Poll: How many people do you know who are walking away from their mortgage (or already did)?

How many people do you know who are walking away from their mortgage (or already did)?

  • none (44%, 67 Votes)
  • only 1 (19%, 29 Votes)
  • 2 to 5 (28%, 43 Votes)
  • 6 to 10 (2%, 3 Votes)
  • 11 to 20 (2%, 3 Votes)
  • more than 20 (6%, 9 Votes)

Total Voters: 154

This poll was active 02.13.2011 through 02.19.2011.

0.00 avg. rating (0% score) - 0 votes

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. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

29 comments:

  1. 1
    ray pepper says:

    I voted for only 6-10 who actually walked away or rented their homes while walking. So many more (over 20) I know continue to live in their homes while awaiting Loan Modification or Short Sale conclusion. Each and everyone states to me that if their final resolution is not acceptable they will walk.

    I kept investors out of my 6-10 answer. All the investors I know personally and in my LLC’s groups have walked years ago now and have began dabbling with flipping and buying a home here or there for cash flow while taking funds out of the stock market. However, most of these were all purchased at Trustee sales or Reo’s and in Az and Nv. Not too many here in Washington.

  2. 2
    Jillayne says:

    I think I must be exposed to more people who will be walking but if the time limit on this question is going back to 2008 then my vote stands at way over 20 and more like 50+ and counting.

  3. 3

    RE: Jillayne @ 2 – If we go back to 1984 my answer would be hundreds. We called it being foreclosed after not having enough money to pay your mortgage. ;-)

  4. 4
    TheHulk says:

    RE: Kary L. Krismer @ 3

    Maybe the Tim can clarify this, but I don’t include the people who lose their houses to stuff like a monster health care bill or job loss as “walking away”.

    In my mind “Walking away” is only when someone chooses to let go of the house even when they can afford the mortgage payments. In that respect, walking away is a pure business decision precipitated by the simple fact that they don’t have enough skin in the game.

  5. 5
    Blurtman says:

    What about companies that have walked away? They seem to suffer no sanctions for this behaviour, unlike homeowners.

    Deadbeat investment firm active in Seattle CRE market.

    Tishman Speyer walked away from its obligations concerning the Stuyvesant Town and Peter Cooper Village property after defaulitng on loans. It is now actively restructuring CRE loans on Seattle properties.

    “July 1 (Bloomberg) — Tishman Speyer Properties LP restructured $175 million in debt on a 22-story downtown Seattle office building, following arrangements earlier this year to rework loans for Chicago and Washington D.C.-area holdings.” http://www.businessweek.com/news/2010-07-01/tishman-speyer-restructures-debt-on-downtown-seattle-building.html

    Shouldn’t this company be unable to borrow additonal money as surely it must wait seven years until its credit rating has been repaired, no?

  6. 6

    RE: TheHulk @ 4 – The problem is, many people will claim they walked away under your definition, when really it’s something else that may not be obvious to their friends (e.g. $40,000 of credit card bills that were accrued because their earnings don’t meet their expenses).

    Let me use an analogy. Back when I was practicing bankruptcy law a lot of people told me that they wanted to pay their debts. But when the time came to choose between walking away (Chapter 7) and repaying (Chapter 13) almost everyone picked walking away unless they had a discharge issue in Chapter 7 or wanted to try to save their house. So you can’t really go by what people say. To know if people you know are truly walking away, you’d need to audit their finances.

  7. 7

    RE: Blurtman @ 5 – That sounds more like a loan modification, one being handled outside of bankruptcy.

  8. 8
    Jonness says:

    By ray pepper @ 1:

    All the investors I know personally and in my LLC’s groups have walked years ago now and have began dabbling with flipping and buying a home here or there for cash flow while taking funds out of the stock market. However, most of these were all purchased at Trustee sales or Reo’s and in Az and Nv. Not too many here in Washington.

    Is this the type of deal investors expect at auction in the Puget Sound area, or is this a rare cherry gem?

    http://www.redfin.com/WA/Tacoma/11-Barlow-Rd-SW-98499/home/2954259

    Sold July, 2006: $657,000
    Sold Jan, 2011 to investor: $326,000
    Listed Feb, 2011 $439,950

    If it sells for $420K, I’m guessing it would cost the typical investor needing to finance the cost through Vestus the following amounts:

    $260K * 3% short-term financing = $7,800
    $420K * 3% for Vestus service = $12,600
    $420K * 8% in taxes and RE fees = $33,600
    Perhaps $15K to clean it up and do minor fixes to prepare for listing = $15K

    It comes to about $70K in carrying costs leaving about $25K or so in profit. If a giddy buyer snaps it up, the profit will be a little more. If the house goes past the short-term loan fee, the profit will be less. If the house languishes on the market, the investor will lose money.

    Is the above about right?

  9. 9
    Jonness says:

    As for how many people I know who have walked away, I don’t know of any. However, I know a lot of people who having been living for free in their homes for years waiting to get kicked out. I also know people who have been kicked out.

    In one case of bank limbo, the family borrowed money from a bank to build their home in 2003 ($175K total cost of land and construction doing most of the labor themselves). They proceeded to pull $300K free equity out of the home and then stopped making payments due to a job loss. After 3 years, the bank finally took possession of the home. But 3 months after going REO, the family is still living in the house. I should hold a contest for a free $25 dinner to guess how many more days until the family is evicted. But Scotsman would probably win by guessing it goes rental a year from now. :)

    I keep hearing from people about buyers’ and sellers’ markets based upon supply vs. demand. IMO, in today’s climate of massive shadow inventory, that’s a fairly meaningless measure when looking at the medium to long term outlook in order to judge future appreciation vs. depreciation. The more important measure is the ratio of people who can afford to buy a home compared to the number of people who can’t. If the ratio is weighted toward people not being able to afford homes, prices must come down as the shadow inventory is cleansed.

  10. 10
    Blurtman says:

    RE: Kary L. Krismer @ 7 – Deadbeat firm Tishman Speyer defaulted on a $4.4 billion RE loan. They are an extraordinary deadbeat.

    And yet, in spite of this collosal default, the company continues to cut deals to purchase CRE. I doubt very much that they are using cash only. The valid point is that deadbeat companies play by a different set of rules than those applied to homeowners.

    see: http://www.crainsnewyork.com/article/20101103/REAL_ESTATE/101109946

    In this purchase the seller seems to have arranged a short sale to avoid nasty default provisions. I doubt the average homeowner is having as much luck with short sales.

    see: http://articles.latimes.com/2011/jan/26/business/la-fi-hilton-building-sale-20110126

    Deadbeat Loan Defaulter Tishman Speyer buys former Hilton Hotels headquarters in Beverly Hills
    Tishman Speyer’s purchase of the Hilton buildings is emblematic of investors’ demand for upscale properties as the commercial real estate markets heat up.
    January 26, 2011|By Roger Vincent, Los Angeles Times
    The vacant former headquarters of Hilton Hotels Corp. in Beverly Hills has been purchased by a New York landlord, underscoring the growing strength of the commercial real estate market as investors swoop in on upscale properties.

  11. 11

    RE: Blurtman @ 10 – I’ve always suspected that the owners of high end properties get more attention from banks on short sales because more is at stake. They’re less likely to let an offer for $900,000 on a $1,200,000 loan languish than an offer for $200,000 on a $240,000 loan. If that’s correct, then these even larger loans would get even more attention.

  12. 12
    Blurtman says:

    RE: Kary L. Krismer @ 11 – Sure. But by the same token, defaulting on a billion dollar loan should result in more sanctions than defaulting on a $200,000 loan.

  13. 13

    RE: Blurtman @ 12 – True, and it very well might. There can be more than one obligor on a transaction. I don’t deal in that market so I can’t say either way.

  14. 14
    David Losh says:

    RE: Jonness @ 8

    Bingo!

    A lot of people have talked to me about foreclosures since 2007. We have the means to repair anything. We did a couple at first where the “investor” was happy to pay. Then things started to tighten up.

    I went to some Vestus meetings and spotted a guy I knew from way back when. he and I talked about the tight margins. It’s not like it used to be even a few years ago.

    What I told Ray is if you cost the whole thing out you could just as well get a squeegee, bucket, some rags, and soap and make more washing windows than the risk there is in the foreclosure market.

    I have buddies who are sitting on a pile of poop waiting for the market to recover rather than sell at a loss. For me the risk is way to great. All it would take is another default of a government in Europe to stall the market, or a sudden rise in interest rates.

  15. 15
    David Losh says:

    RE: Blurtman @ 12

    It all goes to how much money can be made. Commercial Property has a value determined by return, no return, no value. If a half a billion dollars will generate a higher return than a default, loss, of a billion, then by all means you would allow the default, and set up an new Corporation to get the return.

    In a lot of threads here, and on other Real Estate blogs, people try to make that leap from a home owner, to an investor, to commercial uses of residential Real Estate. It isn’t all lumped together. Residential Real Estate gets more preference because people will pay to keep the family home.

    You’ve opened up another discussion that would take thousands of words to debate. The bottom line, for me, is that every one should have the ability to renegotiate, just like any commercial venture would. It would be in the banks best interest to do that, but they don’t.

  16. 16
    TheHulk says:

    http://www.nytimes.com/2011/02/14/business/economy/14dip.html

    After reading this, many many more might contemplate walking away. In all these years, never saw a mainstream news article solely focused on Seattle Real estate.

  17. 17
    Dawn Glover says:

    RE: TheHulk @ 16 -I agree..I also think the article was spot on

  18. 18
    TheHulk says:

    RE: TheHulk @ 16

    Well actually, change “mainstream” to “national”. There is tons of *sponsored* mainstream coverage in the seattle times (and the seattle PI, when it was still available in print).

  19. 19
    Blurtman says:

    RE: David Losh @ 15 – Agree. Everyone should have the ability to negotiate. And it may be in the best interest of the banking industry (certainly in the best interest of the RE industry) to take another look at lending to homeowners who strategically default, ceteris paribus.

  20. 20
    ChrisM says:

    RE: Dawn Glover @ 17 – Ditto. Amazing what details people will release to a reporter. Were I the couple that turned down a profitable offer, only to wind up renting out the unit at a loss, I would keep my damn mouth shut.

    I think the money quote from the article is: “Rent is so cheap it doesn’t make sense to buy now”

  21. 21
    ray pepper says:

    RE: Jonness @ 8

    Jonness I will tell you the most popular purchases I see by “3rd party” in Pierce County.

    Home bought in 2005/2006 for 285k selling at Trustee Sale for 136k or homes bought at 170k and sold at trustee sale for 95k..

    Condos bought at 155k selling for 57k or ones sold at 250k for 101k…

  22. 22
    EconE says:

    I think that there are enough people in the shadows that are waiting to walk that it’s just about time for a jubilee.

    Sure…we can all complain about the people that HELOCed their homes in order to take cruises, buy suv’s etc. etc. but in reality didn’t one persons debt contribute to another persons income?

    U.S. wages are ultimately going to have to deflate in order to compete with the rest of the world and in order to do so, debt forgiveness IMHO has to be in the cards.

    The people who will be screwed the most in this situation will be those that bought houses for cash in the last few years. Then again…will they really be that bad off? If they had enough cash to buy a house outright, wouldn’t they also have plenty of cash reserves left over that would subsequently increase in “value”?

    I say cut all debt by 50%. ALL debt.

    Just thinking out loud.

  23. 23
    Blurtman says:

    RE: EconE @ 22 – Debt jubilee? I don’t see that happening. The closest is negotiating a principal write-down with your bank. If folks have 50% of their debt disappear, many will likely tank up again on debt. How about all Americans repudiate the federal debt?

  24. 24
    EconE says:

    RE: Blurtman @ 23

    People will only tank up on debt again if they’re allowed to. Put them all in debt detox. Too many people are still “fronting” and desparately trying to save face. You can see it on facebook. People drowning in debt that are hiding it from the world and pretending that everything is “same old same old”. Living a lie. I did see one facebook page of a person who was forclosed on sharing the truth. All the page had was a picture of a wrist with a razorblade held to it.

    Nice, huh?

    We’ve got the pffts of the world still trying to sell people a lie. The lie that everything is ok. I guess people will continue to live the lie right up until the bitter end. Fake it till you make it? The American dream.

  25. 25

    By EconE @ 22:

    Sure…we can all complain about the people that HELOCed their homes in order to take cruises, buy suv’s etc. etc. but in reality didn’t one persons debt contribute to another persons income?

    I’ve commented in the past that it’s amazing to me that GDP has done as well as it has with the spending of the ATM homeowners cut off. The borrowing against the home clearly contributed to the economy for probably most of the past 20 years or so.

  26. 26
    tony clifton says:

    RE: Kary L. Krismer @ 25

    I don’t comprehend the GDP numbers at all!

    Story in the PI the other day that tax receipts were $105 million lower than expected for the state in Jan. This is just lowering lowered expectations. Most tax receipts for the state come from sales taxes. Say the whole $105 million was lowered sales tax receipts. At a rate of 6.5%, that means sales throughout the state were around $1.5 Billion less than expected. Multiply that by 12 for a yearly rate of $18 Billion of lowered retail sales for the year for the state of Washington. Multiply the $18 Billion by 50 states and thats $900 Billion.

    A very simple and unscientific analysis, but you get the idea. Where is the recovery?

  27. 27
    Jonness says:

    By Kary L. Krismer @ 25:

    I’ve commented in the past that it’s amazing to me that GDP has done as well as it has with the spending of the ATM homeowners cut off. The borrowing against the home clearly contributed to the economy for probably most of the past 20 years or so.

    Uncle Sam is borrowing and printing $1.5 trillion per year in a Keynesian effort to replace consumers’ GDP contribution. The hope is, this will translate directly into new jobs allowing the consumer to step back to the plate. Actually, it’s working for rich people, because the funny money is fueling the stock market. The problem is, it’s not translating into new jobs on mainstreet. But this does not mean mainstreet is not affected by the funny money. Approximately 17% of consumer spending is government funny money. The question is, what happens when Bernanke stops printing new funny money to finance Uncle Sam’s unfathomable debt? At that point, the $1.5 trillion per year in borrowed money will be squarely in the hands of the bond vigilantes.

    That being said, I’ll ride the stock market out through QE2 and then probably pull back a bit until Uncle Ben announces QE3. My stocks are already up 6% so far this year. I really hate what’s happening, but you have to align yourself with the crowd the government is protecting or you undergo a financial bloodbath.

  28. 28
    Leanne says:

    Everyone talks like the banks hold this debt and are the ones that are hurt if loans are not repaid. Banks don’t lend “their” money –they are intermediaries for OPM –other people’s money. It is someone’s retirement savings or other investable funds that take most of the loss. This is especially the case with mortgages, where the originator rarely holds onto the loan. If thee money lent was bank deposits, or the mortgage went into a Fannie/Freddie backed MBS then maybe the taxpayer makes up the loss to the investor/saver, but ultimately it not the banks getting screwed. I suppose it is comforting to think so if you are the one walking away from a loan you could repay.

  29. 29
    David Losh says:

    RE: Leanne @ 28

    That’s not the case. I agree that many pension funds did buy bogus securities. Those fund managers made big commissions by doing that. It’s kind of a simplistic view, but if those fund managers actually opened the Notes, reclaimed the properties, made them viable as rentals, resales, or housing units, there would be no loss. No one wants to deal with housing, or commercial property because that means actual work. None of those people want to work, they just want to sit in an office and play with paper.

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