Walk away from your mortgage because you were an idiot.

[zero]

On the context of a mortgage?

Yes, a lot.

Right. So let's get back to hypothesis... Consider the following scenario... Right before signing your mortgage contract, you ask your manager: "I may run away from this debt by transferring the property of my house to you, right?" and he replies "Sure, no problem!". Would you still object?

 

[Green_Lantern]

On the context of a mortgage?

Yes, a lot.

Right. So let's get back to hypothesis... Consider the following scenario... Right before signing your mortgage contract, you ask your manager: "I may run away from this debt by transferring the property of my house to you, right?" and he replies "Sure, no problem!". Would you still object?[/QUOTE]

Likely.

 

[zero]

On the context of a mortgage?

Yes, a lot.

Right. So let's get back to hypothesis... Consider the following scenario... Right before signing your mortgage contract, you ask your manager: "I may run away from this debt by transferring the property of my house to you, right?" and he replies "Sure, no problem!". Would you still object?[/QUOTE]

Likely.[/QUOTE] Well, uhn... I suppose that's one of those "Let's agree to disagree" situations then...

 

[@Li3n]

FOR THE LOVE OF FUCKING GOD! THE WORD IS SPELLED "LOSE" NOT "LOOSE" (like your whore of a mother). THAT'S TWO PEOPLE IN TWO SEPARATE POSTS!!!!!!!!!

*Takes mental note to always use loose instead of lose and vice-versa.

 

[TommiR]

I'm with zero on this one, assuming I have correctly understood how the house mortgage loans are set up in the United States. In my view, the biggest determining factor on this is that mortgages are business transactions, with a contract which defines the obligations for both parties. And apparently the contract provides the debtor with the option to walk out, a risk I assume the bank is fully aware of and has decided to accept upon approving the loan application. Walking out may or may not be very gentlemanly or ladylike depending on your personal view, but if it is clearly stated in the contract that it is permissible and is without disagreements on interpretation, then I think we are talking about a perfectly legitimate option for the debtor, and not some legal loophole some deadbeat is exploiting. So I'm having a hard time seeing it as cheating.

 

[Green_Lantern]

On the context of a mortgage?

Yes, a lot.

Right. So let's get back to hypothesis... Consider the following scenario... Right before signing your mortgage contract, you ask your manager: "I may run away from this debt by transferring the property of my house to you, right?" and he replies "Sure, no problem!". Would you still object?[/QUOTE]

Likely.[/QUOTE] Well, uhn... I suppose that's one of those "Let's agree to disagree" situations then...[/QUOTE]

Indeed, yes.

edit:

One of the things that piss me off the most is people doing bad things (specially taking advantage of others) and thinking is okay only because they can do it.

 

[zero]

One of the things that piss me off the most is people doing bad things (specially taking advantage of others) and thinking is okay only because they can do it.

Of course, bad things are despicable, no arguing there, but then, do you thing it's wrong for a bank to take the sole house of someone how had a string of bad luck?

 

[TommiR]

One of the things that piss me off the most is people doing bad things (specially taking advantage of others) and thinking is okay only because they can do it.

If I may interject in the conversation, I must say I agree with you on that. I think it is definitely wrong to take advantage of others when they are weaker than you, do not fully understand what they are getting themselves into, trust you not to trick them, or are disadvantaged in some other form in relation to you.

However, I see none of the above applying to the case of a mortgage loan. The financial institutions definitely understand what the terms of their own contracts mean, and have accepted the risks involved in what is through-and-through a business deal. If the debtor is fully within his rights to walk away on the debt, then, personally, I see nothing wrong with them taking that legitimate option.

Edited to add:

Of course, bad things are despicable, no arguing there, but then, do you thing it's wrong for a bank to take the sole house of someone how had a string of bad luck?

Personally, I must say I see little wrong with that. A bank is acting fully within their own rights in doing so, and I assume the person whose house is being taken fully understood the risks involved when he/she took that loan. In entering into a contract with the bank, they assumed a set of obligations which the bank is entitled to expect them to fulfill. If they fail to live up to their end of the bargain, then, in my view, they must accept the consequences.

I'd like to see the bank meet them half-way on this, but if that is not possible or the bank chooses not to, I don't think there is any wrong-doing involved.

 

[Green_Lantern]

One of the things that piss me off the most is people doing bad things (specially taking advantage of others) and thinking is okay only because they can do it.

Of course, bad things are despicable, no arguing there, but then, do you thing it's wrong for a bank to take the sole house of someone how had a string of bad luck?[/QUOTE]

When they gave you money for the right of doing so, No.
edit:
elaborate: I think the bank is his full rights of doing so, the two parts made a deal, usually, it would be better if both walked away without problems, but if one of they has "bad luck" the resposable thing to do is face consequences, like a grown up boy does.
I understand the need of law that protect people who can't pay and would end up loose everything and get poor, proverty causes more proverty, violence and in general, the society stagnation, so those laws are made to benefit SOCIETY, and not the bastards that go and abuse they sistem for they own greed reasons.

 

[zero]

When they gave you money for the right of doing so, yes.

So there you go, when they gave the money, they also conceded the right to the borrower to quit his debt with his house.

In fact, I even dare to guess the bank is a little bit more capable of evaluating the risks of the real state market than your average mortgage taker...

 

[Green_Lantern]

When they gave you money for the right of doing so, yes.

So there you go, when they gave the money, they also conceded the right to the borrower to quit his debt with his house.

In fact, I even dare to guess the bank is a little bit more capable of evaluating the risks of the real state market than your average mortgage taker...[/QUOTE]

I misreaded your post, I updated since.

 

[zero]

elaborate: I think the bank is his full rights of doing so, the two parts made a deal, usually, it would be better if both walked away without problems, but if one of they has "bad luck" the resposable thing to do is face consequences, like a grown up boy does.

Fair enough. In the case of a real state devaluation, it's the bank who had bad luck and should face the consequences of it.

Here, let me give you a personal example (As you know, there are no Mortgages in Brazil, the law here explicitly forbids the taking of one's sole house).

I own a tech company startup. In order to get cash for the initial company development, I borrowed money from a bank (BNDES).
Notice that money is fully backed by other securities. Even so, the bank insisted on a particular clause on our contract. After a five-year period, the bank can. at his discretion swap the debt by a fraction of my company (yes, even if I'm more than willing to repay the debt).

Now, let's consider the scenario where I hit the jackpot big time, my company in five years end up with a market value much higher than anyone could have foresee. Do you think it is wrong for the bank to insist on the swapping clause, owning a part of my company worth a LOT more than the money he lend me initially?

That's just a mortgage scenario reversed.

 

[Green_Lantern]

elaborate: I think the bank is his full rights of doing so, the two parts made a deal, usually, it would be better if both walked away without problems, but if one of they has "bad luck" the resposable thing to do is face consequences, like a grown up boy does.

Fair enough. In the case of a real state devaluation, it's the bank who had bad luck and should face the consequences of it.

Here, let me give you a personal example (As you know, there are no Mortgages in Brazil, the law here explicitly forbids the taking of one's sole house).

I own a tech company startup. In order to get cash for the initial company development, I borrowed money from a bank (BNDES).
Notice that money is fully backed by other securities. Even so, the bank insisted on a particular clause on our contract. After a five-year period, the bank can. at his discretion swap the debt by a fraction of my company (yes, even if I'm more than willing to repay the debt).

Now, let's consider the scenario where I hit the jackpot big time, my company in five years end up with a market value much higher than anyone could have foresee. Do you think it is wrong for the bank to insist on the swapping clause, owning a part of my company worth a LOT more than the money he lend me initially?

That's just a mortgage scenario reversed.[/QUOTE]

Yeap, it is.

 

[TommiR]

Now, let's consider the scenario where I hit the jackpot big time, my company in five years end up with a market value much higher than anyone could have foresee. Do you think it is wrong for the bank to insist on the swapping clause, owning a part of my company worth a LOT more than the money he lend me initially?

Yeap, it is.[/QUOTE]
So you believe fair play and common decency should take precedence over contractual obligations?

Edited to add:

Apparently, the bank saw it necessary to add this clause to zero's loan contract. If they were prevented from doing so by some means, or from enforcing the clause, then I guess either the interest rate zero has to pay would be higher, or he would not have gotten the loan in the first place (meaning, no company). That wouldn't be very nice, either.

 

[Green_Lantern]

Now, let's consider the scenario where I hit the jackpot big time, my company in five years end up with a market value much higher than anyone could have foresee. Do you think it is wrong for the bank to insist on the swapping clause, owning a part of my company worth a LOT more than the money he lend me initially?

Yeap, it is.[/QUOTE]
So you believe fair play and common decency should take precedence over contractual obligations?[/QUOTE]

Absolutely.

I still fail to realize why this would make walk away from the mortgage something right.

 

[zero]

Now, let's consider the scenario where I hit the jackpot big time, my company in five years end up with a market value much higher than anyone could have foresee. Do you think it is wrong for the bank to insist on the swapping clause, owning a part of my company worth a LOT more than the money he lend me initially?

Yeap, it is.

So you believe fair play and common decency should take precedence over contractual obligations?

That's not an objectionable viewpoint, of course.

The issue is, often "fair play" and "common decency" become subjective matters, not easy to adjudicate, while contractual obligations are (hopefully) clear cut. For instance, one may argue that it violates the "common decency" to take someone's last house and send him to live on the streets. On the other hand, it may be argued that "fair play" means "abide by your contractual obligations".

---------- Post added at 04:18 PM ---------- Previous post was at 04:13 PM ----------

Apparently, the bank saw it necessary to add this clause to zero's loan contract. If they were prevented from doing so by some means, or from enforcing the clause, then I guess either the interest rate zero has to pay would be higher, or he would not have gotten the loan in the first place (meaning, no company). That wouldn't be very nice, either.

Ditto on the interest rate. Of course, the bank is giving me a lower interest rate in order to have a chance to grab a part of a successful company. I of course think the terms are fair and square, and won't object in case they decide to exert the swap clause (well, of course, in that case I will probably be a rich man ).

 

[Green_Lantern]

Notification, whem I said "Yeap, It is" I as only agreeing that the situation was the reverse of a mortgage.

 

[Chibibar]

Well... this is why amortization comes into play (at least in the U.S.)

Normal home loan works like this.

You borrow 100,000$ at 6% loan for say.. 15 years.

The first 3-5 years (usually or 4-8 years for 30 year loan) are mostly INTEREST first then later pay the actual equity. I originally borrow for 30 years and I can tell you after 3 years I have VERY little equity when paying 1200$ a month (interest, equity, and escrow for property tax) The banks have set it up like this for years in CASE people DO walk away from their home. Sure it sucks, but at least they "made" money (off interest) hopefully before you walk away.

Also when you walk away, you lose any equity in it since the bank still holds the title. It is all in the 20+ pages of contract (yea I recently sign a bunch in December when I refinance to 15 years and 4.75% woot!) Now of course the bank DO lose some money over time if they can't resell the home, but they are not in total lose since hopefully they get "paid" from all the interest before the people walk away (and equity) now the longer it is on the market, the more money they will lose since there are basic maintenance (yard works, fixing it up and property tax) but.... in Texas there are homes like HUD, VA, and FHA that sell home "as is" at a lower price. The new owners usually fix it up or get loans to fix it up (part of the deal) which bank can recover.

Now of course, in our current market, the banks do get hurt a lot more since it is HARDER to sell a home now. It also doesn't help it is harder to get a LOAN now since banks are going into "conservative" mode with all the banks needing help due to "loose" (use correctly) lending practices

 

[@Li3n]

Oh for crying out loud... the reason the bank is gonna loose money is because the prices went down hard, and with all the houses they already got from people that didn't manage to pay their mortgage they can't even sell the house (which is what started the crisis), if that was not the case they might even have made a profit... heck, they still might if the loan was paid long enough to match the fall in price (of course not as much as if they where paid in full). Actually that's the whole point of why the banks have that in their contracts...


And it's not like the state could actually go around looking at everyone's bank account/salary to see if they could afford it anyhow, so it's not like any law to prevent this would have worked.

EDIT: didn't read Chibibar's post,

 

[Chibibar]

Oh for crying out loud... the reason the bank is gonna loose money is because the prices went down hard, and with all the houses they already got from people that didn't manage to pay their mortgage they can't even sell the house (which is what started the crisis), if that was not the case they might even have made a profit... heck, they still might if the loan was paid long enough to match the fall in price (of course not as much as if they where paid in full). Actually that's the whole point of why the banks have that in their contracts...


And it's not like the state could actually go around looking at everyone's bank account/salary to see if they could afford it anyhow, so it's not like any law to prevent this would have worked.

EDIT: didn't read Chibibar's post,

well, that kinda depends on the situation.

Lets say it is originally a $400,000 home. I borrow $400,000 (100% loan but I pay all the closing cost) at 9% (it is possible) for 30 years.
Lets say Smart Bank loan me the money (they don't own the home) I own the home for 5 years. According to the amortization calculation on http://www.amortization-calc.com/ when I calculate 400,000 at 9% pay 5 years so far

I paid around $107,000 in INTEREST alone already and about $16,500 in principal.

So lets say the house value drop to 200,000 (it happens) and I walk away.
The bank made money by $123,500 (interest and principal) total so far.

Now of course the bank will ALSO own the house since they hold the deed also which is only worth 200,000. So they "lost" the interest they could have gain for the next 25 years which is (758,656 - 123,500 = 635156) at least "possible lost" since they could sell the home again.

Now of course if the bank could not sell the home, there is a lost of paying property tax (I think they pay this not sure) and maintenance (rarely most of the time they just leave it as it and just have the yard mow) If the monthly cost could be around 833$ a month on property tax (base on 2.5% give or take) + 35$ a month lawn mowing

If they manage to sell the home to a new person they will make the money back via interest even if it is 200,000 at 5% (current market) for 15 years Interest: $84,685.71

So the only "loose" money (ha-ha) is the interest the bank could have earn BUT if they hold the house for a year then they will start losing 10,000 a year in property tax + lawn mowing (all utilities are off)

 

[fade]

Man, you guys have a radically different idea of the home owner/bank relationship than I do, is all I can say. It almost seems like you guys think of the bank as a principal investor in the home as a self-run business, and the owner is the customer. I don't think about it that way at all. I think of the owner as, surprise, the owner, and the lender as, surprise, the lender, who is making an investment in the owner's interest, not the home. When the customer walks away, he's leaving the bank with an undesired commodity in "exchange" for his lost interest. That's like leaving a computer program source code in place of a car at the dealership. Sure, to you as a programmer, it's a salable, desirable commodity, but the dealership wanted your money. They take the code because it's the only thing of value they can legally get from you, but it's a big hassle. And it's wrong, because you used a protection clause (essentially garnishment) in place of money. On top of all this you're doing this when you have more than enough money to pay for the car, simply because you like think it's uglier than the neighbor's shiny newer model. Boo-frickin'-hoo. You chose the car. You entered the contract. You may have adhered to the letter of the contract, but not the spirit, by using a loophole that exists for protection just because you're being a whiny baby.

I mean is it the credit card company's problem that your gold watch is outdated and worth less than you paid for it? Should you dispute charges? After all, gold typically appreciates. You could point out again the legalities and the contracts, but really, I find that meaningless in the face of what I thought was an obvious ethical no-no.

 

[zero]

Man, you guys have a radically different idea of the home owner/bank relationship than I do, is all I can say. It almost seems like you guys think of the bank as a principal investor in the home as a self-run business, and the owner is the customer. I don't think about it that way at all. I think of the owner as, surprise, the owner, and the lender as, surprise, the lender, who is making an investment in the owner's interest, not the home.

Yeah, well, you may want to rethink that. Usually, when the borrower defaults his debt, the bank makes a PROFIT out of the house (granted, that's not what's happening now, but that's the way things are).

 

[Chibibar]

Man, you guys have a radically different idea of the home owner/bank relationship than I do, is all I can say. It almost seems like you guys think of the bank as a principal investor in the home as a self-run business, and the owner is the customer. I don't think about it that way at all. I think of the owner as, surprise, the owner, and the lender as, surprise, the lender, who is making an investment in the owner's interest, not the home.

Yeah, well, you may want to rethink that. Usually, when the borrower defaults his debt, the bank makes a PROFIT out of the house (granted, that's not what's happening now, but that's the way things are).[/QUOTE]

unlike other commodity (like cars, food, oil etc etc) land does not really depreciate (there is a finite amount) the house on the other hand can depreciate but land is always good. I don't think it is as "undesirable" but it is harder to move, but it can be move (i.e. sold) at a later date. Now if I were to leave a car, that car would not worth as much say.... 1 year or 2 years from now, but land (and sometimes the house ON the land) retains it value much longer than a couple of years.

 

[AshburnerX]

Not to mention the fact that land also has several factors that can increase it's value exponential, such as nearby development.

 

[Green_Lantern]

Man, you guys have a radically different idea of the home owner/bank relationship than I do, is all I can say. It almost seems like you guys think of the bank as a principal investor in the home as a self-run business, and the owner is the customer. I don't think about it that way at all. I think of the owner as, surprise, the owner, and the lender as, surprise, the lender, who is making an investment in the owner's interest, not the home.

Yeah, well, you may want to rethink that. Usually, when the borrower defaults his debt, the bank makes a PROFIT out of the house (granted, that's not what's happening now, but that's the way things are).[/QUOTE]

unlike other commodity (like cars, food, oil etc etc) land does not really depreciate (there is a finite amount) the house on the other hand can depreciate but land is always good. I don't think it is as "undesirable" but it is harder to move, but it can be move (i.e. sold) at a later date. Now if I were to leave a car, that car would not worth as much say.... 1 year or 2 years from now, but land (and sometimes the house ON the land) retains it value much longer than a couple of years.[/QUOTE]

Unless when Lex Luthor destroys it with kriptonite.

 

[@Li3n]

Now if I were to leave a car, that car would not worth as much say.... 1 year or 2 years from now, but land (and sometimes the house ON the land) retains it value much longer than a couple of years.

I wonder if these guys are also getting rid of their cars because they're worth less then when they bought them (which happens right away after you bought it)?!

I think of the owner as, surprise, the owner, and the lender as, surprise, the lender, who is making an investment in the owner's interest, not the home.

The lender is making an investment in their own interest... that applies to all loans that have an interest attached. The house is collateral, what the bank is investing in is the revenue they will be getting one way or the other (from interest or from selling the house if the owner defaults).

I don't see what difference it makes in your approach frankly. The bank never did it because it helps someone, but because it makes them money.

 

[Chibibar]

I don't see what difference it makes in your approach frankly. The bank never did it because it helps someone, but because it makes them money.

^-- This is the MAIN reason for banks, to make money. It is a privatize institution with government help (FDIC and such) but like all private business, they are to make profit. Granted that the current market houses are not being paid but the bank will own lots of land. Depending on where, the banks could essentially "change" a local area (within reason) into different zones IF they own a tons of property in an area, but like I said before, unlike other commodity, land will still retain its value WELL after this houses crisis while other commodity won't last as long.

 

[chakz]

Yeah, I know. It's why I want to become governor of North Dakota. I'd then make casinos legal in one city section where I happen to have bought some land, then open a casino. I want competition - multiple casinos seem to draw in tourists by the plane-full - so you're welcome to buy some of that land in advance . . . I'd appreciate a campaign contribution, though.

Wow, your like a sleazy early nineties action movie/post apocalyptic villain.

 

[Kitty Sinatra]

If only I had a surprisingly fitting surname like Hogg.

 

[chakz]

If only I had a surprisingly fitting surname like Hogg.

Nah you'd have name like dolson or skyker. You'd have slicked back hair and a tiger striped suite you'd have ceased power after the environment went kaputz and your goal is to wipe out the homes of the poor people in your polluted megalopolis so you can build an ultra casiino.


Hmm I should have said dystopian rather than post apocalyptic. My bad.


Just watch out for the cryogenicly frozen/time traveling ragtag, misfit teenage heroes who have incredible luck and fighting abilities.

 

[Kitty Sinatra]

Just watch out for the cryogenicly frozen/time traveling ragtag, misfit teenage heroes who have incredible luck and fighting abilities.

I'm already building an army of fembots. First, they'll do all my political canvassing; few voters will be able to resist their charms. Then once I'm installed as Supreme Leader of North D'awesome they'll be my bodyguards and enforcers. No misfit teenage hero will be able to overcome their horny urges.

 

[Bowielee]

So, then you'll be taken down by a renegade group of teenage girls, then?

 

[Kitty Sinatra]

If I'm fated to go down, I think it would be quite nice to go down on a group of teenage girls.

 

[Bowielee]

Thought this article was pretty pertinent for this thread.

http://finance.yahoo.com/news/Mortgage-lenders-pursue-cnnm-3107909798.html?x=0

 

[Chibibar]

Thought this article was pretty pertinent for this thread.

http://finance.yahoo.com/news/Mortgage-lenders-pursue-cnnm-3107909798.html?x=0

ah good stuff. so the banks (lenders) do have some recourse they can take. There is a lesson in the following quote.

Zaretsky had one client who was so relieved to have arranged a short sale that he signed every paper his real estate agent shoved at him, even a confession that clearly stated he still owed the debt.

READ EVERYTHING before you sign. Yes it is over 50 pages of document, but at least READ it (I did when I originally sign AND refinance AND have an agent with me to make sure I am doing it correctly)