much for Sar-Banes Oxley

[tobee43]

$200K is a pittance. Some of the houses around me lost $400-$500K after they topped out in 2006. The last time i refied my HELOC june 2007 my appraisal came in at $890K and there were solid comps to back it up. I paid $450K for it new in June 2003. it might fetch $400K now. there is a lot of shadow inventory here. i know for a fact, the banks have taken back several homes at auction recently, yet there is not 1 for sale sign, and the houses are still occupied. i think the banks are trying to fool the government about how bad their losses on books are. so much for Sar-Banes Oxley

i think so as well. as even when we first were looking to buy again after bk, we were looking at foreclosed properties and we found out all the one's we bid on were purchased BACK by the banks. unreal. however, the one's we looked at were empty and would go on the market for i.e. $150k but were at once over $400k...yeah, right. so of course the banks took them back and they are STILL empty as well, here in florida. since we left nj we have no clue as to how the fast the process is taking, all we know that in the county we were living in there has not been ONE foreclosure since Dec 2010.

[chicagoannie]

Playing Devil's advocate here...for many decades American's investments in homeownership were highly profitable. Case in point: my parents built their house in the 'burbs in 1965 for $14K. That same house, with no additions, well cared-for and updated over the years, would now sell for over $500K. There was no guarantee that the folks would make money on their home purchase in 1965, just as there was no guarantee that buyers in 2000 would see home values increase. Investors are always cautioned that historical data is not a guarantee of future performance.

While intellectually I agree - it is financially foolish to continue paying on a property which is worth 50% less than its value at time of purchase. Yet....I can't get around the moral issue of a promise, a contract signed, a binding agreement made to repay a loan at certain interest terms. Those repayment terms don't include a "as long as I make money" clause. It is one thing when illness, job loss or other dire circumstances make repayment impossible. Quite another when the person IS financially able to fulfill their obligation yet chooses not to.

My parent certainly wouldn't run around their community giving away the $500K profit on their home, but neither would they default on a loan they could repay, thus spreading financial loss amongst their neighbors in the form of decreased property values and glut of empty foreclosed properties.

NOT making any judgments. Just thinking a bit about this issue and where I'm at with it, which is knowing walking away is the right thing to do financilly, yet feeling a sense of "wrongness."

[albacore44]

Playing Devil's advocate here...for many decades American's investments in homeownership were highly profitable. Case in point: my parents built their house in the 'burbs in 1965 for $14K. That same house, with no additions, well cared-for and updated over the years, would now sell for over $500K. There was no guarantee that the folks would make money on their home purchase in 1965, just as there was no guarantee that buyers in 2000 would see home values increase. Investors are always cautioned that historical data is not a guarantee of future performance.

While intellectually I agree - it is financially foolish to continue paying on a property which is worth 50% less than its value at time of purchase. Yet....I can't get around the moral issue of a promise, a contract signed, a binding agreement made to repay a loan at certain interest terms. Those repayment terms don't include a "as long as I make money" clause. It is one thing when illness, job loss or other dire circumstances make repayment impossible. Quite another when the person IS financially able to fulfill their obligation yet chooses not to.

My parent certainly wouldn't run around their community giving away the $500K profit on their home, but neither would they default on a loan they could repay, thus spreading financial loss amongst their neighbors in the form of decreased property values and glut of empty foreclosed properties.

NOT making any judgments. Just thinking a bit about this issue and where I'm at with it, which is knowing walking away is the right thing to do financilly, yet feeling a sense of "wrongness."

true. i used to think that way too. Then I realized how crooked the banks are and how they are screwing the American public to make a quick buck. its all business they say, there acting in the best interest of their share holders they say. well guess what, we can act in our own best interests. Stoppiing payments on a mortgage is a business decision. "It's all business" two wrongs dont make a right. But in this enviornment it's all about survival. And i choose survival for myself and family, and the banks and their shareholders can shove it.

[Goteki45]

A strategic defaults sounds good on the surface to home owners upside down, because they believe that their house is collateral for the loan, and if they default the bank will only go after the house and that will be it, WRONG! Many former homeowners are shocked, when the bank calls telling them they are still on the hook for the deficiency of what the house sold for at auction and what is still owed, that is if it even sells at auction.

[alibaba]

A strategic defaults sounds good on the surface to home owners upside down, because they believe that their house is collateral for the loan, and if they default the bank will only go after the house and that will be it, WRONG! Many former homeowners are shocked, when the bank calls telling them they are still on the hook for the deficiency of what the house sold for at auction and what is still owed, that is if it even sells at auction.

Not necessarily true-

Look up your state laws. Some states are "recourse" and that means the bank can go after you. Others are "non-recourse" which essentially means the bank can only take the house through foreclosure and ruin your credit. That is all. California is essentially that way and that is what I personally experienced. Even if you live in a "recourse" state, many just BK it out once the bank tries to sue.

[tobee43]

Not necessarily true-

Look up your state laws. Some states are "recourse" and that means the bank can go after you. Others are "non-recourse" which essentially means the bank can only take the house through foreclosure and ruin your credit. That is all. California is essentially that way and that is what I personally experienced. Even if you live in a "recourse" state, many just BK it out once the bank tries to sue.

exactly...we lived in a "recourse' state and we surrendered the house knowing the bank could go after us unless we did file. i mean, of course, that was one of the MANY reasons we filed, but it was a whopper!