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The ones who LOST MONEY are the people who bought houses for cash or paid the mortgages off, then HAD to sell the houses for less than they originally paid for them.
As painful as a foreclosure or short sale is, you "only" LOST your down payment. The mortgage payments you made while you were living in the house? Consider them rent payments with the ability to deduct them on your tax return.
Add to that the fact that many folks in the foreclosure pipeline aren't actually making mortgage payments. Living mortgage/rent free, sometimes for years, while the process drags on makes up for a whole lot of lost down payment. Of course that's assuming there was a down payment to begin with and/or it, along with any paper equity, wasn't pulled out along the way.
I have an acquaintance who cries about his huge RE losses to anyone who will listen. He would love for everyone to see him as the face of the poor, responsible homeowner who fell victim to the housing bubble. Yes, he lost his house to foreclosure. But the truth is the value of that house was up $100,000+ since he bought it. So how did he lose it? He pulled his downpayment out ages ago, along with almost $350,000 in additional money, via mortgage equity withdrawl. He also gamed the system and didn't make a single mortgage payment for over a year before he was finally kicked to the curb. That's another nice savings. Assuming he was also delinquent on taxes and HOA fees, probably a safe assumption, I'd say $40,000+
Hmm, a pretty nice financial trade-off for putting up with a forced relocation and a temporary credit hit.
An interesting perspective on foreclosures is that, with the exception of Arizona and Calif., most states are 'deficiency judgment' states. That means if the bank comes-up short on the resale of the foreclosed property, they can come back to the forclosed owner with a 'deficiency judgment' for the difference. I've not seen or heard much about this happening (perhaps, because there is such a glut of foreclosed property), but, as the pipeline opens, the banks may start coming back at owners who have 'walked away' with the money they took-out on a HELOC. If that happens, personal bankruptcy will quickly take the place of a foreclosure on one's long-term credit.
In the case of Calif. and Arizona, many people bought another bigger/better house at reduced pricing after the bubble burst... and then simply 'walked away' from their original hugely underwater house. In those cases, the banks really have no recourse. Along these lines, a lot of people complain and cry about those evil banks who 'tricked' them into buying more house than they could afford ... with mortgages they now can't afford. But, when the RE market was soaring ... these same people were 'crowing' about how smart they were to leverage their money into big property gains. (Another of those "I take the credit, but, you get the blame" personal responsibility issues that so plague our society today).
The ones who LOST MONEY are the people who bought houses for cash or paid the mortgages off, then HAD to sell the houses for less than they originally paid for them.
As painful as a foreclosure or short sale is, you "only" LOST your down payment. The mortgage payments you made while you were living in the house? Consider them rent payments with the ability to deduct them on your tax return.
I disagree. So you don't count people who put down a sizable chunk of money (say 50-150K downpayment) and end up (like me) having to bring an additional 37K cash to the table as "not losing money?"
I am not even counting mortgage payments/hoa dues etc in my lost.
And sure it's cool to write off property taxes....guess what? You apparently may not have heard of the AMT. The AMT hits many taxpayers in higher state income states like Maryland where I was from. You can't write off property taxes if you get nailed with the AMT. Those taxes actually get added back to your AMT tax calculation along with your state income tax (which you can't write off either).
The vast majority of people who go into foreclosure or short sale put very little money down (or cash out refinance/home equity loans). You can say they didn't lose any money.
But for those of us responsible enough to put down money and pay down the principal and end up with nothing...it's real money we are losing.
An interesting perspective on foreclosures is that, with the exception of Arizona and Calif., most states are 'deficiency judgment' states. That means if the bank comes-up short on the resale of the foreclosed property, they can come back to the forclosed owner with a 'deficiency judgment' for the difference. I've not seen or heard much about this happening (perhaps, because there is such a glut of foreclosed property), but, as the pipeline opens, the banks may start coming back at owners who have 'walked away' with the money they took-out on a HELOC. If that happens, personal bankruptcy will quickly take the place of a foreclosure on one's long-term credit.
In the case of Calif. and Arizona, many people bought another bigger/better house at reduced pricing after the bubble burst... and then simply 'walked away' from their original hugely underwater house. In those cases, the banks really have no recourse. Along these lines, a lot of people complain and cry about those evil banks who 'tricked' them into buying more house than they could afford ... with mortgages they now can't afford. But, when the RE market was soaring ... these same people were 'crowing' about how smart they were to leverage their money into big property gains. (Another of those "I take the credit, but, you get the blame" personal responsibility issues that so plague our society today).
The USA would never had any mortgage/housing crisis if they instill the European/Asian method of lending. Make all home loans all recourse. Make it near impossible to discharge.
That teaches people not to overspend and be responsible.
My Canadian and European and Asian friends all laugh at the mess the US housing market is still in. They can't imagine how or why lenders let people walk away. That kind of thing simply doesn't happen in other countries.
And forget zero down loans (like we still have with certain government programs or even FHA loans). If people put real money down, that shows they have a vested interest in the home and less likely to default.
I disagree. So you don't count people who put down a sizable chunk of money (say 50-150K downpayment) and end up (like me) having to bring an additional 37K cash to the table as "not losing money?"
I am not even counting mortgage payments/hoa dues etc in my lost.
And sure it's cool to write off property taxes....guess what? You apparently may not have heard of the AMT. The AMT hits many taxpayers in highter state income states like Maryland where I was from. You can't write off property taxes if you get nailed with the AMT. Those taxes actually get added back to your AMT tax calculation along with your state income tax (which you can't write off either).
The vast majority of people who go into foreclosure or short sale put very little money down (or cash out refinance/home equity loans). You can say they didn't lose any money.
But for those of us responsible enough to put down money and pay down the principal and end up with nothing...it's real money we are losing.
This is all exclusive of any mortgage payments.
Actually, I do agree with you. There are so few people like you who 'come to the table" with cash when they sell the underwater house. I admit, I forgot they existed, and I sincerely apologize.
To clarify my original post: the people who LOST are people who bought what they could afford and didn't use their homes like an ATM when the boom occurred. They were not speculators. They were people like us, who bought a nice house that was easily within our budget, paid off the mortgage, Then needed to sell - and lose money. There are no short sales or foreclosures when there is no mortgage.
Result = a 28% loss from our 2007 purchase price. (I'm not including our seller closing costs and commissions in that percentage.) And being in Arizona, we consider ourselves lucky!
But our LOSS was cash out of our pockets, not funny money that we thought we had from supposed appreciation.
I have a few friends who got tricked into thinking they had to buy "or else they would be priced out forever!!! "
Nevermind all the logic ... some were even very intelligent ... but emotionally they saw skyrocketing home prices and got the urge to buy. I knew it was ridiculous to believe that the top quartile of income earners would never be able to afford houses again. My BS detector went off.
Anyway, I didn't lose anything ... I rented to wait until the bubble collapsed ... but a few of my friends ...
One is $50k underwater on his mortgage. He is lucky though, he bought a 3 bed place and is starting a family so it doesn't bother him too much.
Another is $30k underwater on her mortgage on her condo. She's eating the loss and moving back to her home state to be closer to family and friends.
Another is roughly $100k underwater. He basically bought what's affectionately called a "ramber" (I call them shacks). He has basically resigned to the fact that he'll never make money on his place and the only thing he can do is rent it out eventually as he too wants to start a family but it's only a 2 bedroom place with one bathroom, so he won't stay there forever.
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