Dori Monson Tackles Walking Away from Your Mortgage

Hat tip to Ray Pepper for pointing out Dori Monson’s radio segments yesterday and today on walking away from one’s mortgage.

Here are the audio segments (the first is about seven minutes long, the second about 10 minutes):

It’s interesting to note that in the second segment, Dori’s guest was Howard Bono, the subject of a number of recent posts on these pages. He makes basically the same argument about the ethics of walking away that I made in this pair of posts from a year ago:

I mostly agree with Howard’s comments on the air, although it is pretty disingenuous to claim that “most of the time you don’t get to review it [the mortgage contract], most of the time you don’t even read it” (at about 4:20 in the second clip). If you’re going to walk away, take responsibility. If you didn’t read the mortgage contract that’s nobody’s fault but your own. You certainly had an opportunity to review it, you just declined that opportunity.

  

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

87 comments:

  1. 1

    to say they don’t have time to read their documents is very lame. Folks can always request a complete set of their loan docs prior to signing if they want it… and they should (very few do). At the very least, I recommend that borrowers obtain a copy of the estimated HUD-1 Settlement Statement, the Note and the Deed of Trust with any Riders (addendums).

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  2. 2
    David North says:

    I’m neither an attorney nor a CPA, so I will refrain from getting into specifics, but anyone relying upon the comments at the tail end of today’s piece regarding tax consequences should talk to an attorney or CPA before relying on the statement that was made. The way Dori’s question was worded, and the way it was answered under time pressure, some listeners could draw incorrect conclusions based on their own individual situations, and all should seek qualified professional advice before making a decision, regardless of the ethics.

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  3. 3

    Loan documents are (mostly) written in legal language. If we were to survey 100 random homeowners and ask how may read their loan docs I be very few would be able to say they read all of them AND that they understood what they were signing.

    “Understanding” is radically different than just reading words on paper.

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  4. 4

    Did he give any examples of deed of trust or note provisions that buyers would find objectionable that would somehow justify their walking away? In the walking away decision aren’t the main terms relevant the total amount and the monthly amount? Does he think that people didn’t understand those terms?

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  5. 5
    Blurtman says:

    As has been mentioned previously, large RE development companies walk away from loans frequently and apparently have no trouble getting new loans. They make no excuses about not understanding what they signed, but simply consider waking away to be a basic business decision. Why should consumers act differently?

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  6. 6

    RE: Blurtman @ 5 – For them to do that they have to either shut down that entity, or have a non-recourse loan.

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  7. 7

    By David North @ 2:

    I’m neither an attorney nor a CPA, so I will refrain from getting into specifics, but anyone relying upon the comments at the tail end of today’s piece regarding tax consequences should talk to an attorney or CPA before relying on the statement that was made. .

    Actually, that would probably be true of the whole show. Three minutes into the first segment Dori says that the bank can’t come after you in Washington. True that they don’t 99.99% of the time, but elect not to is is a lot different than can’t. In the first three minutes of the second one the correct information is given after Dori repeats the incorrect information. Then, Dori doesn’t understand, and makes it sound like he was right.

    And yes, the information he gave on taxes was wrong. (These long periods to edit are nice!)

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  8. 8
    Jonness says:

    I’ve never been much of a fan of loud mouthed talk show hosts with low IQ’s, so I won’t bother listening to the clips.

    If you’re going to walk away, take responsibility. If you didn’t read the mortgage contract that’s nobody’s fault but your own. You certainly had an opportunity to review it, you just declined that opportunity.

    But I have to second what Tim said there. How smart is it to make the most important financial decision of your life without even bothering to read and understand the contract before signing the deal. If there is one thing I would like people in this world to understand it’s that life is a series of choices. Each choice has a potential outcome that can either greatly reward you or massively punish you. So make these choices using an appropriate level of research and logic.

    Everybody in this world has gotten where they are through the merits of their own decisions. It’s that simple. So stop blaming everybody else for your problems. If you accept the responsibility for your bad decisions, learn from your mistakes, and work toward learning how to make better decisions, your life will greatly improve.

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  9. 9
    Blurtman says:

    RE: Kary L. Krismer @ 6 – If you are speaking about RE development companies, I believe you are incorrect.

    Please read about the infamous Tishman-Speyer and Black Rock Realty walk-away from the Stuyvesant Town deal in NYC.

    http://www.dailygotham.com/lizasabater/blog/tishmanspeyersiswalkingawayfromstuyvesanttownandpetercoopervillage

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  10. 10
    Blurtman says:

    RE: Jonness @ 8 – But if you make bad decisions and get in a jam, why shouldn’t you be bailed out?

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  11. 11
    Macro Investor says:

    RE: Jonness @ 8

    Jonness, that is too simplistic and it ignores the banker fraud. Coincidentally on Phils Stock World I found this today. It’s long but worth the read. In part:

    http://www.philstockworld.com/2011/06/14/rolling-back-the-progressive-era/

    “At issue is language regarding the legal rights of creditors vis-à-vis debtors. The United States has long had a body of law regarding this issue. A few years ago, for instance, the real estate speculator Sam Zell bought the Chicago Tribune in a debt-leveraged buyout. The newspaper soon went broke, wiping out the employees’ stock ownership plan (ESOP). They sued under the fraudulent conveyance law, which says that if a creditor makes a loan without knowing how the debtor can pay in the normal course of business, the loan is assumed to have been made with the intent of foreclosing on property, and is deemed fraudulent.

    This law dates from colonial times, when British speculators eyed rich New York farmland. Their ploy was to extend loans to farmers, and then call in the loans when the farmer’s ability to pay was low, before the crop was harvested. This was indeed a liquidity problem – which financial opportunists turned into an asset grab. Some lenders, to be sure, created a genuine insolvency problem by making loans beyond the ability of the farmers to pay, and then would foreclose on their land. The colonies nullified such loans. Fraudulent conveyance laws have been kept on the books since the United States won its independence from Britain.

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  12. 12
    Real World Express says:

    Walk? RUN!! Get out now!

    10 lowest cost markets in the US:

    http://www.marketwatch.com/story/the-10-most-affordable-us-home-markets-2011-06-15?pagenumber=1

    Hint: All homes less than $100,000 (and pretty, too)

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  13. 13
    David Losh says:

    RE: Jonness @ 8RE: Blurtman @ 5

    A Limited Liability Corporation closes, or goes bankrupt, so it can walk away from a loan, but many times it’s a renegotiation of the terms.

    Real Estate is a business. People buy homes for financial security. There is no other reason for people to pay more than an investment price for a home they can just as easily rent for less than a mortgage payment.

    What bothers me is that people continue to give banks, who made these loans, a free pass. We even gave them tax dollars, like they were the victims here. People commenting talk like the banks are the poor little investor who is losing every thing because these mean old home owners aren’t paying up.

    OK I have read my loan documents. It says that if I don’t pay they get the house.

    I can go into all of the issues that may come up as a reason for a judicial foreclosure, or even for banks to claim the borrower defrauded them by falsifying loan documents by making untrue statements.

    The bottom line is banks created trillions of dollars in profits by selling these loans to the securities markets. Banks made trillions of dollars, but are claiming billions in losses in order to avoid paying taxes.

    Banks are the ones who set up this system, but we are all just supposed to pay our bills, and look at our free credit report dot com to be sure we are getting the best deal we can on debt.

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  14. 14
    David Losh says:

    RE: Kary L. Krismer @ 4

    Let’s pretend there is a document that has terms, and conditions.

    If that’s the case then the promise to pay is kind of like a double dog dare you. We have a contract that outlines terms, and conditions, which we are supposed to ignore, but we should pay attention to the promise.

    If I don’t pay, the bank gets the house. That’s how I read my contract. Is your contract different?

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  15. 15
    David Losh says:

    Wait a minute, let’s go a step further.

    Is it moral for banks to change the interest rate on a credit card? It’s in the contract. The printing is a little small, but it’s all in there. What’s the moral hazard of sending out millions of credit cards, telling people to use them, making credit sound sexy, and good for the family, then having a payment structure that is impossible to pay off?

    Banks, the same ones who gave us all mortgages, inflated appraisals, never looked at income, asked for no verification, never checked on the property, and approved underwriting on extremely questionable value. Banks are in the business of lending bilions, if not trillions of dollars, on millions of loans, but the home loan borrower is to blame for not reading or understanding the contract drafted, and prepared by the bank’s legal team.

    In other words, banks are the good guys, and the borrower is scum. Nice.

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  16. 16
    redmondjp says:

    When I bought my house back in 1998, I spent over an hour and a half at the escrow office reading my loan documents as I signed them. Wow, the list of things that you can’t do with your house (99% of which everybody ignores) is quite long. Apparently I can’t even keep a gallon of gas on the premises for my lawn mower!

    And yes, the legalese can be challenging to properly understand.

    No excuses – if you fail to understand what you are signing, you deserve what you get. Unfortunately, this happened to a few rock stars as well as I recall . . .

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  17. 17
    ray pepper says:

    I bashed Howard Bono on a previous blog but was VERY impressed on his segment today.

    Loved his cell phone agreement comparison.

    Good Job Howard!!

    Educate the masses that there is another way and ALWAYS do whats in the BEST interests of your FAMILY and you will be heading in the right direction.

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  18. 18
    The Tim says:

    By redmondjp @ 16:

    When I bought my house back in 1998, I spent over an hour and a half at the escrow office reading my loan documents as I signed them. Wow, the list of things that you can’t do with your house (99% of which everybody ignores) is quite long. Apparently I can’t even keep a gallon of gas on the premises for my lawn mower!

    Hah! I know exactly what you’re referring to. It’s section 21 in the current version of the standard Form 3048 Deed of Trust revision 1/01 (link opens a Word Doc from Fannie Mae). I remember it because it tripped me up when I was reading the forms as well. But it doesn’t actually say that you can’t keep gasoline for your mower.

    Here are the relevant excerpts from the section:

    “Hazardous Substances” are those substances defined as toxic or hazardous substances, pollutants, or wastes by Environmental Law and the following substances: gasoline, kerosene, other flammable or toxic petroleum products, toxic pesticides and herbicides, volatile solvents, materials containing asbestos or formaldehyde, and radioactive materials.

    Borrower shall not cause or permit the presence, use, disposal, storage, or release of any Hazardous Substances, or threaten to release any Hazardous Substances on or in the Property.

    If you stop reading there it certainly sounds like you can’t keep a gallon of gas for your mower on your property, but it goes on a little further down…

    The preceding two sentences shall not apply to the presence, use, or storage on the Property of small quantities of Hazardous Substances that are generally recognized to be appropriate to normal residential uses and to maintenance of the Property (including, but not limited to, hazardous substances in consumer products).

    So you’re safe with your can of gas for now, J.P. Plus, if they ever come out with a plutonium-powered lawn mower, you could even keep around a “small quantity” of that, too!

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  19. 19
    RokiTBoy says:

    We are not experts at cooking food, so we pay people to make great food for a premium… if they screw up, we complain and hopefully get a refund. We don’t sign documents trusting the amount of salt, spice or sugar that goes into it. We trust the expert to make what they claim that can make! Good food!

    House buyers pay absurd amounts of money to “experts” to help them navigate the unknown. Sure, legally, on paper, if they sign up for a big ol pile of bs they didn’t understand, in court they are screwed! To sit back and say they should take responsibility, is fair… assuming the fat lazy overpaid ass who made more money off one signature than most people make in three months, represented them responsibly, translated the text into lamens terms and and communicated the risks responsibly.

    The FACT IS, preying buyers agents have made victims out of a large percentage of people, and they all hide behind the piece of paper that buyers put the signature on. Buyers agents do not represent buyers, they represent their own bank accounts!

    I always get the itch to write my own lamens contract with my car salesman or house salesman, that says if I’m going to pay anything more than X, they agree to take care of those fees personally. Never bought a car or house yet using a salesman… so I haven’t had to use this technique yet. For me though, I just want to see the reaction! I mean, if someone that represents me is flabbergasted or offended when I ask them to sign on some simple english, I’d be worried they were hustling me. If they laughed and said they’d sign, I’d feel alright about trusting that they did their job expertly!

    I was a newb, and in about 30 seconds in one email to my assigned jack hustler, I realized this is a krusty, backwards, built to fail scheme that can easily destroy the weak and unattentive. AND IT HAS! I asked my agent, “what are your services” and “how much do you cost”. Answer, “representing a buyer, there is NO money involved from you for my services as the Seller pays commissions to sell their house. :). I just ask that you are serious about buying a house and not just window shopping”.

    Liar Liar pants on fire!!!

    The problem is, as described by comments made by a first few lying hustling full of chit buyers agents seem to claim, “oh, as a buyer you pay nothing, the seller pays it all”. Anyone sucka with half a nut for brain should know there’s a problem with this design!

    -sensitive nose

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  20. 20
    Blurtman says:

    RE: David Losh @ 13 – OK, So folks who walk away should change their names, like a company would, and then get a new loan. Is that it?

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  21. 21

    RE: Jillayne Schlicke @ 3 – if someone is not able to “understand” the terms of their mortgage, perhaps they shouldn’t have one or that type of mortgage (ex. adjustable rate mortgage). A person has the right (and plenty of time) to have an attorney assist them with reviewing all documents.

    Jillayne, would you sign something you don’t understand?

    No one has forced anybody to obtain a mortgage.

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  22. 22
    Pegasus says:

    By Kary L. Krismer @ 6:

    RE: Blurtman @ 5 – For them to do that they have to either shut down that entity, or have a non-recourse loan.

    That is why the smart developers form a separate LLC for every development. That appears to have saved quite a few of them over the last few years.

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  23. 23

    By David Losh @ 14:

    RE: Kary L. Krismer @ 4

    Let’s pretend there is a document that has terms, and conditions.

    If that’s the case then the promise to pay is kind of like a double dog dare you. We have a contract that outlines terms, and conditions, which we are supposed to ignore, but we should pay attention to the promise.

    If I don’t pay, the bank gets the house. That’s how I read my contract. Is your contract different?

    Your contract is almost certainly different. It is most likely both a note and a deed of trust, with the note indicating it is secured by the deed of trust. As such the bank can sue you on the note and get a judgment, judicially foreclose the note and thereby take the house and get a judgement, or non-judicially foreclose and only get the house.

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  24. 24

    By redmondjp @ 16:

    When I bought my house back in 1998, I spent over an hour and a half at the escrow office reading my loan documents as I signed them. .

    So you just skimmed them. ;-) :-D

    Seriously, the pile of documents put before a buyer can be pretty thick. By having so much disclosure we’ve almost reached the point of no disclosure.

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  25. 25

    By ray pepper @ 17:

    I bashed Howard Bono on a previous blog but was VERY impressed on his segment today.

    Loved his cell phone agreement comparison.

    You’re easily impressed. The cell phone argument is just an example of liquidated damages. There’s no comparison to a note and deed of trust because there’s no liquidated damages clause. The cell phone comparison could be made to a purchase and sale agreement, where if you purposefully breached you would lose your earnest money.

    I wasn’t impressed by him as you, but I will say compared to Dori he was good. Dori clearly didn’t have a clue what was going on, and did very little preparation for the piece.

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  26. 26
    David Losh says:

    RE: Blurtman @ 20

    The Limited Liability Corporation is an entity, like a person, formed by individuals to protect themselves from personal liability. They can bankrupt the corporation which usually has very little in the way of assets. A builder usually has the dirt they bought, and the materials that end up at the site as assets.

    I’m not an attorney, but the way I understand it is that the individuals can then go on to form other LLCs and start over.

    They protect personal assets like the family home, bank accounts, and assets because all the creditors can attach are the assets of the corporation, no personal repsonsibility.

    I’d love to go on, and on about how this should be unfair, but in reality it creates a protection from risk that makes a lot of things possible.

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  27. 27

    By Pegasus @ 22:

    By Kary L. Krismer @ 6:
    RE: Blurtman @ 5 – For them to do that they have to either shut down that entity, or have a non-recourse loan.

    That is why the smart developers form a separate LLC for every development. That appears to have saved quite a few of them over the last few years.

    And the banks when they are making such loans know exactly what they are dealing with. If they don’t want to deal with that entity, they can not make the loan or get another entity’s guarantee.

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  28. 28

    RE: The Tim @ 18 – Thank you for that explanation of hazardous substances. I’ll again make the same point as in comment 4 above though, that I really doubt anyone is walking away from their house because they didn’t understand that clause. If they’re walking about it’s about the amount owing and/or the monthly payments.

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  29. 29
    Pegasus says:

    Maybe I missed it but I did not hear Dori or Howard mention that people with HELOC’s, second or third mortgages don’t get to walk away without paying the bank for those , making a settlement or declaring bankruptcy. I hope no one jumps into the walk away free fire without discovering that it might not be “free”. Talk shows that only cover part of the problems and risks are dangerous to one’s financial health and peace of mind.

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  30. 30
    David Losh says:

    RE: Kary L. Krismer @ 23

    They take the house.

    In a time of increasing property prices taking the house nets them more. In a time when prices are declining getting a judgement seems like a good idea. Once the judgement is in place the borrower declares bankruptcy and the bank takes whatever is left.

    Your a bankruptcy attorney. Maybe you can speculate how this is going to play out.

    The drain on the economy, at present, is devasting. The same things are going on with people using credit to “get by,” loss of equity, and an inability to find better paying jobs.

    The next leg down will be another round of foreclosure, judgements, and bankruptcy. How will that effect the over all economy? Wouldn’t it be better today for banks to take some responsibility, promote short sales, do loan modification, debt settlement, take the losses, and move on to making the economy more healthy?

    Banks created this mess.

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  31. 31

    RE: Kary L. Krismer @ 24 – “Seriously, the pile of documents put before a buyer can be pretty thick. By having so much disclosure we’ve almost reached the point of no disclosure.”

    …and loan docs are only going to get worse. Look at HUD’s 2010 Good Faith Estimate intended to “dumb down” closing cost only to create more confusion to consumers. We went from a 1 page GFE to a 3 page GFE along with several other forms that accomodate the GFE to make up for what HUD neglected (signature line for proof of delivery, etc).

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  32. 32
    uwp says:

    How do people listen to Dori’s show? That guy is perpetually angry.

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  33. 33
    S-Crow says:

    RE: ray pepper @ 17 – His cell phone analogy was completely nonsense.

    How do you compare a Deed of Trust with a cell phone carrier contract? Are you borrowing money to buy a cell phone? Since when did breaking your cell contract and paying an early termination penalty cost people their jobs and crush the housing market and industries that support it?

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  34. 34

    By Pegasus @ 29:

    Maybe I missed it but I did not hear Dori or Howard mention that people with HELOC’s, second or third mortgages don’t get to walk away without . .. .

    Howard touched on it a bit when he claimed that if you only have a single mortgage you’re pretty much bulletproof, or something to that effect. That’s not explicit, and it’s also based on a misunderstanding of the tax code, because he was also addresses taxes with the same statement.

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  35. 35
    S-Crow says:

    By Pegasus @ 29:

    Maybe I missed it but I did not hear Dori or Howard mention that people with HELOC’s, second or third mortgages don’t get to walk away without paying the bank for those , making a settlement or declaring bankruptcy. I hope no one jumps into the walk away free fire without discovering that it might not be “free”. Talk shows that only cover part of the problems and risks are dangerous to one’s financial health and peace of mind.

    You are absolutely correct. Purchase money is different from the millions who refinanced. Whether or not they go after the money at some point is another matter.

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  36. 36

    By David Losh @ 30:

    RE: Kary L. Krismer @ 23

    They take the house.

    In a time of increasing property prices taking the house nets them more. In a time when prices are declining getting a judgement seems like a good idea. Once the judgement is in place the borrower declares bankruptcy and the bank takes whatever is left.

    For the average Joe in the average house, yes they are going to take the house non-judicially. But Dori was also going into examples where there was a large loss and a high income or net worth individual. One of the side effects of the new deed of trust legislation is that we might start seeing more judicial foreclosures because the non-judicial process now takes so long. Given how new it is, I don’t think anyone can predict the parameters of when a bank will go judicial.

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  37. 37

    By uwp @ 32:

    How do people listen to Dori’s show? That guy is perpetually angry.

    Maybe that helps make their spouse seem relatively pleasant? My wife listens to Dori. Hmmmm.

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  38. 38

    By S-Crow @ 33:

    RE: ray pepper @ 17 – His cell phone analogy was completely nonsense.

    How do you compare a Deed of Trust with a cell phone carrier contract? Are you borrowing money to buy a cell phone?

    Yes you are borrowing money because you get a $400 smart phone for $100. But again, they have the liquidated damage clause to cover that loss, a clause missing in notes and deeds of trust.

    That does raise an interesting issue. What if the deed of trust said that for 10% of the original note amount you could return the house to the bank and not have a ding on your credit report?

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  39. 39

    By S-Crow @ 35:

    You are absolutely correct. Purchase money is different from the millions who refinanced. Whether or not they go after the money at some point is another matter.

    There are two things going on in that statement.

    On the recourse issue, having refinanced, or the amount you refinance, is irrelevant. If the bank non-judicially forecloses they can’t go after you for a deficiency. California apparently has a different rule, where refinancing does affect the result, but I’m not certain what it is.

    On the tax issue you can refinance and still get the same result. Where you get into trouble is where you borrow more money that does not go into improving the house.

    As always, consult your tax adviser or an attorney about these types of issues, in part because as should be evident, your specific situation can affect the result.

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  40. 40
    Pegasus says:

    RE: S-Crow @ 35 – Whether the first is refinanced or purchase money if the bank goes non-judicial foreclosure then they give up any recourse in the state of Washington, not so in California.

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  41. 41
    Blurtman says:

    RE: David Losh @ 26 – Yes. But as the consumer accounts for a substantial part of GDP and therefore creates jobs, Bernokio has seriously erred pursuing a pushing on the string strategy of bailing out banks who cannot loan to overburdended consumers. Morality is not an argument.

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  42. 42
    ray pepper says:

    RE: S-Crow @ 33

    The cell phone analogy was spot on. I viewed it as people who owe 500k on a home and its now worth 200k. As an owner you look at the penalties for default and you make your decision based on whats in the best interest of your family and nobnody else. Has nothing to do with liquidated damages.

    You guys are just DIGGING to deep and drawing comparisons to deeds is futile.

    The only point Howard was stressing is that the ACT is legal and decisions should be based on whats in the best financial interest for the family..

    Many millions will make the right decision while so many more millions will continue to cry and complain.

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  43. 43

    By ray pepper @ 42:

    RE: S-Crow @ 33

    The cell phone analogy was spot on. I viewed it as people who owe 500k on a home and its now worth 200k. As an owner you look at the penalties for default and you make your decision based on whats in the best interest of your family and nobnody else. Has nothing to do with liquidated damages.

    . . .

    The only point Howard was stressing is that the ACT is legal and decisions should be based on whats in the best financial interest for the family..

    I don’t know how his raising an example of the use of a liquidated damages clause has nothing to do with liquidated damages. That’s a pretty good trick if he managed to pull it off.

    I would agree with the second statement, but think the analysis of what is best for the family is a bit more complex than comparing what is owing to what is owed on the house today. When you try to simplify it like that you can end up with an analysis that is about as wrong as the analysis you hear on your average radio call in show! ;-)

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  44. 44
    S-Crow says:

    RE: ray pepper @ 42 – No, his analogy is a joke. And the idea that people don’t get to read or understand their promissory note is also nonsense.

    Did the millions of people who refinanced and had three days to rescind not understand anything? Did Loan Officers sit in escrow with clients while they were being signed and explain in more detail the ARM’s? Or, like I witnessed in my office “don’t worry we’ll just refinance you in a couple of years.”

    The cry babies are those who continue to make decisions that take on massive debt in addition to their mortgage and wish for everyone else to pay for their mistakes. I have hundreds and hundreds of Trust Account disbursements checks made out to FORD, GM, TOYOTA CREDIT and every credit card you can imagine.

    Something the real estate community fails to educate their own about is RISK.

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  45. 45
    ray pepper says:

    RE: Kary L. Krismer @ 43

    u keep looking at liquidated damages! I will simplify:

    1. cell phone 200 agreement per month. new plan comes out at 100. u analyze penalties and decide

    2. home owe 500k worth 200k. same home can be bought for 200k. u analyze penalties and decide.

    Thats it!! Digging anymore into Howard’s point is futile. So many millions get it, so many more millions WILL get it, and millions of others will COMPLAIN that so many get it.

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  46. 46
    David Losh says:

    RE: S-Crow @ 33

    The banking industry created this situation by wholesale lending. I don’t see why you keep blaming individuals for a massive market decline that has now taken the equity that people are supposed to be paying for. By paying for a declining equity, by paying for a massive, not slight, loss of price, that is a drain on the economy. That is money being paid into a black hole. That money goes out of the community and into another black hole of financial profiteering.

    It could be considered unAmerican to keep paying on a mortgage that is so far underwater it will never recoup the losses.

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  47. 47
    Blurtman says:

    “The cry babies are those who continue to make decisions that take on massive debt in addition to their mortgage and wish for everyone else to pay for their mistakes.”

    Certainly you are referring to Goldman Sachs, no? Blood in the streets if no bailout and all that.

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  48. 48

    By ray pepper @ 45:

    RE: Kary L. Krismer @ 43 -u keep looking at liquidated damages! I will simplify:1. cell phone 200 agreement per month. new plan comes out at 100. u analyze penalties and decide
    Thats it!!

    If those were your facts you’d have the first cell phone company sue you for $200 times the number of months remaining on your contract and his analogy would totally fall apart. You’d be paying $300 a month for cell phone service.

    Because there’s a liquidated damage clause in most contract, they can only hit you up for something like $200 or less.

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  49. 49

    By David Losh @ 46:

    It could be considered unAmerican to keep paying on a mortgage that is so far underwater it will never recoup the losses.

    I’m sorry. I know you now represent mainly investors, and it’s in the interest of investors to have a large supply of cheap houses and a society of renters. But to try to claim that honoring your commitments is unpatriotic is a bit over the top.

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  50. 50
    ray pepper says:

    Scrow and Kary its very obvious you both are NOT in this position that millions are but its simply doesn’t matter if they didn’t read their contract, over leveraged, or simply made a bad purchase.

    The fact is families cannot continue to suffer financially for a decision they made. They MUST move on because financial misery is a leading cause of divorce and the family unit needs stability beyond all else.

    Kicking the can down the road in hopes property values will go up in the next 5-10 years just delays the inevitable and I will say it again:

    If the homeowner makes their decision based on whats in the BEST financial interest of their family then they made the right decision. Those that cry the loudest should be ignored and listen to others who have had to make this same decision.

    Life does go on………………….

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  51. 51

    By ray pepper @ 50:

    Scrow and Kary its very obvious you both are NOT in this position that millions are but its simply doesn’t matter if they didn’t read their contract, over leveraged, or simply made a bad purchase..

    Again, the didn’t read the contract argument is complete bull. No one is that stupid that they don’t know what they were borrowing or what their monthly payments were going to be.

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  52. 52
    ray pepper says:

    RE: Kary L. Krismer @ 51

    agreed…but……………it does NOT matter…

    The fact is if a given family has no ability to sell now, nor in the future, families need to know there are alternatives and these alternatives were provided by the banks who offered the loans based on their parameters.

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  53. 53

    RE: ray pepper @ 52 – Your in the future argument is also a bit weak, especially when you go out ten years. Inflation could easily take our median to $1,000,000 in that time. Or it could go to $100,000. The point is though, it’s not as certain as you claim.

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  54. 54
    ray pepper says:

    RE: Kary L. Krismer @ 53

    agreed…

    Houses could be worth FAR MORE in 10 years…

    However, they may not be. What is known is the credit hit would follow you for about 10 years so given that certainty and the burden of the upside down mortgage CURRENTLY its up to the family to decide whats in their best interests.

    Not any of us.

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  55. 55
    S-Crow says:

    RE: ray pepper @ 52 – Ray, I understand what you mean. It is not inconceivable that I could find myself in that situation like that in the future, but I also don’t live in a bubble (not saying you are suggesting that) about what is happening in the trenches. Outside of what I see in the escrow biz, I have immediate family on both the east coast and here in Seattle that are walking away and or will lose their home to foreclosure.

    In the aftermath, I just hope people will now decide BEFORE they take on a mortgage and any other debt what the ramifications are for themselves or family.

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  56. 56

    S-Crow, what percentage of buyers that your company provides escrow services for, request to see loan docs or even the estimated HUD-1 Setttlement Statement prior to their appointment?

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  57. 57
    ARDELL says:

    RE: Kary L. Krismer @ 51 -Kary said: “No one is that stupid that they don’t know what they were borrowing or what their monthly payments were going to be.

    “I wouldn’t necessary call it “stupid”, but often people go by what they are told vs “reading” it. I did see a couple who were told the monthly payment included taxes and insurance, as example. I was filling in for the agent at the signing (lender was in the room too) and I made sure to point out the payment did NOT included taxes or insurance. They did not close. Lender was furious that I revealed that fact. Going back to 2004 on that story.

    They did know “what their monthly payments were going to be” but not what it did not include.

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  58. 58
    Dirty_Renter says:

    Ah hahaha.
    Remember the continual screeching of the looney left in 2008/9…..
    The bankers privatized the profits but socialized the losses.

    Now that the deadbeats are doing the same thing…where’s the outrage from the Looney contingent?

    My personal belief is that if you are 1 or 2 year’s salary underwater, depending on your other assets/debts…mail the keys back. Please bear in mind I’m a nihilist…I believe in nothing.

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  59. 59
    One Eyed Man says:

    Financial post-mortum to a walk-away default.

    The progressives may have forced the bankster to offer a face to face meeting to talk about it. But like most couples counselling it just puts off the inevitable. Perhaps the time helps allow the banksters and the beholden the ability to heal their balance sheets, like the time needed to go thru Elizabeth Kubler-Ross’s five steps of greiving.

    The love is gone as any once hoped for equity evaporates. The relationship is now just dead weight. Ethics become irrelevant as the only remaining obligation to be honored is whatever may be prescribed by law. The borrowers cheat on the payments and the banks cheat on the paperwork.

    If there aren’t any accumulated assets to divide at the end of the relationship, the overwhelming policy of American jurisprudence is commonly to provide for a fresh start. Maybe there should be a symbolic requirement that anyone who walks away needs to file a petition citing the magic words “irreconcilable differences.” And perhaps his years theme song for the MBA convention should feature the James Gang as symbolic of insider/banksters morning their losses.

    http://www.bing.com/videos/watch/video/the-james-gang-walk-away/8cac42e402868b9985ea8cac42e402868b9985ea-891356250658?q=turn+your+pretty+head+and+walk+away+lyrics&FROM=LKVR5&GT1=LKVR5&FORM=LKVR2

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  60. 60
    The Desponder says:

    By S-Crow @ 55:

    RE: ray pepper @ 52 – I just hope people will now decide BEFORE they take on a mortgage and any other debt what the ramifications are for themselves or family.

    In the past there have always been people who could not afford a car or house, but wanted one anyway. This will continue to happen in the future. Banks and lending institutions are responsible for denying loans to sub-primes. Denying the sub-primes protects those who can legitimately pay back the loan. That’s not what happened this time. If the lenders had done their due diligence, would we be in this mess???? Prime mortgage borrowers are now stuck/distressed because lenders and policy makers did not fulfill their obligations and speculated on sub-primes. There will never be a world where only those people who can legitimately afford a home are the only ones applying for mortgages. Lenders and policy makers must come to see that they will take the expense for poor lending practices or they will continue to shift the burden of debt onto prime borrowers who can pay their mortgages but are being slowly bled out.

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  61. 61
    Dirty_Renter says:

    RE: Pegasus @ 22
    Bankers, with a minimal IQ, have been laughing at the LLC ruse for decades.

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  62. 62

    RE: Real World Express @ 12

    Banks and Most Exisiting Homeowners Want You to be Ethical

    If all the underwater and delinquent buyers walked away from their homes at once, prices would crash to pennies on the dollar.

    Good for buyers in the future, bad for folks like Lou Dobbs, who owns a million dollar ranch and wants the government to pay down principles to prevent foreclosures; i.e., to keep his ranch’s value from collapsing even more than it has.

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  63. 63
    ray pepper says:

    RE: One Eyed Man @ 59

    love it..!!

    great Post and song!

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  64. 64
    Blurtman says:

    RE: Dirty_Renter @ 58 – You are a confused nihilist, mxing apples and oranges. There are at least two issues in discussion – walking away from loan obligations, and being bailed out. Just as RE development companies have done, homeowners are walking away from RE loan committments. However, unlike the banks, homeowners have not been bailed out. When they are (don’t hold your breath) your point may be valid.

    Extending the analogy further, why not bail out the small RE speculator who bought several properties with no money down? We did bail out gamblers who bought tons of CDS without holding the underlying asset (i.e., speculating versus hedging). and bailed out their bookie AIG when they started to whine about not being paid their winnings.

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  65. 65
    joe dirt says:

    Home loans are just a business deal to walk away from? Only when they eliminate fannie mae, freddie mac, mortgage tax deductibily, community reinvestiment act and all other laws embedded in our society that benefit home owners. And outlaw rerunning that Bailey Building and Loan Association propaganda every Christmas.

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  66. 66
    Tim McB says:

    So just a pie in the sky, perhaps naive, ridiculous comment, but here goes. In normal times a typical person holds a home for approx. 7 years before selling; typically to own again somewhere else. The idea being they’ll get a new job somewhere else, their family grew (or shrunk), they hate there neighbors, their commute sucks, whatever. So they sell and buy a new place somewhere else in theory with some of the wonderful equity they’ve been storing up. Banks love this too because this homeowner probably (stupidly) will get a new 30yr loan with all that front loaded interest that goes straight to the bank. And on the treadmill will go with people paying ridiculous amounts of interest over the lives of multiple loans on multiple properties (at different times).
    But with equity in homes at an all time low, and scores of people underwater this system has all but stopped. Now if you get a job out of state or out comes baby number three you’re stuck. So you keep paying your mortgage (doing the right thing) and low and behold at some point (15 yrs in for 30yr fixed, 7 1/2 for a 15yr fixed) the pendulum swings the other way and you’re paying more to principal than to interest. Good for you, but bad for the bank. They like interest. They and their partnership with the Federal government will have to entice you out somehow which is when I believe the next “bubble” most likely will occur late this decade or early next. Short term looks sucky, but long term may not be too bad.How does this relate to walking away? I think the people “walking away” that have the means to keep paying are those who thought “I’ll buy and hold for 5-7 years, then sell, and buy something bigger/better/nicer”. Now, after 4,5,6 years later they are stuck because they have a house that they no longer want or no longer fits their purposes and they need to get out of it. So they can either sell for a loss if they’re able to or walk away. And it looks like more people are now choosing the latter. Either way though its probably going to not be to their benefit long term since if/when they decide to purchase in the future they’ll be once again back at square one; that is paying almost all interest to the bank.

    PS sorry for the long rant.

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  67. 67

    RE: Tim McB @ 65 – All I have to say about that is perhaps this market will make the prior behavior change. A generation or two earlier it didn’t work that why. People bought a house intending to live in it a long long time.

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  68. 68
    One Eyed Man says:

    RE: Blurtman @ 64

    “homeowners have not been bailed out.”

    Unless, of course, you consider being able to walk away from tens if not hundreds of thousands of dollars of debt being bailed out, which I do.

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  69. 69
    David Losh says:

    RE: Kary L. Krismer @ 49

    You’re not taking the comment as a whole, just the last phrase.

    Paying banks has become a drain on the global economy. It’s not just this country, but all of Europe, and getting to be South America. In Japan they have sucked it up over a long lost decade.

    Paying the interest, or leveraging for a gain can be a good thing. I would expect a slight loss if things went bad, but nowhere in the neighborhood of $200K.

    I’m talking about people I meet, and talk with every week. Let’s say Tim will take a loss of $60K because he bought well, took his time, did reasearch, and has the ability, barring a job loss, to pay off the property. Other people are all in. The losses are huge.

    You’re making a point, that you bought a property that was underwater, and in ten years the market corrected. I can assure you this market is radically different. The hand writing is on the wall that losses are inevitable, and those losses are financed with interest.

    Politically speaking we have come to a brick wall. You can talk President, or Congress, but there is no difference to the realities that we have lost Bilions of dollars in personal equity. We’ve lost jobs that are probably adding to the personal debt of many families trying to survive.

    It’s great for us to sit here, with jobs, or money coming in, with growth potential. We can make our plans. For millions, let that work for a minute, millions of other people there is no other recourse than to walk from a mortgage, the family home, the hopes, dreams, or will for a better life.

    All of this is so that a few petty criminals, we call bankers, and financiers, can make a few grubby dollars at the expense of the American Way of Life.

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  70. 70
    David Losh says:

    RE: One Eyed Man @ 68

    We have properties selling for what the “market” will bear. That market is based on what the last few years of pricing declines have been selling for. Never mind that it is fairly common conversation that prices will continue to decline, we just don’t know how much.

    Banks draft these documents so they can collect interest on that declining price. If you don’t pay, the bank ends up with the property.

    So banks make the loans, then sell the loans, then foreclose, and sell the property again. Where are the losses in that, to the bank? I see investors in securities taking losses, home buyers take losses, a drain on the economy, but don’t get this loss to the bank. It seems like the system in palce is in the banks favor, and every one else is left with losses.

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  71. 71

    […] Seattle Bubble has a link to Dori Monson on the ethics of walking away from your mortgage. The entire post has some links to other lively discussions on the subject as well. […]

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  72. 72
    Blurtman says:

    RE: One Eyed Man @ 68 – Really? What government agency or program did the bailing out?

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  73. 73
    joe dirt says:

    RE: Blurtman @ 72 -Never heard of the Mortgage Debt Relief Act of 2007.
    No tax on up to $2 million in loan forgiveness. That used to be taxable income.

    Expect laws to be passed forcing banks and credit card companies to ignore foreclosures in determining credit worthinesss during this meltdown.

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  74. 74
    Jonness says:

    By Macro Investor @ 11:

    RE: Jonness @ 8 -Jonness, that is too simplistic and it ignores the banker fraud.

    I don’t believe it’s too simplistic. The world is full of con artists, fraudsters, thieves, rapists, and murderers. Part of making good decisions is learning how to spot these people and protect yourself from them. It’s no exception when you’re sitting in a chair about to sign away 30 years of your salary, and you haven’t even bothered to read and understand what you’re signing. If it’s over the signer’s head, then the person should pay the $250 necessary to have a lawyer explain it.

    I once lost an enormous amount of money because I put my best friend in charge of my business while I was out of state concentrating on building a second business. He ended up looting the business and running it into the ground. I couldn’t see what was occurring, because I didn’t want to see it.

    Is it my fault or his fault that I lost a profitable business I built through much hardship, blood, sweat, and tears? It’s my fault. I made the decision to put someone in charge who ended up ripping me off and destroying everything I worked to build. Now I can spend the rest of my life hating him and destroying my psychological well-being over what occurred. Or I can learn from my mistakes and make better decisions that allow me to build a better future.

    As ye sow, so shall ye reap.

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  75. 75
    Jonness says:

    RE: David Losh @ 15 – David: It’s precisely because banks are slimy that I recommend due diligence when signing contracts with them.

    What I’m getting at is, legality and morality are secondary matters. A person is responsible for where they end up, so it pays to watch where you are going. If you trust people solely because you care about them or because they are in a perceived position of expertise or authority, you’ve surrendered your power and are ripe for abuse.

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  76. 76
    Jonness says:

    By Dirty_Renter @ 58:

    Please bear in mind I’m a nihilist…I believe in nothing.

    I most definitely believe I’m experiencing. I’m not convinced you are though. Most likely, I made you up to temporarily aid my experience. When I log off my computer, you will cease to exist. When I log back on, you will exist again.

    Interestingly, you’ll never know you are nothing more than thoughts within my imagination. I’ve designed you to sleep between my periods of logging on and off my computer. When you awake, I plant memories of dreams within your thoughts.

    Please interpret lightheartedly. :)

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  77. 77
    One Eyed Man says:

    RE: Blurtman @ 72

    The legislature of every state that has a foreclosure system that limits deficiencies so strictly that you almost never hear of one happening. And the federal government by providing a fresh start for insolvent individuals in bankruptcy.

    I didn’t say I thought the bailouts were inappropriate (for banks or individuals), but when you legislatively allocate a significant portion of the risk in a financial transaction away from a party its a bailout. It makes no difference to me if you pay them taxpayer money to pay their debts or you eliminate their indebtedness at the expense of a third party. The fact that the bailout is at the creditors expense as opposed to the taxpayers doesn’t change the fact that the borrower got bailed out. Its the government taking assets from one individual and giving them to another.

    And it’s also irrelevant that the legislation already exists. One of the major complaints about bailouts is the moral hazard because even though there’s no legislation guarantying a bailout, the banks supposedly know it will be there when they need it. (Note that I’m not a supporter of the moral hazard argument and I think WAMU, Wachovia, Lehman, Bear, et al would agree with me on that, if they still existed.)

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  78. 78
    David Losh says:

    RE: Jonness @ 76RE: Jonness @ 74

    We are talking about an organized effort, between dozens of banks, and lenders, to generate loan documents to be sold to the securities markets.

    The law changes that blurred the line between being a bank or investment firm made it possible to orchestrate some dynamic financial products to be repackaged, sold, insured, and traded.

    This is a lot more than some person running your business into the ground.

    In my opinion we have only begun the long unwinding of these financial schemes. Millions more people will slowly realize they are paying for the privlidge of losing tens, or hundreds of thousands of dollars. Billions, if not trillions of dollars will be drained away from consumers and into the coffers of the same institutions that created these schemes.

    People signed loan documents in good faith. Tim spent an hour and a half? reading his loan. It doesn’t change the fact he will be financing a loss of $40K. And he’s one of the lucky, due diligence ones.

    So blaming the individual for not seeing a global economic collapse that was created by the very banks that drafted the documents seems unkind. The banks knew what they were doing. The banks gave these mortgages to every one with the idea they would sell these mortgages quickly, insure them, and make profits on the trades.

    Why is this so difficult to get? Banks made trillions of dollars. We are continueing to fund the profits.

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  79. 79
    David Losh says:

    duplicate

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  80. 80
    Scotsman says:

    RE: One Eyed Man @ 77

    “Its the government taking assets from one individual and giving them to another.”

    We call that “spreading the wealth around.” Didn’t you get yours? ;-)

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  81. 81
    Blurtman says:

    RE: One Eyed Man @ 77 – I agree with the moral hazard argument. The federal government also provides processes for businesses to dump their debt as well. My point of contention is the focus on the homeowner and an obvious double standard that is being applied.

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  82. 82

    By joe dirt @ 73:

    RE: Blurtman @ 72 -Never heard of the Mortgage Debt Relief Act of 2007.
    No tax on up to $2 million in loan forgiveness. That used to be taxable income..

    I’m not certain, but I think the tax provisions really just created a bit of certainty for most. If a foreclosure is treated as discharge of indebtedness, then the insolvency exception should protect them, but if it’s treated as a sale then maybe not. A tax adviser might know that. Also, I don’t think the act provided any relief for second mortgages that didn’t foreclose, so again there the owner would (or will) need to rely on the insolvency exception if and when that debt is discharged.

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  83. 83
    Dirty_Renter says:

    RE: joe dirt @ 73
    Joe – I’m coming to the opinion that the banks may start doing this on their own. Their loan/deposit ratios are pathetic and it’s really hurting their net interest margins.

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  84. 84
    mike mcc says:

    RE: S-Crow @ 55 – Most people did understand their mortgages. They also believed that they would continue to have jobs, and many of them even had saved more than the typical “6 months of expenses savings account”. Most of us deep in the trenches firmly, but wrongly, believed that our government would never turn their backs on us.

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  85. 85
    Dirty_Renter says:

    RE: Blurtman @ 64
    Let’s stay on track, Blurt.
    1) Would the walkaways have shared their profits with the public had the bubble continued?
    2) Do the walkaways plan on reimbursing the countless public & private pensions plans, sovereign funds, or taxpayer supported Fannie & Freddie, for the losses on their MBS & CDO investments?
    If the answer is ‘no’ for both questions, then I’m sorry to tell you said walkaways have, indeed, privatized the profits and socialized the losses.

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  86. 86
    Blurtman says:

    RE: Dirty_Renter @ 85 – OK, so homeowners are behaving and would behave like businesses. That has been my point all along. Drop the double standard. Glad you agree.

    Keep in mind, consumers employ people, so perhaps bailing them out would have been a better idea than bailing out the banks.

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  87. 87
    David Losh says:

    RE: Dirty_Renter @ 85

    What about the people who crashed the economy?

    Individuals didn’t crash the economic momentum. Individuals didn’t package worthless mortgages that were handed out like candy so they could bulk up the numbers, the paper value.

    Once a person realizes that they are holding an asset worth 26% less than face value, and are financing that loss with interest payments that add to the loss, they really need to think about something different.

    This drain on consumer spending is causing, and will cause, much more damage than people who invested, or allowed financial planners to invest, in securities that had no backing.

    What about these pension investors? Didn’t they have the opportunity to read the prospectus? Didn’t they know that past gains don’t insure against future losses.

    People paying into this credit system need to rethink what they are doing. We need to change the laws, regulations, and the system of credit as a whole.

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