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The Tim
Bubble Blogging Buffoon
Joined: Sat Feb 17, 2007 6:02 pm
Posts: 790
Location: Kenmore, WA
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 My aunt walks away My aunt lives down in the Portland area, and about two years ago (I think) she bought new construction in a small development (<2 dozen units). She was one of the first to buy in the development, and at the time I commented to my wife that despite my aunt's assurances that the builder gave her a "great deal," it seemed likely that the remaining houses in the neighborhood would sell for consecutively less as time went on.
Well, I was talking to my mom last night, and sure enough, that's exactly what happened. It wouldn't be a big deal of course if she had gotten a 30-year fixed, but guess what, she didn't (who did in 2006?).
Problem #1: Apparently she did some sort of financing directly through the builder that required her to refinance this year.
Problem #2: She put practically nothing down.
Problem #3: Since all the houses that have sold since hers have sold for less (including larger ones), her house won't assess for what it needs to for her to get a normal, sane mortgage through a bank.
Solution: Walk away. She's handing the keys back to the builder and bidding them farewell.
Now I actually know someone first hand that has walked away. Note that the fact that she is losing "her" house does not mean she's going to end up on the street. It's basically just as if she's been paying rent the last few years, and will move on with her life just like anyone else.
_________________
For great justice.
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| Tue Aug 12, 2008 11:31 am |
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david_mcmanus
Bubble Bloviator
Joined: Wed Jan 09, 2008 7:44 am
Posts: 250
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Re: My aunt walks away Yeah, Tim, but also there's the catch that her credit is now ruined for the next 7 years.
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| Tue Aug 12, 2008 11:53 am |
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rose-colored-coolaid
Bubble Banter Boss
Joined: Mon Jun 18, 2007 10:26 am
Posts: 1977
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Re: My aunt walks away david_mcmanus wrote: Yeah, Tim, but also there's the catch that her credit is now ruined for the next 7 years. That belief lives on from an era when a huge hit like this was a big deal. Now, you can easily get credit even with a bankruptcy on your record. She'll be able to rebuild her credit over time. Also, the value and importance of credit scores are drastically overstated. With the exception of your home, if you are using credit at all you have already made a mistake. His aunt will be fine, and the small premium she may pay will be easily offset by not being $100k underwater on her home.
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| Tue Aug 12, 2008 2:33 pm |
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rentalbliss
Bubble Watcher
Joined: Tue Feb 20, 2007 2:50 pm
Posts: 20
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Re: My aunt walks away My Brother in-law and wife just walked away about 2 months ago, form home in California, could not be happier they did BIL said he wished he did it sooner.
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| Tue Aug 12, 2008 3:23 pm |
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WestSideBilly
Bubble Banter Boss
Joined: Mon Feb 04, 2008 1:41 pm
Posts: 550
Location: Land of entitlement
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Re: My aunt walks away A bad credit score may cost you if you buy a car ($40/mo on a $30k/5 year loan) or something similar, but credit cards don't reward higher credit scores with better rates. Either way, as RCC points out, the financial penalties of a lowered score are vastly overwhelmed by being 10s or 100s of thousands underwater on your loan.
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| Tue Aug 12, 2008 3:39 pm |
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rose-colored-coolaid
Bubble Banter Boss
Joined: Mon Jun 18, 2007 10:26 am
Posts: 1977
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Re: My aunt walks away rentalbliss wrote: My Brother in-law and wife just walked away about 2 months ago, form home in California, could not be happier they did BIL said he wished he did it sooner. If I owned a bank, I would be pissing myself hearing stories like this one. It's one thing to accept the reality that some people will walk away. But you absolutely do not want water-cooler discussions where people exclaim the virtues and tell how happy they are. I think this might be a grassroots campaign they won't be able to stomp out.
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| Tue Aug 12, 2008 6:12 pm |
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explorer
Bubble Blatherer
Joined: Wed May 16, 2007 9:13 pm
Posts: 113
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Re: My aunt walks away Well, Tim, if your aunt was thinking of renting from the any landlords who are members of the Rental Housing Association of PS, they usually don't rent to people who have a bankruptcy on their records for any reason. Even if it is only one of two or more roomates, and one can carry the rent by themsleves if need be. I had a personal experience with that last year.
Right or wrong, more landlords are doing that as the economy worsens. It would not surpise me if other bubble states are doing that too. Hope your aunt finds one of the good old school landlords.
Just sayin'
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| Wed Aug 13, 2008 8:02 pm |
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rose-colored-coolaid
Bubble Banter Boss
Joined: Mon Jun 18, 2007 10:26 am
Posts: 1977
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Re: My aunt walks away explorer wrote: Well, Tim, if your aunt was thinking of renting from the any landlords who are members of the Rental Housing Association of PS, they usually don't rent to people who have a bankruptcy on their records for any reason. Even if it is only one of two or more roomates, and one can carry the rent by themsleves if need be. I had a personal experience with that last year.
Right or wrong, more landlords are doing that as the economy worsens. It would not surpise me if other bubble states are doing that too. Hope your aunt finds one of the good old school landlords.
Just sayin' A foreclosure and bankruptcy are not the same thing.
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| Wed Aug 13, 2008 9:31 pm |
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explorer
Bubble Blatherer
Joined: Wed May 16, 2007 9:13 pm
Posts: 113
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Re: My aunt walks away You're right RCC. My bad.
I wonder if Foreclosures will become like bankruptcies in Walk-Away cases in the same way. Do they not appear on credit reports?
I wish I could remember the source, but I read something not long ago that some people in CA were being refused rentals because of a foreclosures. Maybe it's because many people are spiraling down financially, and a foreclosure also triggers a bankruptcy?
That may not be the cause with Tim's aunt, but it is for others.
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| Thu Aug 14, 2008 3:18 pm |
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The Tim
Bubble Blogging Buffoon
Joined: Sat Feb 17, 2007 6:02 pm
Posts: 790
Location: Kenmore, WA
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Re: My aunt walks away explorer wrote: That may not be the cause with Tim's aunt, but it is for others. She's totally fine financially, she just couldn't find someone to give her a vanilla loan on an underwater house unless she brought a significant pile of cash to closing.
_________________
For great justice.
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| Thu Aug 14, 2008 5:11 pm |
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leaveseattle
Bubble Watcher
Joined: Fri Aug 15, 2008 5:34 am
Posts: 18
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Re: My aunt walks away Renting after walking away is not difficult. We walked away in Seattle, and we were quite honest with every renting agency and they did not blink an eye. A few asked for a larger security deposit, but over all they seem to be a smart group of people who realize that many who walk away right now are potentially very good renters-We were eligible to rent in much nicer neighborhoods then what we walked away from...
We also bought a car with crudy credit from non payment on the house, we actually got a better interest rate on the car then our previous car with good credit(before walking away high 700's)
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| Fri Aug 15, 2008 5:39 am |
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Robroy
Bubble Banter Boss
Joined: Mon Jun 23, 2008 10:31 am
Posts: 681
Location: Renton
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Re: My aunt walks away rose-colored-coolaid wrote: rentalbliss wrote: My Brother in-law and wife just walked away about 2 months ago, form home in California, could not be happier they did BIL said he wished he did it sooner. If I owned a bank, I would be pissing myself hearing stories like this one. It's one thing to accept the reality that some people will walk away. But you absolutely do not want water-cooler discussions where people exclaim the virtues and tell how happy they are. I think this might be a grassroots campaign they won't be able to stomp out. The REALLY scary part is people walking away that CAN afford the payments. If you are a couple hundred grand in the hole as your house drops in value, it actually makes sense. And there is a huge argument going on about the moral implications. And then there is the simple fact that some are choosing to stay in the place as long as possible, rent free, while their house payment goes into investments instead, preparing for the day the sheriff DOES show up. No more debt in a dinosaur of a house, and tens of thousands in the bank? Hard to argue with, even WITH the credit rating hit. In fact, the only argument against it is ethical, not financial. And the scary part there is that the contract is being enforced as signed by both parties, so it is hard to make an ethics case against it.
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| Mon Aug 18, 2008 2:44 pm |
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rose-colored-coolaid
Bubble Banter Boss
Joined: Mon Jun 18, 2007 10:26 am
Posts: 1977
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Re: My aunt walks away Robroy wrote: And the scary part there is that the contract is being enforced as signed by both parties, so it is hard to make an ethics case against it. I'd elaborate on this further that there is absolutely no ethical case against it. By walking away, you are making an educated guess as to which cost will be higher; the cost to pay back the loan or the cost to your trustworthiness as a borrower if you return the house in lieu of the loan. It's clear what the financial cost of paying the loan is, it's less clear what the total cost of walking away is. This is no different than when an airline cancels an airplane order or when you pay a service termination fee to cancel a cell phone.
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| Tue Aug 19, 2008 7:16 am |
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Niuska
Bubble Watcher
Joined: Sun Aug 17, 2008 7:25 pm
Posts: 26
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Re: My aunt walks away If I were in that situation I would also walk away. There is no ethical issue involved. This is a smart financial move.
There is nothing "honorable" about making huge payments on a home that is a pit financially. Smart business people face this same type of decision every day. You cut your losses and move on.
In California (a year ahead of Seattle) it is becoming a strategy for people to find their new home at the lower values (20% to 30% discount to their underwater mortgage) with the same quality house.
Get a mortgage on the new home while your credit is good, then move to the new home (with the much lower payment) and mail the keys to the bank for the underwater equity home.
It is happening. I recall reading about it a few weeks ago.
For those with the income and who can afford to make their payments, even though they are underwater, this makes financial sense to do. The credit score impact of a foreclosure is not the end of the world. At the end of the process, it is a $0 balance and debt collectors are not hounding you.
You could likely even dispute it off of your credit reports within two years.
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| Tue Aug 19, 2008 7:36 am |
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Robroy
Bubble Banter Boss
Joined: Mon Jun 23, 2008 10:31 am
Posts: 681
Location: Renton
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Re: My aunt walks away rose-colored-coolaid wrote: Robroy wrote: And the scary part there is that the contract is being enforced as signed by both parties, so it is hard to make an ethics case against it. I'd elaborate on this further that there is absolutely no ethical case against it. By walking away, you are making an educated guess as to which cost will be higher; the cost to pay back the loan or the cost to your trustworthiness as a borrower if you return the house in lieu of the loan. It's clear what the financial cost of paying the loan is, it's less clear what the total cost of walking away is. This is no different than when an airline cancels an airplane order or when you pay a service termination fee to cancel a cell phone. Yeah, I am talking "ethics" in a "spiritual" way. In the sense of, if you are a Christian, is it ethical. The consensus is, "yes, it is." It is a contract into which both parties entered with clear actions if one person defaults on their part. Defaulting is simply an "amoral" action that is planned for. Sort of a "plan B". Then there is Plan 9, but that is from outer space and a topic for another thread.
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| Tue Aug 19, 2008 7:58 am |
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