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People in California walked away from their house during the housing bubble.
Reasonable point....I guess I was assuming that the borrower would make good on any loan, but if one is willing to walk away from the house and mortgage, getting the biggest mortgage you can might be the more prudent than paying cash. I dont really understand all the consequences of defaulting on your obligation (assuming the underlying asset is insufficient to cover the debt). Wouldn’t the bank go after other assets of the borrower? Assume their credit would be shot. Doesn’t “forgiven” debt count as income for Federal tax purposes?
A few years ago we got a house in a tax lien sale..... we never expected to get the house , all we wanted was the 18% interest ....what a disaster that turned out to be . I would never buy a tax lien again
Not enough info. Why does the owner need to sell the house in both cases?
Has he completely lost income? Based on the scenario it sounds like the economy is on a downturn.
Don’t know...maybe the individual loses his job and has to relocate for work, individual becomes disabled and just can’t carry the mortgage any longer, individual has to relocate to care for a sick relative. Maybe I am missing your point, but assumed such a situation was plausible and the reason was irrelevant. And, sure, makes sense to me that the economy could some day be in a down turn, and that could create the situation I was trying to describe.
A few years ago we got a house in a tax lien sale..... we never expected to get the house , all we wanted was the 18% interest ....what a disaster that turned out to be . I would never buy a tax lien again
That’s a story I would be interested in hearing about. Was this in NY?
Location: Formerly Pleasanton Ca, now in Marietta Ga
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Quote:
Originally Posted by WVNomad
Reasonable point....I guess I was assuming that the borrower would make good on any loan, but if one is willing to walk away from the house and mortgage, getting the biggest mortgage you can might be the more prudent than paying cash. I dont really understand all the consequences of defaulting on your obligation (assuming the underlying asset is insufficient to cover the debt). Wouldn’t the bank go after other assets of the borrower? Assume their credit would be shot. Doesn’t “forgiven” debt count as income for Federal tax purposes?
In your situation you described that person is probably in a really bad financial spot and may not have much to lose than to just walk. Some states the bank takes the house and it's over. They don't come after you for any shortage. Credit is shot and forgiven debt can be a tax issue, if the bank reports it which often they did not.
Other states it is possible they will come after you for the shortage, but have to be collectable. If you got forced into your scenario you probably are not.
That’s a story I would be interested in hearing about. Was this in NY?
New Jersey.
we didn't really expect to get the property . we really were doing it for the 18% interest . the owners always come up with the money at the last minute .
well this time they didn't . so with the people still living in the house we had to start the eviction process .
so now we are in to this for 2 years back taxes at 12k a year , and now legal fees .
they used every tactic to stall the court so they were finally evicted almost one year later and 3 years taxes
but now they left their stuff behind . it was basically junk but nj law says we have to store it for months and if not claimed and paid for it is ours .
so now a moving company moved everything out to storage . now we had storage fees for 6 months and moving expenses .
at the end of the time frame we had to pay again to have the stuff removed .
while the house was empty , we can't prove it but we are pretty sure the ex owners went back inside and vandalized the house ripping out all plumbing and wiring .
basically the house was trashed . my partner luckily was a builder so we ended up gutting it and starting over inside .
by the time we sold it the money we made and the aggravation was hardly worth it .
i would never get involved with these tax liens ever again .
Reasonable point....I guess I was assuming that the borrower would make good on any loan, but if one is willing to walk away from the house and mortgage, getting the biggest mortgage you can might be the more prudent than paying cash. I dont really understand all the consequences of defaulting on your obligation (assuming the underlying asset is insufficient to cover the debt). Wouldn’t the bank go after other assets of the borrower? Assume their credit would be shot. Doesn’t “forgiven” debt count as income for Federal tax purposes?
Not in California. I think in California most banks don’t pursue you. I forgot the term for that. Maybe no recourse.
Reasonable point....I guess I was assuming that the borrower would make good on any loan, but if one is willing to walk away from the house and mortgage, getting the biggest mortgage you can might be the more prudent than paying cash. I dont really understand all the consequences of defaulting on your obligation (assuming the underlying asset is insufficient to cover the debt). Wouldn’t the bank go after other assets of the borrower? Assume their credit would be shot. Doesn’t “forgiven” debt count as income for Federal tax purposes?
every state is classified differently when it comes to going after you on a defaulted mortgage .
"Recourse Loans
The distinction between recourse loans and non-recourse loans comes into play if money is still owed on the debt after the collateral is sold. In a recourse mortgage, the lender can go after the borrower's other assets or sue to have his or her wages garnished—anything to be made whole.
Non-Recourse Loan
In a non-recourse loan or mortgage, however, the lender is out of luck. If, after selling the asset collateralized with the loan, there is still a balance due, the lender has to take the loss. He has no claim on the borrower's other funds, possessions, or funding sources. Many traditional mortgages are non-recourse loans, using only the home itself as collateral.
Not surprisingly, as a matter of principle, borrowers almost always favor non-recourse loans, while lenders almost always favor recourse loans. While potential borrowers might find it attractive to hold out for non-recourse loans, it is important to remember that they come with higher interest rates and are reserved for individuals and businesses with the best credit.
Additionally, failure to pay off a non-recourse debt may leave a borrower's other assets untouched, but the default is still on record, with all that implies for the borrower's credit score—which is not a positive one.
Non-recourse states include Alaska, Arizona, Washington, Utah, Idaho, Minnesota, California, North Carolina, Connecticut, North Dakota, Texas and Oregon. "
we didn't really expect to get the property . we really were doing it for the 18% interest . the owners always come up with the money at the last minute .
well this time they didn't . so with the people still living in the house we had to start the eviction process .
so now we are in to this for 2 years back taxes at 12k a year , and now legal fees .
they used every tactic to stall the court so they were finally evicted almost one year later and 3 years taxes
but now they left their stuff behind . it was basically junk but nj law says we have to store it for months and if not claimed and paid for it is ours .
so now a moving company moved everything out to storage . now we had storage fees for 6 months and moving expenses .
at the end of the time frame we had to pay again to have the stuff removed .
while the house was empty , we can't prove it but we are pretty sure the ex owners went back inside and vandalized the house ripping out all plumbing and wiring .
basically the house was trashed . my partner luckily was a builder so we ended up gutting it and starting over inside .
by the time we sold it the money we made and the aggravation was hardly worth it .
i would never get involved with these tax liens ever again .
Definitely a cautionary tale!
Can you explain the 18% interest part? You were somehow going to make 18% interest on the transaction?
Can you explain the 18% interest part? You were somehow going to make 18% interest on the transaction?
yes , the way these work is you buy the tax lien the locality has on the property because the owners have not paid taxes ...it cost you all the taxes due , usually two years plus some filing fees .
the owners have the option of paying you the taxes plus back then 18% interest on the tax money you spent out .
99% of the time they get the money and pay you off , but if not you get the property
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