UPDATE 2/16: This is a hot topic! KUOW‘s show The Conversation will be addressing this issue today at 12:20 p.m.! Call their listener feedback line now to share your opinion opinion at 206 221 3663 (the call in number during the program will be: 206 543 5869).
UPDATE 2/7: Polls closed 9am this morning. Final Tally: Decent folks 6, deadbeats 4, with several abstentions. Thank you all for participating! Even those of you who took the time to read the post and share a comment, even though your comment was “this is a waste of time!” I love irony…
In follow up to my post of a few days ago regarding “strategic defaults,” I thought I’d share this “hypothetical” that is in reality a description of some actual clients with whom I met recently. Several commentators to my post argued that people should repay their debts, period, regardless of the hardship or the absence of any adverse outcome if they failed to do so. Accordingly, I’m interested to know whether the people described below should be considered miserable deadbeats — stiffing their creditors for their own selfish purposes — or good people doing the best they can:
A young married couple, pre-kids, bought a one bedroom (650 sq ft) condo on Capitol Hill for $355k in 2007 with one mortgage, 100% financing interest only 30 year term. Couple tried twice to modify the mortgage, declined each time. Condo now worth about $250k. They are ready to have their first kid and, needless to say, would like a little more living space. Condo would rent for $1200 per month. Mortgage payments plus HOA dues $2600 per month.
Their options:
(1) Grit it out. Condo will not recover value for perhaps 9 years (assuming a 4% appreciation begining today, which is very optimistic). Over that period, couple will have paid an extra $150,000 towards the property (mortgage payments less rental value over 9 years). In the meantime, couple has two young kids in a 650 sq ft 1 BR apartment. Fun!
(2) Move on. They strategically default. Since they have one mortgage, realistically they can default on the loan with no personal liability. [NOTE: CONSULT YOUR OWN ATTORNEY AND DO NOT RELY ON THIS POST FOR LEGAL GUIDANCE.] They rent for a few years (since their credit score is shot) before buying again down the road. Given the passage of time, the market will more likely have bottomed and property will have resumed appreciation, thus increasing their chances of making money on the next house.
In summary, over the next nine years they can either spend $150,000 and subject themselves to a nearly intolerable living situation; or they can save the $150 grand, live normally, and probably make $10-20k in appreciation on their next house. Assume they walk. What say you? Deadbeats, or good people?
Craig, I don’t have time to delve into this issue today too much during work but I just wanted make a quick mention that I in no way am advocating that people are deadbeats because they have to default after they have exhausted all of their financial resources—experiencing financial hardship due to catastrophic financial disruption (health issues for example). I’m saying that from my vantage point those that strategically default because the investment (whatever it may be) or gamble they took didn’t work out is unacceptable. Just because it is not unacceptable in my view does not mean the strategically defaulting party is unable to take advantage of the legal life ring available to everyone.
Since you are sharing example’s here’s one of my own (that is not the only one, trust me): Short sale seller can’t make it in to sign because they forgot to inform their agent and escrow that they are in Jamaica on vacation.
Deadbeats. Sorry. But based on the facts provided, they’re deadbeats.
Has there been any unforeseen/unavoidable change to their financial situation (job loss, decrease in pay, etc.) that makes them suddenly unable to afford the mortgage they were previously approved for and (supposedly) had/have no difficulty paying? The addition of a child/children (it’s not clear in your post – you say they’re ready to have their first kid but then also mention them having two kids in a 650 sq ft apartment) doesn’t count as that should be a planned for financial event. Since the mortgage is a fixed expense, my assumption is they would have shifted their budget in other areas to account for the addition of a child.
Speaking of…why in the world would a young couple purchase a 650 sq ft condo KNOWING they intended to have children within a few years of said purchase? They just now figured out that a 650 sq ft condo might possibly be a bit too tight for two adults and one or more small children? Oh, that’s right. In 2007 the market was only going upupup and that $355k condo should now be worth at least $425k. Cha-ching!
Sounds to me like they only want to default because they want a bigger place and they can’t sell their current place without taking a loss. Hey, I want a Lotus Esprit but you don’t see me knocking on Park Place’s doors putting a down payment on a 2013 model. Because I have other financial responsibilities. Like a mortgage. They made the choice to buy a small condo that I can only assume they could and can still afford. They are making the choice to increase their family size. They are now considering the choice to walk away from their mortgage because it’s no longer in line with their other lifestyle choices. Nuh-uh. Deadbeats.
Thanks for the vote — and explanation — Jo!
To clarify the hypothetical, the “having two kids in a 650 sq ft apartment” refers to their situation if they honor the debt. They’ll have the kids while in the condo — that window does close eventually — but they cannot afford to live somewhere else (not without selling the condo, which is not feasible, at least not for several years).
Two comments in reply. First, EVERYONE in 2007 would have encouraged this couple to buy. It is completely standard for a young couple to buy a condo, planning on selling and moving in a few years when the time is right to start a family. There is nothing unusual at all, and I think you’re using a high-powered retrospectroscope (i.e., you’re using 20/20 hindsight) in suggesting that they should not have bought in 2007 because four years later they might be ready to start a family.
Second, and a related point, I think you’re holding these people to a standard far higher than what you would apply to yourself in the same situation. Its easy to tell people, “tough it out!” when you don’t empathize with their situation. Maybe I’m wrong. Maybe you’d resign yourself to spending an unnecessary $150,000 and living in a tiny home under these circumstances — but I think most people would not.
Craig said: “Maybe you’d resign yourself to spending an unnecessary $150,000 and living in a tiny home under these circumstances — but I think most people would not.”
I’m guessing, but I don’t think that comment would hold much water to those who own their homes free and clear for 20 + years and went through cycles including buying ‘up’ with or without kids. Remember, a large portion of housing stock is owned outright.
My Dad was unemployed during the Boeing bust in late 70’s, early 80’s. We had to chip in and work after school making chump change and deliver papers with the PI in the early AM to help pay tuition at St. Joe’s on Capitol Hill. Mom got odd and ends jobs doing various things for people including sewing and swimming lessons. Anything to make a nickel.
Should I put you down as a vote for “deadbeat”, then? 🙂
I applaud your family’s work ethic – but what choice did you have? Or, more accurately, did staying put pencil out in your favor, or pencil out as a wash? Certainly in that instance — if you did not get a clear and substantial benefit from walking away — it would be a lot tougher to defend any default. You had to pay for housing in any event. Moreover, I’ll bet THAT imperitive — housing the family – played a larger role in fostering that work ethic than owing money to the bank.
Ah, but that’s the point – I would not have put myself in that situation in the first place. My husband and I were in the market in 2006-2007 and while we did initially have the “must buy now, must buy now, prices are never going down” panic (which was also encouraged by our RE agent…), the ridiculous pricing at the time won and scared us right into staying in our rental. I have zero professional real estate expertise but I knew in my gut (which was also encouraged by the Seattle Bubble blog…) that eventually that bubble would burst.
To be clear, I’m not suggesting they shouldn’t have bought in 2007. I AM suggesting they shouldn’t have bought a 650 sq ft one bedroom in Capitol Hill if they knew they were going to start a family in four years. To me it would have been more prudent to purchase something that could (just. in. case.) accommodate at least one addition to their family as they obviously knew in 2007 they would want kids in the near future. But…I am assuming they purchased what they did because that’s all they could afford at the time…
Whoah. THEY decided what to pay for that property in 2007. Because someone else would not pay that same price for it in 2011 does not negate the fact that they signed a contract to pay that sum to the bank. The $150k is not “unnecessary”…it’s part of the price they agreed to at the time of purchase. Perfect Example: After I drive my Esprit off the lot in 2013 whydoncha come back to Park Place with me a week later and – without bursting into laughter – watch me tell them I’m only gonna pay $140k of the $175k car note I signed because, well, the car’s worth 20% less now than it was the day I took delivery.
You may think my comments are overly harsh and critical of your clients, but they are true to me and my personal standard. I would not have made that particular purchase (650 sq ft/1BR) in 2007 knowing I intended to have a child so soon. However, if I had the means to do so (i.e., barring any unforeseen catastrophic life events) I would honor my commitment to the bank because I would not risk my credit rating to a foreclosure. But that’s me.
I don’t think your clients are bad people. I think they got caught up in the insanity of the 2007 RE market and made some bad choices, the results of which they now have to live with. And should they choose to walk away rather than live with those results, I think they’re deadbeats. And so does the dictionary:
dead·beat [n. ded-beet; adj. ded-beet]
–noun
1. a person who deliberately avoids paying debts.
P.S. Thanks for the clarification on the one kid/two kid thing.
Jo — sure, by definition there is no debate. That said, I was using “deadbeat” pejoratively. In other words, are these people worthy of scorn, or not? And you’ve done a very good job of answering that question.
That said, its interesting that you would not default “because [you] would not risk [your] credit rating to a foreclosure.” That sorta flies in the face of your larger point: People — what about businesses? — who don’t repay their debts merit contempt, period. It’s interesting that even you — who pretty clearly made your point otherwise — end up back looking at the impact on you personally, regardless of any moral obligation to repay the debt.
Yes.
People = Yes.
Businesses = Yes.
Who don’t repay their debts merit contempt = Yes.
I find it odd that twice now you’ve made determinations of what you think my behavior would be if the tables were turned. You’ve decided that if there were no financial repercussions (e.g., damage to credit report) to not paying back the debt that I would simply walk away and that’s just not true. I said I would honor my commitment to the bank because I would not risk my credit rating to a foreclosure. I figured the “and because I signed a contract and it would be the right thing to do” was a given.
You asked the question, sorry you don’t like the answer. (And it’s not like your clients are going to make their decision based on the opinions of a bunch of strangers on the Internet, right? ‘Cause that would be silly.)
> First, EVERYONE in 2007 would have encouraged this couple to buy.
Hey now. Not EVERYONE.
Point taken! But you gotta admit, you were one lonely voice in the wilderness back then….
Seems like if I had to choose between being a “deadbeat” or a “miserable idiot” I’d pick the later. There is absolutely no reason for them to not exercise their perfectly legal right to hand the keys back and walk away. I’ll agree with Jo that the couple was somewhere between naive and stupid for buying into the “starter home” garbage that was being peddled in 2007, but Craig is also right that there were a lot of people in the industry and goverment pushing that whole ownership society idea so it’s not like they came up with that starter home idea all on their own. That said, the bank is a big boy, it made a deal and now it has to live with that deal it made. The bank, along with a slew of bright attorneys and MBAs representing it, knew exactly what rights it would have should real estate prices drop. Getting the keys is exactly the rememdy it bargained for and the bank as the party loosing money will maybe think twice about who they give money to next time.
As to the effect of them walking away on the rest of the community, that is a straw man to make them feel bad and guilt them into making a decision that isn’t in their best interest. The condo and every other unit in the building is going to be worth what it is worth based on what comparable rent rates are. The fact that it and all the other units in the building got overinflated during the bubble doesn’t change simply because they choose to grind it out and stay. Walking away may accelerate the correction process but prices are going to continue to fall until the cost of buying the property with real money down leaves you with a mortgage that you could break even on renting the place out. Eventually prices will fall to meet rental rates and then there will be a bottom. The fact that the bank sells their unit for less doesn’t mean their neighbors’ homes become less valuable, it just means the neighbors realize how less valuable their homes really are.
The one item you are probably missing in your “hypothetical” is that by walking away they likely can now rent a 3,000 sq ft 4br house for less then their all-in cost for their current mortgage and HOA dues (we rent such a house in Ballard at their all in $2600 rate, no granite counters but otherwise it’s lovely).
Current Tally: Deadbeats 2, Decent Folks 1.
Thanks Dan!
Craig- As usual, it always depends on
what side of the equation you’re on. J-
Jerry, you’re an architect, not a lawyer! 😉
The point of the post was to facilitate thoughtful discussion about the scorn that should or should not be heaped upon people such as these. You’re not supposed to be on either side here, just render an opinion about this conduct.
So, which side are YOU on?
Craig- As usual, it always depends on the
people involved. They’re not fungible. And
yes indeed, I am an architect, not a lawyer. 🙂
Put me down for dead beats as well.
Tim is right, on this one. He went to Saint Joe’s so he’s alright in my book.
Real Estate is a business. What you didn’t present is that if these people can afford a child they can afford to pay down the principal balance by making payments directly to the principal. That would change the amortization schedule.
It’s only $2600 per month, all in. That’s 25% of two $50K jobs. They can afford that.
Pick a better example of some one whose business stopped for 6 months and they have to recover. How about the people who were laid off, on unemployment, and now have a monster back log of payments?
Hmmm, sort of a half vote for each side: These people are lousy deadbeats — worthy of scorn — but other people in a related situation (loss of jobs vs. desire for kids) would not be.
Deadbeats: 2.5; Decent Folk 1.5
It depends on the circumstance. A $350K condo can be paid off. More importantly these people are considering children. Your premise hinges on that in 2007 there was no counterpoint to the decision to buy. There were head lines in 2006 about the immanent Real Estate crash.
You presented the circumstances. Each situation, each financial decision will be different. For these people they can afford to pay, they can work three shifts, and pay. They need to put off having children until they have a brain in their heads, do some follow through, and work with what they have.
Desire for kids sounds like an excuse. It may tug on your heart strings, but really, really bothers me. Sacrifice is what having kids is all about. They should have thought about the kids before buying a condo.
The bank made an agreement with this couple that they could pay a mortgage, or give the house to the bank. Seems to me the bank should not have made such a stupid deal.
There is nothing morally wrong with them walking away in my opinion – they are just exercising an option that the bank has given them.
Technically they are not deadbeats by the semantic definition of the term because the debt is asset backed and they are giving the asset back.
Ben — again, let’s not get caught up in semantics. The point is: Are these people worthy of scorn, or not? Thanks for your vote!
Deadbeats 2.5, Decent Folk 2.5.
Ben’s “There is nothing morally wrong with them walking away
in my opinion – they are just exercising an option that the bank
has given them”. has a certain logic to it. The bank will be ok. JG
Watch out, Jerry! This could be construed as a vote…
It seems that this topic is convenient for you to advertise your legal services, you can’t be objective on this topic. You stand to make a lot of business over the next few years helping people default on loans. Of coarse you are going to make them look like they were victims. This all comes down to right and wrong…I would not use the word miserable deadbeat…but what they are doing is wrong.
OUCH!! So simply because I have a professional interest in the topic, I can’t speak about it? Good GOD, I hope you roundly scold EVERY real estate broker who suggests that its a good time to buy real estate. Luckily, not many do tha–, oh wait a second, they ALL do that!!
But thanks for the vote.
Deadbeats 3.5, Decent Folk 2.5
I am not scolding, I’m stating the facts as they are, everyone involved screwed things up royally. I find it disturbing that you are here scoring the homeowner as deadbeat or nice person. This situation is absolutely appalling and has created a terrible situation for everyone.
You’re right, the facts are that professional routinely opine on issues in which they have a professional interest: Doctors recommend treatment, investment advisers sell financial products, and of course real estate agents believe its always a good time to buy. All facts. When you apply a different standard to me — when you accuse me of such bias that I cannot even discuss the topic — well, that falls within my use of the term “scolding.”
Disturbing? Exactly why is that? As noted in another comment, I am simply trying to facilitate a discussion about the values/morality and how it is applied to borrowers. Look, we all have an interest in the topic, as you suggest, given the societal/economic implications for widespread defaults. Its a bad situation all around. Are you saying that accordingly I can’t talk about it?
I totally agree that we should all have an open an honest discussion about this topic…it’s done on the Seattle Bubble all of the time. In my opinion, the way that you have presented this survey is in poor taste considering your interest..Just my opinion.
Ah, so I can talk about it, but HOW I’ve talked about it is in bad taste given my “interest.” Thanks for backpedalling — above you said I was simply advertising my legal services.
While I appreciate the clarification, it is far from complete: Please explain how I SHOULD HAVE presented the topic, and exactly HOW this presentation is in bad taste … in your opinion. Once I understand your reasoning I’ll be able to respond further.
I’m not backpedalling at all, I think I’ve been completely clear..perhaps it woud be more interesting to have others join the discussion.
I can see both sides. However, the bigger issue imho is how the moral hazard impacts the rest of us. Character has long been a part of mortgage lending. If banks believe that mortgage loan borrowers are going to behave like commercial loan borrowers, then it would change the entire approach to residential mortgage lending. Mortgage products would be severely restricted and the down payment requirements along with terms would reflect the new reality of borrowers simply making “rational decisions”.
The other thing to consider with this quandary is that the housing market has never seen the level of mass defaults and price declines that we have over the past couple of years. This is new territory for everyone. What makes this situation different from say a car purchase is the size of the investment. It is one thing to be upside down $5-$10k on a car, but that is not the same as being upside down $100k or more on a house.
In my mind, I think the lesson learned is that buying a house is a massive investment and needs to be treated as such by all market participants from banks to consumers. We cannot continue to treat residential purchases like we do buying a flat screen from Best Buy. Consumers need to be educated. LOs and Realtors need to be better professionals. Banks need to develop better products. Government needs to stop putting up road blocks.
You have made a distinction between commercial, and residential lending. You are correct.
My current “home” loan is a commercial product. All of my loans until about 1999, or 2000 were commercial loans secured against the property I was buying.
The lender trusts that I will do the right thing, and make them whole. In the past that has always been possible. Even now with the declines in the market place my property may be a push in value.
That all changed since 1998. I have applied for, gotten, bought, and sold three personal properties in that time. I say this all the time, that I have no income, no credit, or assets, yet banks were throwing money at me.
To be fair, I have the ability to make money.
So my contention is why are we giving banks a free pass? Why are banks supposed to be made whole for bad lending?
I have a dozen examples of loans that should never have been made. I personally like condos in down town or Capitol Hill and thing they have value. A town house in Issaquah is extremely suspect to me as an asset.
You never used to be able to build in places of questionable value because no bank would make you a loan. Banks, in the past used to care about the asset, or the value of the asset.
Why are banks getting all of this free money from consumers who trusted banks to know asset value?
Maybe the consumer wouldn’t know asset value, but banks have divisions dedicated to knowing what properties are worth.
How many times, in the past, did an underwriter reject an appraisal? Thousands of times, or millions of times?
Since 1998 banks have given away money so they could generate higher price mortgage backed securities which they have sold, and traded for trillions of dollars in profits. Banks have made trillions of dollars in profits then stopped lending. The government then stepped in to give banks, and the insurance companies that depleted the insurance accounts, as losses, LOL, another couple of trillion tax dollars.
The banks have been paid. Any money a bank can convince a home owner to give them is a gift.
Russ — great point, and one I did not appreciate!! You’re saying that the entire lending system is PREMISED on applying a different standard to people vs. businesses. Very interesting. Perhaps one of the necessary reforms at this point — since large numbers of people have and will continue to default — is to recalibrate lender expectations regarding the borrower.
On the question posed, I’ll put you down for a half vote each side:
Deadbeats 4, Decent Folk 3.
Craig, yes residential lending is different from commercial lending. Commercial lending expects businesses to make rational business decisions hence the terms of the loan are different (more expensive as that rational decision making is already baked in… they know its nothing personal, just business so to speak).
Mortgage lending has always tried to take a softer approach since you are dealing with an individual and their “home”. However, I think I as securitization took hold, the days of really knowing your borrower are well behind us. Unfortunately, everyone at this point is in fact just a number.
As a result, all parties view it as “just business”. Mortgage products will have to change in light of this new reality to reflect this new level of risk.
not only should they walk away..I would rent their condo out for 1200 a month and save for their impending child. All the while inform the tenant of The Tenants Rights of Foreclosure and how their Lease will survive the foreclosure or advise the tenant they may also get cash for keys. It will take in excess of 2 years to foreclose if they exercise their rights properly.
http://www.nolo.com/legal-encyclopedia/article-30064.html
If they choose not to rent it out I would advise the family stay in the unit for the next 2+ years and save the 2600 a month they would have paid and they should have about 50k in the bank. Continue to apply for Loan Mod while waiting to see if their mortgage principle gets crammed down as part of a HUGE STIMULI that will arrive in the next 2 years from the Fed.
I represent many investors and this is their tactic after being repeatedly denied loan mods. The stories I have could write a book but in the end it all comes down to NOT being a victim and instead while suffering poor credit, put yourself in a financial position much better then you were while crying. With the 50k they have saved I assure all “Victims” they can immediately buy post foreclosure if they so desire as long as they SAVED their monthly payment.
I also suggest these homeowners join these class action lawsuits (grass roots movements) that I see every Friday at the County Courthouses. They scream for “Produce the Note” and all the people I have met in these groups still own their properties 3-4 years post their last payment. Each and everyone has a story to tell and are all represented by some very LOUD ATTORNEYS that I hear barking out remarks during The Trustee Sales I attend every week.
The fact is this. The rules of the game were changed by Wall Street. You can sit back and cry with all your neighbors and bash society or take care of your NEW family first in this case .
Well, on the question posed, your vote is clear. New tally at end of comment.
That said, I take exception with several points. In general, you’ve taken the “Decent Folk” position WAY too far. I disagree that people should join the “Show the Note” movement, assuming the borrower admits to (a) borrowing the money, and (b) using the money to buy the house. The whole notion that “possession=ownership=rights of ownership” is pretty archaic and more suited to a 19th century economy. Moreover, why should the owners get such a rank windfall? Essentially they want the house entirely for themselves, even though it was largely paid for by the bank. That seems fundamentally unfair to the bank. How is THAT morally justifiable on ANY level? Certainly the bank would never be able to get over on the debtor in such a fashion.
Look, there are no “victims” here, and use of that term is counterproductive. Its bad news all they way around for everyone. The question is, do some “people” — the banks — get a moral pass that others — debtors — do not? But there are no victims.
D’oh!
Deadbeats 4, Decent Folk 4.
Well, yes, and then there is that, as Ray said.
The loan modifications are a complete sham. They don’t work out because banks, servicers, won’t give up a dime. I swear the most needy people get loan modification with absolutely no hope of ever being able to pay. People working at a 7-11 get a loan modification while an attorney who lost huge client share the past few years can’t get one.
This whole mess could have been worked out if banks, lenders, and servicers had been left to some device other than a government bail out.
There again we will never know.
Also Ray, if the government does give banks more money, more stimulus, there will be open rioting.
David the people who “got a loan mod” got nothing but the opportunity to kick the can down the road and DELAY the inevitable. What they did get was the opportunity to buy more time to live in the home for free/rent it out.
Always and I repeat always strive for a Loan Mod. When/if its received analyze the amount of principle being forgiven.. What??? NONE?……….Then….Reapply…..You will be happy you did.
David, and others because I’m on the front lines of The Trustee Sales every week and I see nearly ever property postponed I have become far too familiar with this game. People are getting more and more creative while others sit home and cry.
In the end they will ALL come back. But, how you choose to play the game NOW, is all that matters for your financial future going forward.
Being from Nevada this debate has been going on for nearly 5 years +. I have the ” luxury ” of going home to Reno/Lake Tahoe 6-7 times a year. This CRASH started 2 years before it hit us here in the PNW.
It began with families buying the home across the street (same one they lived in) and renting theirs on paper. When the home closed they would “walk away” and be in their new home owing about 100-200k less. This was done over and over until the banks caught on.
Now zip forward 5 years later and I’m here to tell EVERYONE each and every person who walked has told me it was the best financial decision of their life. Most are all living in new homes already with far better financial stability.
Telling people to lock your family into a property FOR ANY REASON should be a dark blemish on your professional license. We Brokers, Attorneys, and LO’s should tell the truth and stop lying!
Good God…Its been 5 years and you all seemed to have learned NOTHING!
Whoa there, Big Fella! Its 5-4 in favor of this conduct, so most of us agree with your position, more or less. But I don’t think anyone in the thread has even suggested “lying” to a client. Ray, that’s a serious allegation!!
Moreover, I have a pretty hard time not throwing a little contempt towards somebody who bought their next house planning on defaulting on their prior. That’s pretty shady conduct that may rise to the level of fraud. In fact, I’d wager dollars to doughnuts that these people lied on their loan application — a federal felony punishable by $1m fine and/or 10 years in Club Fed. In my mind, these people fall far short of “decent folk.”
not sure where you implied I suggested LYING. I’m just stating the facts of what occurred.
They are all “Decent Folk.” We are all “Decent Folk.” However, you can choose to be a victim or play by the rules but place all that has occurred into YOUR favor as the “current” homeowner. Keep crying everyone . Soon you will all realize just how BIG of a problem this is and how truly insolvent our banks are.
Today while viewing a condo that will be sold at trustee Sale tomorrow for 54k I again witnessed the “mass exitus” of people from their condos. Out of about 200 units easily 20% are vacant. Signs galore on unit after unit. Dues 220 a month most surely going up up up to cover all the vacancies. This will lead to more short sales and foreclosures.
Friends, as I pound the table, you have seen nothing yet. Just keep pointing fingers at the dead beats because soon they will be your family member or your friend.
Ray, do you even read your own posts?
“Telling people to lock your family into a property FOR ANY REASON should be a dark blemish on your professional license. We Brokers, Attorneys, and LO’s should tell the truth and stop lying!”
You didn’t SUGGEST that “we” are lying to our clients (why else would it be a blemish on our professional license), you accused us of it explictly.
haaa…yes, I did..after I hit send..I’m referring to the cornballs in the video I posted who lie and state..” You will never be able to buy a home again” and who try to sell the homeowner on “well by the time you factor in the tax break”..its all BS…”you will feel better for doing the right thing”
The right thing is NOT staying in the home and instead moving on with your life and make financial stability for your family. I get disgusted by “professionals” who give advice that is worse then found on a fortune cookie.
I don’t know about you but I’m walking. My vote goes to decent folk.
Lookout, the tide is turning…
Decent Folk 5, Deadbeats 4.
Morally, how does this differ from bankruptcy? Not really a great difference between debt you owe on credit cards and debt for a home, you agreed to pay for both, and both things have declined in value (you could try and sell that Gucci bag, but good luck)
Sure there is shame to be had, and most folks that are walking away from their debts seem plenty remorseful, but there is also the need to move on in life, and get a new start.
With the terms presented, I’d walk.
Hope I never have to make that decision.
Decent folks. May they raise wise and productive children. That will pay for my retirement…
…and the next round of bank bailouts! Thanks Roger.
Decent Folks 6, Deadbeats 4
Not passing judgment on anyone, but just know that when residential borrowers walk en masse, it is just going to make it harder to get reasonable financing terms in the future. In addition, this is one of those things where the more people do it, the more it encourages others to do the same even if they didn’t plan to because in some ways, a sinking neighbor walking eventually brings you down with them.
Say you pay $500k for your home and a couple of your neighbors decide to walk for whatever reason… you now are underwater say $200k. The odds of you being able to recoup that loss is basically zero. Now through no fault of your own, you are being put in a position to decide if it is worth it to you to hang on. At some point, that person has to say screw it and look out for themselves and not be the last sucker standing. We are seeing this in condo developments (particularly the ones which were over run by specuvestors). The guys that actually bought because they wanted to have a home are being brought down by the mini Donald Trump crowd.
I get it Russ. Indeed, that was the very point of my prior post: Should RE professionals discourage strategic defaults because of the larger implications? Like I said there, though, my obligation is to my client, period. So I’m certainly not going to tailor my advice to serve society at the expense of my client.
But not all RE professionals agree, if we can believe Mr. Pepper. See his comment above railing against those professionals who put societal good above the interests of their client (or at least those individuals in their audiece).
Well, it is all business. If the property was worth $500K it would sell for $500K. The fact is that $500K was only worth $350K, but the bank lent $500K on the property which created a false sense of value.
I can go on for a long time about how banks encouraged people to fund “the family home,” with this false sense of value knowing people will pay, even after it becomes clear they over paid.
Mortgages will never be the same. Credit will never have the hay day it just did. There is a growing sense of anger, and resentment toward lenders.
Let’s not forget the 25% interest on credit cards, or the tricks banks play to put people in the 24% category. Easy credit, no payments until 2014, and air line miles will continue for as long as the economy shows signs of life. Once the erosion of middle class wealth becomes apparent there will be a back lash.
Sorry Ray, the government is tapped out. No politician is going to stand up and say let’s give big business more money, or tax breaks. Big government, and big business are getting tarred here with the same brush.
Hello??? I ALSO told people NOT to buy in 2007, specifically a friend of mine who was all for buying a condo on Capital Hill. I told him in no way should he buy but he did and now he’s underwater. Oh well.
OK, you and Tim were the TWO lonely voices in the wilderness….
That’s not correct. I had the conversation a hundred times with many agents at that time that the smart thing to do was to list property for sale. There was a lot of talk about the over heated market and that people should sell, sell, sell.
There were also sellers who were well aware that 2007 was their best hope of getting top dollar.
It was a common conversation between 2005 and 2007 that the market was going to crash. It was unsustainable.
This is getting a little ridiculous, but…
David, Tim, and Jillayne, and hundreds if not thousands of others were screaming to the high heavens that 2007 was an AWFUL time to buy. But there were substantial numbers of others preaching the opposite. Indeed, BECAUSE there were so many buyers, it was a good time to sell.
That’s it, I’m not backtracking any further on that point! 🙂
You’re missing the point on this.
It’s always a great time to buy Real Estate. It depends on the deal. You’re trying to play close to the vest. The fact is you’re not saying whether this is a good deal or not.
Just because it was common knowledge that 2005 to 2007 was a bad time to buy there is nothing to say that people didn’t make smart choices.
There are two ways of looking at things.
We are not seeing the unit they bought, or the income they have. From what you have told us they should stay, and wait it out.
I had a client buy in in 12/04 (not quite 05) and sell on 7/31/07. 701 Market in Ballard. I think he paid $580,000 and sold for $850,000. Nothing wrong with that. He bought the 4 plex that was there and sold to the builder who put up the townhomes that are on it now. Nothing wrong with that!
There are other options besides just walking away! Why not try a short sale?
Also, If the homeowners walk away they are not going to be able to purchase another home for quite some time. The major agencies have gone on record regarding strategic walkaways not being able to qualify for a Fannie, Freddie, or FHA loan for a number of years. Fannie’s policy is 7 years:
http://www.fanniemae.com/newsreleases/2010/5071.jhtml
Jillayne, thanks for the link. Note, however, that these people at issue in this post tried TWICE to modify the loan, and they were declined each time.
Sure, they can try a short sale — but surely you know (a) the difficulty and hassle, and (b) the statistical liklihood of failure. Besides, regardless of what the bank says up front, in my experience the borrower MUST be late on the mortgage before the bank will even consider a short sale. So the borrower must initiate default in any event. Under those circumstances, it is often much easier to simply walk.
I’d agree that for ethic’s sake a short sale should be attempted. Kinda like going to couples counseling before seeing the divorce attorney…, you made a commitment, see if there is a chance at salvaging it.
A few counseling sessions is a WHOLE lot easier than attempting a short sale.
jilyane. Jillayne, Seven years is not a long time. Second in some case borrowers would be hard pressed to recoup the equity lost in seven years. In short are they really going to be better off seven years from now if you are $100k under water or more? That is the problem. Walk now and get your life back and maybe have jacked up credit for a few years or continue to pay on a money losing asset with no hope if ever getting that equity back?Jillayne, you know this as well. There are many, MANY ways to buy a home. Nearly everyone I know who has walked has bought another home in a vast number of ways usually within 6 months of foreclosure. They then continue to live in the home post Trustee Sale for a great many months with ways I do not even want to explain here in an effort to save even more money.
The ones who walk, and do it correctly, save up a tremendous amounts of money for not paying their Mtg for years. In turn, these funds can be used for Lease options, rolled into partnerships with people that have good credit yet no money, and so many more ways it will boggle your mind.
When you speak to all the LO’s that lend hard money (Guild, Eastside) at the Trustee Sales they will educate you on how it is done. But, in the end it comes down to cash. How much can you save until “judgement day.”
Short Sales? Are you serious? I would not EVER recommend anyone short sale their property and give up the opportunities that exist by making the bank foreclose not to mention the hardships on your family by selling your house. My advice to everyone is attempt, reattempt, and attempt again Loan Mod after Loan Mod. Contact HUD and stay in touch with your Lender on a weekly basis. Writing the AG and participating in all the Class Action Law Suits being rendered on Wells Fargo and Wachovia can also assist. The lawsuits are lining up on BAC and hopefully they settle like Wachovia did.
Stop being a victim and fight for your home! But, I reiterate..SAVE SAVE SAVE like you never have before. That money will become very important at some point in the near future.
Hi Craig,
Under the Home Affordable Foreclosure Alternative (HAFA) short sale program, they might qualify if they’ve been previously turned down for a loan mod….do we know why they were turned down?
http://www.makinghomeaffordable.gov/hafa.html
Sorry Jillayne, not comfortable sharing that information, even if I knew it….
Of course, I understand. Well at least they could consider educating themselves on the HAFA short sale program to see if they qualify. As a former mortgage loan underwriter, I would have a VERY hard time approving a new mortgage loan for ppl who strategically defaulted with no hardship. Seriously….they will be seen as a high credit risk for quite a while.
Another option is…..TO JUST STAY IN THEIR HOME and live in a 650 sq foot home for a few more years. 9 months of pregnancy plus the baby won’t be crawling for many months and besides for the first few years of the Frankenstein walk a parent has to be constantly supervising the toddler and it’s a lot easier to do that in a 650 sq foot condo v a 2000 sq foot home.
Which at the end of the day does not address the point most succintly made by Russ: They’ll still end up significantly in the hole. In the case at issue, remember, I ballparked $150k. Maybe not that much, but probably six figures in any event, don’t you think? And that’s a lot of cheese to spend based only a moral obligation to a large corporation that would not give you the same respect if the roles were reversed. I bet most of us — not Jo, though! 😉 — would feel a little like Sisyphus busting our hump to get that very large rock up that very steep hill….
In the final analysis, the money alone — like Russ and Ray have noted — is enough to render the decision to walk reasonable and appropriate. In my mind, of course. But don’t worry, I won’t cast a vote!
Will the Home Owner’s Association even all them the option of renting it out?
I have had at least four people come to me with the scenario that they are up to date on their mortgage payments, have not had a loss of income, but WANT to move for various reasons. They wanted to hire me to do a short sale.
Sadly at least one of them could easily sell their home for what they paid for it…BUT they refinanced to incorporate their car loan and their student loans into their mortgage which is WHY they are “upside down” as to potential sale price vs mortgage.
I repeated that back to them and said, “Let me see if I have this right. You want to walk away from the house, and have the default pay for your car that you are driving away IN and your education that continues to afford you the opportunity to pay for the house you bought, because you “want” to live someplace else that is 15 minutes away from the house you currently own?” Honestly, they hadn’t thought of it that way until I put it to them in those terms.
I don’t know what any of them did. I told them all to go see an attorney.
As to the “poll”? My answer is Matthew 7:1-5 “Judge not…”
Amen to that sista!
Yes, Ardell, when you finally get into the conversation, you always provide an interesting and usually unique perspective! 🙂 I’ll put you down for “abstain.” That said, if you’re giving potential clients a hard time — not because a short sale is unlikely, but because its the “wrong” thing to do — then judgment is at least creeping into your analysis.
Craig,
When it comes to moral conclusions there are only two “people” in the room. The person making the decision and God. I don’t get in the middle of that.
I wouldn’t list the property, as I don’t think someone can get short sale approval with no hardship and no change in their income. I don’t think it’s fair to buyers and their agents to list property that is not really for sale, or that has a snowball’s chance in hell of getting lienholder approval. That’s my “ethical” conclusion and refer to an attorney vs list the property.
As to pointing out that they are not really “upside down” as to purchase price, original loan amount and potential sold price, it’s part of the conversation. I have to ask what they did with the extra $100,000 they got as a cash out refinance, in case it went into an improvement in the home. Then maybe I can get it back somehow. But when they answered they paid off their cars and student loans…frankly I was a bit stunned and asked “and why exactly should you never have to pay for those things?” 🙂 In fact they responded they SHOULD and just hadn’t thought of it that way before.
So no…that is not a judgment call. I just help them see “the error of their ways” before they went that route. We all do what we can.
Some of our highrise condo buildings in Tampa are BRUTAL with owners who wish to rent out their units. You have to apply to the board for a permit to rent your condo. Some of them have draconian policies that say only ‘X’ percent of the building can be non-owner occupied. If there are others in front of you, you might end up paying a year’s worth of mortgage, taxes and HOA fees without being allowed to attempt to offset a dime of your losses. In the example with the couple having a child and only one bedroom…well…what should they do?
Personally I think it is unconstitutional to tell someone they do not possess the full “bundle of rights” that includes freedom to lease it, unless it is a “co-op” vs a condo. There needs to be a class action suit on that like the one where HOA’s tried to tell people they couldn’t put out an American Flag on the 4th of July.
Restricting the number of units that can be rented is no more unconstitutional than prohibiting a clothes line in a nice suburban neighborhood. They’re called “covenants” and they run with the land, binding the owner. It may be unfortunate, but its a legal fact.
I MIGHT agree for those that had the rental restriction at time of purchase. But some HOAs added it AFTER someone purchased.
I believe “no flags” was overturned as it relates to the American Flag. There were tons of stories on the American Flag issue all over the Country. Perhaps that is where the “Freedom to fly the American Flag Act”” came from in 2005.
http://www.theblaze.com/stories/hoa-sues-marine-for-flying-american-flag-on-flagpole/
The right to sell, lease or transfer ownership has long been considered a right of property ownership. In these times when many can’t sell, the right to lease is a very important issue.
I know these are a part of lending guidelines that a condo project can have no more that 30%? rentals.
I know there are many sides to this David. But the right to rent a place out when you can no longer live there, and you can’t sell it, is a VERY powerful right. If someone loses their job and has a new job in another State, I seriously don’t think your neighbors can tell you that you can’t rent it out, and have to continue to pay the mortgage and leave it vacant.
Do you?
It changes the lending standard, and especially for FHA financing. Financing an apartment building is much different than financing a condo project. So, yes, if a condo project becomes a group owned apartment building, or a co-op, then the lending guidelines change. It’s unfair to the people who may want to sell if the building is no longer eligible for all financing options.
Unfortunately we are going to see just that. Foreclosures are going to force many properties, clusters, or stand alone condos to become rental properties because there will be no other financing available to them.
Ardell – if the HOA amended the condo declaration after somebody bought a unit, well that’s perfectly legal as well. IN YOUR OPINION its unfair to restrict one’s ability to rent out a condo, and there’s no dispute that your opinion is reasonable and based on an appropriate definition of “fair.” But again, LEGALLY the condo declaration can restrict an owner’s use of the condo, including limits on rentals. And if somebody buys when there are no such restrictions, and then the owners amend the declaration to add such restrictions, again that is completely LEGAL — assuming the owners complied with the requirements for amendment. Unfair in your opinion, but legal.
Neither. They are confronted with a difficult set of scenarios – their ultimate decision is going to cost “someone”, either financially or emotionally. I wouldn’t waste energy on classifying their situation with such extreme polarization.
Well, that’s why I maintain a high protein diet, lift weights religiously, and get a good night’s sleep every night: So I have the energy to blog! 🙂 But not everyone is like me, Lesley. Thanks for commenting!
David — I didn’t follow your point about converting a condo to a co-op — which would be pretty difficult, I believe — but your larger point is right on: As lender guidelines (i.e. those promulgated by Fannie and Freddie) limit the number/percentage of rentals for underwriting purposes, it will become increasingly difficult for condo owners to re-sell their units. There are many buildings in this situation today, and not much hope on the horizon for better times.
I know it’s legal, Craig. But it was once legal to tell some people they had to sit in the back of the bus. It was once legal to decide who could go to public school and which school, and who could not. It was even once legal to decide who was allowed to own property and who was not. Many things that have been “legal” in this Country needed to be changed.
To me telling Unit 4B they CAN rent and a week later telling Unit 2A they cannot rent falls in that same category.
If you changed your story in the post to say the young couple could not rent out their condo, because of a condo rule that was enacted after they bought the place, my opinion would be different. Then the HOA would have to decide if they are better off with too many rentals…or too many foreclosures.
Wow. I really disagree. I think legal discrimination based on race or gender is VERY different than a restriction on the use of real property, particularly when that real property is owned communally with others. After all, you can always choose where to buy. I’m surprised you think these issues are essentially the same.
I’m also a little suprised that your opinion would be different if these owners wanted to rent but were precluded from doing so per the condo declaration. I thought you simply weren’t going to judge, as noted in the Bible. But you ARE willing to judge if the condo dec restricts the ability to rent? That seems a little extreme…
I’m giving you a hard time, of course. Again, I appreciate your opinion that these restrictions are unfair and should be illegal. I just disagree that they are THAT unfair. And I don’t see the law evolving as you suggest. After all, restrictive covenants have been around and legal for a very long time — real property law traces its origins back to medival England.
The problem Craig is that HOA Boards are not exactly up to the task at times. They can easily say there are no openings for someone to rent, so that they themselves or people they know well can get the next or last spot. Then there are people who rent to friends and family who just don’t tell the Board. Then there are people who say they are renting their place when they aren’t, so that they can “reserve” a spot. Then there’s the problem with all the rental spots being used up indefinitely so no one can ever rent again. If only one spot opens a year, that puts a lot of pressure on the HOA Board as to who gets it.
I managed enough townhome and condo boards to know that Board Members often get themselves voted on to the Board for personal reasons, and often do not subject themselves to the same rules. I’ve even seen people bribe the residents so as to get voted on to the Board. We’ve all seen the famous Seinfeld episode of what some people will do to get on the Board, and also treat people differently who voted for them than those who didn’t, once they are “in power”. 🙂 Way too much room for abuse.
I don’t like anything that potentially leaves the floor open to “good old boy networks” or “who you know” decisions. The minority often gets the short end of that stick. So no…I don’t think it’s a stretch to the back of the bus scenario. I’ve seen too many HOA Boards; perhaps you have not seen enough.
It is not uncommon for the area around a Board Member’s house to be maintained much better than another section in the complex. It is not uncommon for a Board Member to answer Unit 2A that there are no rental spots available, and then miraculously Unit 4B becomes a rental shortly thereafter.
It may be “legally” OK, but in practice it often is not.
Ardell,
You are absolutely right. I do rentals and property management and deal with this sort of fiefdom mentality on boards all the time. If an owner is not following in lock-step with a board member they can often be treated as second-class citizens. Boards are often able to behave as judge, jury and executioner with little regard for the rules – because they are the ones who get to make AND CHANGE the rules to reflect their desires.
@Craig, I appreciate the legal perspective but when the law doesn’t address equity it victimizes the injured party. I mostly agree with what you are saying but a board should not be able to treat some people with preferential treatment and restrict the freedom of others (force them into bankruptcy or foreclosure because a friend in unit 4B would like to rent their condo).
David, needless to say a HOA cannot legally treat one owner different than another. All must be afforded the same rights under the declaration. So while Ardell is correct — as are you — that many boards act illegally (and I would add unethically as board members) the answer is not to do away with covenants entirely. Rather, the answer is for the affected owners to retain counsel and stand up to the board for fair treatment.
I still have a hard time thinking that preferential treatment by an HOA of one owner over another is equal to a legal system that overtly favors one race or gender at the expense of another.
“Needless to say a HOA cannot legally treat one owner different than another.”
Craig, you just said it was OK for 1/3rd to be able to rent and the other 2/3rds to be treated differently. So how can you now say it is not OK to treat them differently?
When you allow something as basic as the right to lease into CC&Rs you are giving one person the right to move out and rent out their place and leaving another with no option but foreclosure. HUGELY different treatment for 1/3 of the owners vs the other 2/3rds.
Better to have no rentals than preferential treatment for a portion of the owners.
Perhaps my point was a little too refined. Let me try again: The HOA cannot legally treat one owner different than another AS TO THE RIGHTS AND OBLIGATIONS CONFERRED BY THE CONDO DECLARATION. HOA boards cannot confer additional rights on one owner at the expense of another. They can, however, favor one owner over another TO THE EXTENT ALLOWED BY THE DECLARATION. That was my point.
Whether rental restrictions are “HUGELY different treatment” or not, as long as those restrictions are applied evenly to all owners they are entirely legal. Hey, owners either (a) purchased the unit subject to that restriction, so they knew going in, or (b) the HOA amended the declaration and imposed that restriction as allowed by law (or should condo declarations be immutable and carved in stone?). In either case, I really don’t see any issue — and certainly not any issue that even remotely rises to the level of Jim Crow laws, or restricted legal rights for women.
Frankly, I think you downplay the seriousness of those other types of legal discrimination when you allege that they are comparable to the restrictions imposed by a condo declaration. They’re not even close. The net result is to “whitewash” those pretty awful chapters in our history…
Whoa, back up the bus, rental units in condos are toxic. People pay a premium to own a condo rather than rent an apartment.
It’s not even a debate of renters versus owners, it’s a chosen life style. The idea of a condo is that all the people have a vested interest.
Craig, the only reason I brought up co ops is because that would be a more natural progression than a condo converting to apartment building.
Now for a bit of needless levity.
Came across this at the Pragmatic Capitalist.
Nice summary of an argument between Deadbeat Owner and Banksta.
http://market-ticker.org/akcs-www?post=179519
Enjoy!
Craig,
I think you downplay the impact of one owner being able to rent and another being forced into bankruptcy. I don’t view discrimination issues in the past tense, as if it is only a part of history and the past, and not part of the present. I think to do so is naive. When you give an HOA Board the power to decide who can cover their costs by renting out their place, and who will have to go into foreclosure…you give them too much power.
Remember, an HOA Board is just 5 people who live there. They get very little if any training on how to be a Board Member, and they often “rule” from a place that is far from professional.
Ardell, that’s the point: The HOA Board does NOT have the legal authority “to decide who can cover their costs by renting out their place, and who will have to go into foreclosure.” However, the HOA board CAN enforce the declaration — indeed they have an obligation to do so — that limits the percentage of rentals in the building to “x%”.
Now on the VERY remote chance that you have knowledge of a condo declaration that says, “The HOA board is vested with the absolute discretion to determine who may and who may not rent their unit,” well that very well may be illegal. BUT EVEN THEN the owners either knew of and accepted that restriction, or they voted to impose that restriction.
Last word is yours if you want it — this horse is officially dead.
Apparently you have not thought this through, Craig. How does one get “permission” to rent it out? Whom do they have to receive permission from?
“…not thought this through” — good one, Ardell! 🙂
This topic will be coming soon to a blog near you……
May I?
A condo association can dissolve completely, and every one can rent out as they please. The lenders, individually, may call the Notes, but at this stage it’s unlikely they would as long as they are getting paid. The individual Note Holders could force a refinance like they did, or tried to do, with that place in Bothell.
The co-op option is a little cleaner, but it has been done both ways. Once you change the use of the building it changes the value of the units. What once had an intrinsic value as a cluster of homes, becomes a rental community. The rental value then determines the value of the units. Who knows, the rental values may exceed the intrinsic value of an individual home.
Anyway as long as the subject came up, I think it should be clear to people who own condos, that may not be doing too well, that they have options.
David, I agree they have options but the term that comes to mind is ‘Hobson’s choice’. If things become bad enough I do wonder if many of these places will convert to a co-op or other entity that helps to bring up (hopefully up and not down) the entire community to the same standard.
I worked on a place downtown, way back when, that went from condos to co-op to hotel. Another place on lower Queen Ann went from condo to work lofts, actually it was offices, but something about the zoning.
What I’m really wondering is if some of these places that converted to condo from apartment building wouldn’t be better off converting back. If the Home Owners Association were to “buy back” foreclosed units at a discount, or if a lender would make a bulk loan to cover all units, if there wouldn’t be a solution there.
David,
OMG! How horrendous would that be if the same people who said you can’t rent it, forcing the property into foreclosure, would then be the ones to buy it at discount! That one’s gonna give me nightmares tonight!
That’s absolutely ridiculous. A Home Owners Association is an Association, each person has rights, that’s what the board is for. Yes, those Associations have had to take money out of their pockets to purchase units in a building.
No one wants a foreclosure in a building. Everybody has to bend over back wards to make the building viable as a sale of individual units. Buying a foreclosure, by the board at an auction isn’t going to happen. They usually “bail out” the home owner who is in the foreclosure process by negotiating directly with the bank. They pay a premium for that.
Renting out a condo isn’t going to get the mortgage paid. Your making an argument like turning a bunch of condos into rentals will “fix” the situation. How is that? How will it fix anything? Your argument would be that some how if a person rents out for what I guess is less than the payment, that they will come out ahead. That’s ridiculous.
Each unit owner has the right to work within the contract they agreed to with the Association. That’s a condo.
David,
Many people can carry and are carrying the shortfall between what they can rent a property for and what they need to pay monthly to keep it current.
Let’s look at Craig’s example in the post. The rent would be $1,200 and the monthly payment is $2,600. They can afford the $2,600, but they need a bigger place. Since most of the payment (interest) and all of the real estate taxes are deductible, and possibly more than that if converted to a rental property, let’s call the after tax cost $2,200 minus $1,200 rent equals $1,000 short fall.
So if they can rent it, the situation is not quite as bleak. They can move to a larger place and rent the larger place for $1,600 without it costing them any more than living where they are now. New housing payment (rent of larger place) $1,600 plus $1,000 shortfall on their current home now rented equals the same $2,600 they are currently paying.
Yes…problem solved. 🙂
Without the ability to rent out their current home, they have to find money to rent a larger place while still carrying the full load, and leaving a property vacant.
So the HOA should weigh the difference between not being able to sustain property values due to too many rental units, and not being able to sustain property values because there are too many foreclosures. Let’s face it…they are not going to be able to sustain property values anyway you slice it, so why push people into foreclosure when the outcome is the same if you let them rent it out instead?
wow…what a long thread…good one Craig…Maybe a record setter for RCG.
On the topic of Condos…..Have any of you visited any lately…Every Thursday I tour many developments with units going to Trustee sale and they have one thing in common. MASSIVE Vacancies and VAST amounts of units up for sale.
We all know how this picture ends and I’m here to tell you all these units I find in Federal Way, Tacoma, Milton, Auburn, Edgewood, Renton, etc. that previously sold for 150k+ and now being sold at 13k+ you simply couldn’t give me one for FREE. By the time you pay the escalating dues, taxes, insurance, and compete against all the other rentals VACANT these are as toxic as they come. They will WALK from these for many years to come. Wait till they find out their adjacent unit just sold for 21k.
I feel for all you condo owners and I’m here to tell you it will get FAR WORSE in your development and I don’t even care which one you live in…………….
If they still have the same financial situation then they can afford to continue paying the mortgage. The fact that they have a kid and need more space is immaterial. They signed up for a mortgage and promised to pay. If they can still afford to pay they should
Deadbeats!
millions of dead beats everywhere then using your logic. Employment and jobs everywhere across this nation from fast food to retail. yet, people would rather sit on UNEMPLOYMENT for 2 years and supposedly search for work when all the statistics illustrate people speed up the search in the final month or two of benefits.
“If they can still afford to pay they should”……If they can still WORK they should….
Deadbeats absolutely…but never the homeowners…..Those who continue to pay I would call BRAINDEAD never deadbeats.
Wake up Carmen.
Hey Ray! You might be putting too fine of a point on that…. 😉
Carmen, I hear you, and you’re not alone as you can see from other comments. Here is my problem with your point: Businesses default whenever it is in their interests to do so. It’s pretty rare when anybody accuses a business of being a deadbeat — rather, the business is congratulated on its keen business acumen.
Its only fair to apply the same standard to people as to businesses. You may be willing to do so, like other commenters above. But where does that leave us? Now we’ve just got a bunch of people scolding a bunch of businesses and other people for making rational financial decisions. And do we really expect businesses to change their behavior to act more “ethically”? [I use quotes because one can argue that “business ethics” allow for a default, it is only “moral ethics” that prohibit it.] No WAY! Like they say, “It’s just business.” So all that scolding is not going to accomplish anything, other than to continue the disparate treatment of businesses over people.
I think we’re better off — we can move forward — if we recognize that this is good business and allow people to make the same decisions as businesses. We can advance the conversation. Otherwise you’re just shouting into the wind….
Well the situation for condos is different because it is a small group that pays the consequence.
Lending guidelines say how many units can be rentals. Lending guidelines say that once you go over a set amount of rentals in a building the building is changing it’s use. Apartments have a value set by rental income.
Once you hit the threshold, and choose, to go beyond that threshold the entire building is changing it’s use from condo to apartments.
What I’m saying is that some condo associations have made pro active choices to change the use of the building to get the value up.
A co-op can self finance. A condo can become it’s own LLC and pay down principal, or negotiate with lenders to make the building more viable.
There are ways to circumvent the system, but there are rules to the system.
If Ardell gets her way everybody in the condo project takes a hit on equity. They lose the ability to get financing for other units, and the entire ship sinks for the benefit of a few more rentals.
How is that fair?
I’m just saying if you leave someone no choice but to “walk”, you can’t call them a deadbeat if they do. You can’t force them to live there forever. If you won’t let them rent it, you can’t require that they leave it vacant if they need to leave.
Well you are addressing a larger point. In the world of condos, however, people made a second choice, first to buy, and second to buy into a group. The group has to decide if it lives or dies, but they have options.
I was contacted by KUOW about a radio show they’re doing tomorrow regarding the ethics of “walking away”. I offered to post this here:
Is It Ethical To Walk Away From A Mortgage?
More than a third of homeowners in the Seattle area now owe more on their mortgages than their homes are worth. Is it unethical to walk away from a mortgage? Or a smart business decision? What’s your experience? Call our listener feedback line now to share your opinion opinion at 206 221 3663. Walking away from a mortgage is the topic on KUOW Wednesday (2/16/2011) at 12:20. (and the call in # during the program will be: 206 543 5869)
Thanks Rhonda! I wonder why they didn’t contact me… 🙁
This is for those making the faulty comparison between buying a home and buying a car. When you buy a car, you pretty much know it is going to start declining in value the moment you drive it off the lot. When you buy a house, on the other hand, you presume (understandably) that it will appreciate in value, or at least not depreciate in value (or at least not much), and this is (or has been in the past) a reasonable assumption. Whether or not these people are deadbeats is irrelevant, they are stupid to stay and should strategically default – if the bank wants to keep collecting on the mortgage, lower the principal balance to the current market value of the home or lower. It seems unlikely that this real estate market is ever going to recover due to the ridiculous number of foreclosures out there and the banks do not seem to really be interested in providing borrowers with any real relief from this nightmare (despite the fact that they were bailed out).
I also take issue with the idea that only those in dire financial straits should be allowed to walk away or should consider walking away. Why should those who are not in dire financial straits be punished by the actions of those who are? That is, those who walk away make the property value of those who do not go way down. Basically, those who do what some of you claim is the right thing, and continue to pay down their underwater mortgages, are the ones who are harmed the most. I wonder if someone (Congress? Banks? Super Grover?) would figure a way to solve this mess if everyone with an underwater mortgage walked away at one time. Some of us are in bad financial shape, but do not qualify for the modification programs (which are apparently a joke anyhow) and really need to move but are trapped by our real property. Obviously, in hindsight, it would have better to have rented. Oh, and some of us live in states that allow the banks to go after you for a deficiency judgment, so our only real choice is bankruptcy if we want to move on with our life (without our underwater property).