Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
A friend of mine who lives in Sacramento, CA is planning to buy a second home and foreclose his first home which is losing value right now. He also borrowed around 80k from the equity (Equity Line of Credit) of his first house 2 years ago. Now the home's value dropped and he owes more than the home is worth. He also has an Option ARM mortgage and he is expecting his mortgage payment to balloon drastically in 2 months time.
He plans to buy a 2nd home then immediately stop making payments on his first home and just abandon it. What will be the drawbacks of this?
I posted my reply with the original question becasue it appears many people are missing something.
He didn't make a miscalculation when he bought his second. He is PLANNING this. He knows enough about how the system works that he is going to wait until the new house closes before he stops making his payments. Because he knows that no one wants to lend money to someone who can't pay their debts. I wonder if he had this all mapped out before he took out the HELOC. If he did, and if that can be proven, the lender on the HELOC, and maybe even the primary lender on the first house, will have a nice argument for mortgage fraud.
Also, if he's going to be able to get mortgage approval for a second home while he owes whatever he owes on the first, doen't that imply that he has the resources to pay both mortgages? How's he going to get approval on the new house if he can't show the lender that he can afford the monthly payment?
I posted my reply with the original question becasue it appears many people are missing something.
He didn't make a miscalculation when he bought his second. He is PLANNING this. He knows enough about how the system works that he is going to wait until the new house closes before he stops making his payments. Because he knows that no one wants to lend money to someone who can't pay their debts. I wonder if he had this all mapped out before he took out the HELOC. If he did, and if that can be proven, the lender on the HELOC, and maybe even the primary lender on the first house, will have a nice argument for mortgage fraud.
Also, if he's going to be able to get mortgage approval for a second home while he owes whatever he owes on the first, doen't that imply that he has the resources to pay both mortgages? How's he going to get approval on the new house if he can't show the lender that he can afford the monthly payment?
I would think he would only get into even a moral question if he did the HELOC withdrawal for the purpose of buying the second houseand then walking away from the first. . Two years ago refinancing the first house would have looked feasible. So if he saw it coming he was better than most.
The first house mortgage had not reset yet...so his payment is a great deal lower than it will be when it resets.
Why are we pursuing that line? Why don't we give him the benefit of the doubt and simply admire his skill in beating the system? It feels like we consider immoral to wiggle out of harms way.
Why are we pursuing that line? Why don't we give him the benefit of the doubt and simply admire his skill in beating the system? It feels like we consider immoral to wiggle out of harms way.
I in fact do consider it immoral to try to wiggle out of an obligation one willingly took on. There appears to be no hardship here, just some remorse over the financial decision he made, and a willingness to abandon those obligations in order to make his life easier.
I have to take a look at a mortgage agreement. Maybe someone here can get to one before I do. Does the language in the note not say something about the mortgagor making dilligent effort to pay the debt? Would you consider the actions proposed by the mentioned debtor to be in keeping with such an obligation?
I in fact do consider it immoral to try to wiggle out of an obligation one willingly took on. There appears to be no hardship here, just some remorse over the financial decision he made, and a willingness to abandon those obligations in order to make his life easier.
I have to take a look at a mortgage agreement. Maybe someone here can get to one before I do. Does the language in the note not say something about the mortgagor making dilligent effort to pay the debt? Would you consider the actions proposed by the mentioned debtor to be in keeping with such an obligation?
And you are still doing it. Stipulate that he cannot pay the original debt. It means foreclosure if he stays in house 1 and it resets. There is no other outcome possible. Now what did he do wrong?
no - planning to let your house go into foreclosure because you don't want to face the hardships everyone else is facing and slithering past the mtg company is wrong ...plain and simple...
And you are still doing it. Stipulate that he cannot pay the original debt. It means foreclosure if he stays in house 1 and it resets. There is no other outcome possible. Now what did he do wrong?
Cap, go back & read the original post please. Show me where it says that he cannot afford to make the payments on th original loan. It says that the house is now worth less than he owes. It says that the payments are going to go up. It says that the house is losing value. It says that the guy is planning to buy a new house and abandon the first. It's nice of you to give him the benefit of so much doubt, but nowhere do I see any mention of not being able to pay it. So no, I will not stipulate that he cannot pay the original debt. It does not necessarily mean forclosure if he stays. Not based on the info provided.
Cap, go back & read the original post please. Show me where it says that he cannot afford to make the payments on th original loan. It says that the house is now worth less than he owes. It says that the payments are going to go up. It says that the house is losing value. It says that the guy is planning to buy a new house and abandon the first. It's nice of you to give him the benefit of so much doubt, but nowhere do I see any mention of not being able to pay it. So no, I will not stipulate that he cannot pay the original debt. It does not necessarily mean forclosure if he stays. Not based on the info provided.
OK try three cases.
He can handle the 2800 now but not the 5000 plus when it resets...He must get foreclosed.
Two he can handle the 5000+ but only by going to a rice and beans life style for the next n years...where n may be a big number. It is unliikely his marriage will survive and his kids won't go to college. He ends up at the end old with only SS for his old age.
Three he handles the 5000+. Increases his income enough to offset the bad news and by hard work he survives though he never really recovers the money lost in the down turn.
What is your view in each case as to whether he can manuever to the new house while letting the old be forclosed?
He can handle the 2800 now but not the 5000 plus when it resets...He must get foreclosed.
Two he can handle the 5000+ but only by going to a rice and beans life style for the next n years...where n may be a big number. It is unliikely his marriage will survive and his kids won't go to college. He ends up at the end old with only SS for his old age.
Three he handles the 5000+. Increases his income enough to offset the bad news and by hard work he survives though he never really recovers the money lost in the down turn.
What is your view in each case as to whether he can manuever to the new house while letting the old be forclosed?
I can make up fun scenarios too, Capt. I'm a fairly good writer, or so I've been told. Here's one. The guy was really excited about having the biggest best house of all his friends, so he outbid three others for that house because it had the stainless steel appliances and finished basement with a media room & wet bar that someone told him he had to have if his home was to be seen as a serious entertaining place. Then, 2 years later, he took some equity out of the place to put in the pool so those parties could include scantily clad women in the backyard, another reason for the neighbors to be envious of him & his party lifestyle. He made the minimum payment every month, and didn't bother to put money away or plan at all for the day when his rate would reset. Now he sees it's about to reset, to a monthly nut that will seriously cut into his ability to buy liquid party supplies. So, since the market has tanked in the past few years, and he is sorta getting tired of this place anyway, he sees he can get a nice new waterfront home somewhere else. Now, since he has none of his own cash tied up in this place, there's nothing to stop him walking away from it so he can get on with his life in the new party palace.
That scenario is just as likely as any of the ones you put forth. But neither it or any of yoru thoughts were mentioned in the original post upon which we are commenting. That post simply said that the house is losing value, and the payments are about to go up, so he is considering abandoning it.
I can make up fun scenarios too, Capt. I'm a fairly good writer, or so I've been told. Here's one. The guy was really excited about having the biggest best house of all his friends, so he outbid three others for that house because it had the stainless steel appliances and finished basement with a media room & wet bar that someone told him he had to have if his home was to be seen as a serious entertaining place. Then, 2 years later, he took some equity out of the place to put in the pool so those parties could include scantily clad women in the backyard, another reason for the neighbors to be envious of him & his party lifestyle. He made the minimum payment every month, and didn't bother to put money away or plan at all for the day when his rate would reset. Now he sees it's about to reset, to a monthly nut that will seriously cut into his ability to buy liquid party supplies. So, since the market has tanked in the past few years, and he is sorta getting tired of this place anyway, he sees he can get a nice new waterfront home somewhere else. Now, since he has none of his own cash tied up in this place, there's nothing to stop him walking away from it so he can get on with his life in the new party palace.
That scenario is just as likely as any of the ones you put forth. But neither it or any of yoru thoughts were mentioned in the original post upon which we are commenting. That post simply said that the house is losing value, and the payments are about to go up, so he is considering abandoning it.
Bill I gave you three scenarios which actually covered the waterfront. You respond with a scenario that demonstrates you don't like this guy. So what?
I can respond with the scenario of the ill daughter who requires the operation making the 80K withdrawal neccessary and whose on going requirements cramp the ability to make larger payment or move to a rental home.
Why do that? Why not respond to the simple cases that illustrate the point. He can't afford to keep it. He could keep it but only in a very high damage mode. Or he can keep it with only the loss of some money.
Why play games?
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
