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For those saying "its your responsibilty and come heaven or high water you must stick with it" and then what doc posted here...
I agree about being responsible but there are situatons where maybe its better to cut your loses and move on for example...
I know two guys right now where in their 40's their wives left them after contacting old flames on facebook. These guys not only are heart broke but are now just broke struggling to keep the house by themselves while the wives walked away paid off debt free and are getting "it" from another guy and are out enjoying life. While the guys are stuck at home unable to financial get back in the dating life and get back to life.
One guy already stopped paying his mortgage, the other still struggles to keep afloat but he is miserable plus he just had a major surgery. So I can see where sometimes it might be better just to take a few steps back so it will be possible to step forward again.
It's one thing to act due to desparate, even extreme, circumstances (as in your friends case.)
Quite another just because it's convenient and self serving like some are just too comfortable with, imo.
People who do strategic defaults and walk away from their underwater mortgages tend to be financially successful. People who continue to pay an underwater tend to fair worse financially then the first group.
So ask yourself, financially speaking, do you want to be a winner or a loser. I'm speaking financially of course.
hey its legal and if you cannot pay having a year of breathing room will help. People can use loopholes, banks and corporations never hesitate to
In Florida (since it's a Judaical foreclosure state), it's taking close to 800 days to foreclose on a home. That's 800 days from time of first default notice. And many people go up to 6-8 months before they even get their first foreclosure notice.
That's 3 years without making a mortgage payment. You can save up a lot of money by not paying either rent or mortgage. Financially savvy people should saved up a lot of money this way.
But old habits are very hard to break. The majority of people I know who "strategically default" still end up spending lavishly on vacation/electronics and still paying leases on their cars.
The banks are in no hurry to speed up the foreclosure process themselves because they really only want to drag out the foreclosure process so as to write down as few losses each month on their books. Those homes in year 2 of the pre foreclosure process are still valued as a performing 100% value loan.
That's 3 years without making a mortgage payment. You can save up a lot of money by not paying either rent or mortgage. Financially savvy people should saved up a lot of money this way.
I know someone who is doing that. They plan on using the money towards buying a fixer up house in several years. They expect to have no mortgage.
Seeing all these people who believe in skipping out on loans, I'm surprised our credit rating as a nation didn't drop much more.
How can we be a credit worthy nation when so many Americans believe in fraud and being dead beats? It's all about money, the scams you can do to get yourself a free house.
Are you suggesting all responsibility for failed speculative lending should fall onto the borrower?
I think the borrower is the start of it (after all, they decide whether to get a loan or not and are given all of the terms when they apply for it) and if they can not pay, then the lender will suffer for any poor practices they have made (lending is a risk as well).
A lender takes a risk of judging if the person is reliable and honest enough to pay their bills, a risk yes, but in the end, the buyer is the one who chose to pay the amount for the home and agreed to the terms of repayment of the loan.
Should not the buyer be ultimately responsible here? They are the end of the link. The lender could pay their bills if the buyer could pay theirs. Saying it is the lenders fault that they "believed" the buyer when they claimed they could pay it back is like telling people who get suckered by fraud that its their own fault that someone lied to them and then excusing the fraudulent party of their actions.
Many of us did not buy these overpriced homes and many of us read the loans offered and saw their eventual staged increases. We did not take part, and so we avoided being stuck with overpriced homes and loans that would eventually be too high.
I watched these "home buying shows" as they were very popular during the boom and it was amazing to see people buy these extremely overpriced homes (often 3 to 4 times above their value) and quibble over a few thousand dollars when negotiating trying to get their payments to a start they wanted and then completely ignore and nod away at the lender telling them their payments in 2-3 years would double or triple.
I watched one couple say "well, our minimum of 1800 a month will be a bit tight, but we got the home we wanted so we are willing to accept that" while completely ignoring the fact that the lender stated to them that their payments would go up to 3600 after two years. They "accepted" this because they "believed" they were going to be better off in the future and that their home was going to grow fast in value, so they would be able to afford it.
So is the lender wrong? In terms of a very risky business decision, sure... they should have known these people were deluding themselves, but... those people claimed they could, claimed that they would be able to afford it, signed the contract and accepted the responsibility.
If the lender takes on too many loans like this, and the loans fail, they should fall just as the buyer falls if they can no longer afford. I am not excusing responsibility from any party here, but the issue of this discussion is not people walking away from a home they can not afford, but walking away from a poor decision that they can.
A person who walks away from a home they agreed to buy and that now has gone underwater is 100% at fault. There is no excuse for them. The lender may have taken a risky loan, but the buyer is the one choosing to break the deal.
As I said, you might make the argument if the people couldn't afford their home anymore and couldn't make the payments, that would be a different discussion though. In this case, the buyer doesn't want to accept their loss and wants to dump it on another. The buyer is the cause here.
Think of it like this. If we didn't have all these people going out and paying stupid prices for these homes and agreeing to stupid loans, housing would have never reached the levels it did. The market was created by the buyer as they are the market. If they refuse bad deals, the market reflects that and products and prices change to meet it.
I agree with you, and I am all for responsibility. However, we have learned that individuals will gladly take a risk when they can flip a house and clear $100k in 6 months. However, there are very, very few who can honor a $100k drop, so they bail. So, allowing that kind of gambling is terribly risky. Real estate is just to big for individual speculation. This whole meltdown proved it. I am not excusing anyone, buyer or banker, but the truth is when billions, probably trillions in equity are manufactured through real estate speculation or simple herd effect buying by many thousands of people, no entity except the whole middle class can pick up the bill when it crashes, and it nearly sunk us. This can never happen again, and it will if controls are not in place. Bear in mind that the same meltdown that bankrupted our government and left millions underwater enriched hundreds of thousands, perhaps millions in the same society. It was a grotesque chapter in our history, where irreponsibility was rewarded by hardworking Americans. Never again.
And how is it they can get away with dropping it like that though?
It is the government that allowed such to happen. Through the various laws of such, they have allowed the responsibility of the buyer to dismiss such. Personally, I think if one defaults on a home, it should be on their record permanently. No wiping it out after a certain time, no hiding bad behavior from lenders through gimmicky legislation and the like. That combined with removing all the legislation that gives protections and insurance to buyers/lenders by the government and lenders will not take such risks on those people.
Then, those people would have an EXTREMELY difficult time buying a home ever again on credit. I would still be possible, but they would have to save and put up a substantial down and stay within a price range that would reduce the risk of the lender allowing them to recover some from a default.
Remove the safety nets, and many will not take the risk and those that do will hit the ground hard. This serves to reward those who do not take such risks and keeps those who do from hiding as if they were responsible.
The people need to deal with the consequences of their decisions, that includes the lenders and those that insure them. This is why government has no place in the industry because when it does, if an individual fails, it forces everyone else to fail. If we didn't have that problem, those who risked and failed would create opportunity for those who did not. The only reason this was a "problem" was because we put government in between and it made this hurt everyone.
If government wasn't involved, the buyers would have lost, the lenders would have folded and all the other companies that didn't do such would have bought up the failed companies and made a killing in the market as those buyers who held off and shopped smart would also have been able to pick up homes for great prices.
Instead other peoples irresponsible behavior is causing everyone a hardship due to governments involvement.
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