Maybe we are the norm and maybe not, but foreclosing was probably the most awful thing we have ever done...
We broke a promise and in our minds a great American tradition and went against the culture we were raised in...
We consulted an attorney, the mortgage company, we did thousands of dollars of improvements(ourselves thankfully we are capable), but ultimately, health, finances etc we just could not keep making the payments. We left it clean and tidy, we left emergency contact numbers, we paid for 3 months of lawn mowing to hopefully prevent our neighbors from having a glaring eye sore, but you know what, the bank doesn't want it-by taking it back they could save themselves thousands but would rather drag it out..it sits empty. We were not the people who quit paying and squatted on the property-we left before the last payment.
When I cannot sleep at night, when I realize we gave up the dream of home ownership for many years I try to remind myself that we did pay over 80 thousand toward the home in 2 years, we did improve the home, and there was no way we could have anticipated the trail of bad events-
Should the government bail me out? NO. Should tax dollars? NO. This is between me and the bank-lots of contracts break in all sorts of situations and hopefully it will be resolved per the contract. Mortgage companies are equally at risk as the home owner- I suspect that the price I am paying for breaking the contract will be a reminder to think much more clearly about decisions-
I will say, that this was our third home. We were quite shocked at the amount of money the banks were willing to throw at us and encourage us to use-
Perhaps they will learn something from all of this-unless their foreclosure insurance pays out better for our house then we did-
Although I know I am not alone, it sure feels that way.
There is also the broader and more subtle cost of the lost idea of a promise and the value of peoples' word. That could make day to day life that much more difficult if people are always trying to take advantage of one another. If people ignore the part where it says "I promise," and only abide by the laws describing breach of contract, the next group will ignore the laws altogether. There aren't enough police and investigators to keep on top of things now. If people have less regard for promises, the cost of litigation, enforcement, and the inevitable resulting corruption, abuse, and incorrect judgments will increase.
Yes. You are correct. Just look around and you can see we are quickly approaching this point. Leagalism is a failed philosophy. Most folks just haven't realized it yet.
And that is what is going to make this "great depression" a little more dicey than the last one.
In a non-recourse state, I think of a home loan like this: A bank gives you a loan to buy a house, which means they own it until you pay it off, at which time they give you the deed. However, at any time before you pay it off you can give them the keys back and say "never mind". This paradigm works because for the most part, real estate either stays flat or goes up in value. It doesn't work for car loans and CERTAINLY not credit cards since they are not secured loans.
And don't kid yourself. during those first few years, only a small fraction of your payment is principle anyway.
But the bank is betting on you like a stock investor bets on a stock. If the stock goes down and the investor loses money, unless laws were broken there is nothing immoral going on.
It "feels" that way when you turn in the keys, but really all you did was use the "escape clause". Feelings can deceive, although one can also sear their conscience.
In a non-recourse state, I think of a home loan like this: A bank gives you a loan to buy a house, which means they own it until you pay it off, at which time they give you the deed. However, at any time before you pay it off you can give them the keys back and say "never mind". This paradigm works because for the most part, real estate either stays flat or goes up in value. It doesn't work for car loans and CERTAINLY not credit cards since they are not secured loans.
Your example is exactly what I was getting at with the other hypothetical question of borrowing 100% from your family. Regardless of how we like to think of a traditional mortgage, it is really a lease-to-own deal (at least in non-recourse states). The bank has every right to try to convince you that you have additional moral obligations, and I would not be surprised to see commercials from the banking industry to advocate how staying in an underwater home is your patriotic duty, but that's kind of the end of the line.
In this case, walking away not only takes money directly out of the pocket of the lender, but it then causes lenders to raise rates for new borrowers. That means that for the same cost people will live in smaller houses, there is less money for construction workers, factories, and all down the line.
It sounds like the primary difference of opinion is how we each view this chain of effects. You, obviously, consider it a bad thing. But several people on this board - I'm one of them - would argue that what you laid out is a very painful and natural result of any bubble. Most of the construction jobs were not sustainable and people were clearly buying more house than they could afford. To the extent that people walking away hastens the return to a normal market I am all for it.
I will grant you the point that I'd rather not live in a society where people turn back on every agreement once it becomes inconvenient. I think the problem is that you're now reaching the fundamental societal limits of capitalism. If it's in my companies best interests, they will out source my job, and if I find a higher paying one I'll leave. Neither breeds trust or loyalty, and thus we've seen a massive decline in each over the last 30 years. It was once common for people to expect they'd keep the same job essentially until they retired. Now, ask anyone in my generation (in their 20s) and they probably expect to change careers - not employers, but careers - 3+ times during their life. This is systematic and far larger than "walking away".
I agree that the bank is taking their own risk by investing in "me" but I agree with others that things are different today, and through me walking away I am contributing to a new era- not knowing the over all effect is the worse part...
I think there is a lot more contributing then just a change in integrity,business is different, folks move frequently for work, we are not as family oriented as we once were,and homes are more investment then family centered.
It should be interesting to see where this all ends up, I think my guilt is not so much from me personally breaking my obligations(I agree that odds are bank was far more aware of the risk then I should have been), but more in the impact that it has on my neighbors and community. I cannot help but think of my friends and neighbors who bought a home to live in for the rest of their lives, and because of my actions are now watching their values dive down..again, not that I am the whole cause, but I am partly to blame.
Hopefully, the banks will recover and like myself be a bit more savvy instead of greedy when they are back on their feet.
If you don't mind my prying, I am very curious about your mortgage default. Was this truly a situation of "vuluntarily" walking away (or a "ruthless default", as Tanta at CalculatedRisk puts it)? It's one thing to make a conscious decision to default when you are deeply under-water to cut your losses. It is quite another thing to default when one can easily make the payments and has the financial wherewithall to stay in the house.
Not that I am saying that even "ruthless defaults" (i.e. when the borrower defaults even when they have the means to continue making payments) is immoral, but that is a very different situation from a case where the borrowers really can't make ends meet and must go delinquent.
Not prying at all- I figure by posting here I am volunteering.
Husband lost 6 figure job due to a company going bankrupt.(not foreseeable)
Wife(self)diagnosis of cancer(not foreseeable)
We sold everything- we even sold our good car and bought a beater for emergencies and bus passes for the rest of the needs.
We used college savings, retirement savings, sold our furnishings and even inherited family items.
We finally gave in when we just could not even come close to paying mortgage and since we bought in 2006 though we tried to sell, we could not possibly lower the price to the point to get it sold. The bank was unwilling to do a short sale, and our attorney advised that it was time to pack up and go. He said even if they would do a short sale that would still pretty ruin our credit, and it would only sooth our moral values- he actually recommended squatting, but that is not something we could do.
So, now we rent. The medical bills are tremendous but they have been fairly willing to work with us- but heck our credit is so destroyed already just from the non payment they are pretty much grateful that we are willing to pay anything as they have very little to hold over our heads.
The bank will not take the house in deed of lieu nor after 6 months have they even begun proceedings- they simply send us certified mail every other month asking when we are going to make a payment. They would not speak with our attorney(who we can no longer afford but he did make a few attempts) they will not do more then tell us no and ask when we plan to make a payment when we do call.. We called a few non profits but they are more in the business of trying to help folks refinance - even if we refinanced we would end up in trouble down the road- in my mind that would be fraudulent.
On a positive note, my sons both received scholarships and grants to get through college-and we figure we will be out of medical and other debt in about 10 years at which point we can see what is going on in the real estate world.. I strongly suspect though, that we won't be buying anything bigger then a very basic salary could pay for...we ended up moving out of state for my medical care and for the boys college- The colleges in WA did not have much to offer as far as aid vs high tuition and we found a few colleges with much better tuition and more scholarship money even as out of state folks..
We are renting a surprisingly nice home in a nice neighborhood for not even a tenth of what our note was.. friends and family have been kind and my health is on the mend. I have found a new creative side to making something out of nothing- you would be very surprised at the great stuff people throw away- some paint and nails(which can also be found in the trash) and I am now almost furnished. We no longer use credit and have rediscovered the merits of true living vs living for the buck. The husband has a great job(employers have had no problem with the foreclosing issues, may I note honesty is the best policy)and now I also know who my true friends and family are- it is shocking how folks treat us like we have the plague- but that too is the cross you bear when you make the decision to walk away.
So, we try to hold our heads high, and stand tall. It really is not the end of the world. But, it still stings. We now are concerned because I would think since we still own it we will have to pay the insurance? Then also what about the taxes? But, we just cannot afford an attorney and the mortgage company is not in the mood to explain much to us despite our repeated calling and writing-
I wake each day a new person with a new respect for the dollar- but, I am watching the spiral of the real estate world and am curious how far all this will go.. Our attorney thought it would get much worse as the banks are very slow to foreclose and it will be months before the majority of those actually start to show as stats- His thoughts were also concerned about the impact on state taxes and budget.. Even folks best efforts are not always good enough,, and I think about the folks that have to move and cannot sell- how long can they handle a double payment? The reduced amount they are spending retail, the reduce loan amounts, the higher down payments, the lower values, lower tax revenue- it is mind boggling and hopefully one day I will be sitting with grandchildren telling how we were apart of the crash-perhaps one that will end up making the books..
but ultimately, health, finances etc we just could not keep making the payments.
Situations like this are why non-recourse laws, 7 year limits on bad credit and debt forgiveness through bankruptcy are so important.
The people who abuse those mechanisms by walking away from their obligations for gain and not for need will end up hurting families that have fallen on hard times, by causing those mechanisms to become less available, as was done a few years ago for credit card debt.
If a society has strong ethics, then 3% down loans are an acceptable business risk and everyone benefits through being able to get comfortable houses and a strong economy. With weak ethics where everyone views everyone else as a potential sucker, then even 20% is not enough, and everyone loses. The excesses of the boom can be traced to fraud, price gouging, and over-exuberance in land speculation, created by a sudden release of new money. Had it been more gradual, the rapid run-up in prices could have reached a new plateau gradually. Even so, the big losses are confined and even 50% drops only erase a year or two of gains in those markets. It is the stupid banks that have been the biggest losers so far, and a I expect a rather small number of people who actually put in fresh equity at the peak, as opposed to flippers rolling over massive RE gains. Hopefully it be contained to that.
Most of the construction jobs were not sustainable and people were clearly buying more house than they could afford. To the extent that people walking away hastens the return to a normal market I am all for it.
I knew this reply was coming, but I didn't clearly enough verbalize the different point I was making. When interest rates rise, you can only buy a smaller house for the same financial load. If the load itself was unsustainable, then it is a double hit.
We finally gave in when we just could not even come close to paying mortgage and since we bought in 2006 though we tried to sell, we could not possibly lower the price to the point to get it sold.
Well, it looks as if you are not one of those "ruthless defaulters", who consciously decided to walk away even though you had the ability to pay.
I am beginning to wonder if such creatures really exist... Tanta (over at CalculatedRisk) has been talking about this for quite a while. Although we keep hearing about how people are "choosing" to walk away, there seems to be few real examples of where this is true. More often than not the people who default seem to have come to a situation where they were simply unable to make the payments.
I am sure there are the folks that walk away for personal gain- and I am sure there are those that destroy the house because for some reason they believe that the government and mortgage company shoudl take all responsibility and for some reason have a very difficult time understanding that they are the ones that took the debt-
Those folks should be hung by their toes- Admittedly despite my situation we deserve what we get as written in the contract- that is life. Everyone gets hit unexpectedly sometimes, it is how one handles the situation that counts..
We did get involved with a number of online groups and we were shocked to read about what some folks were doing to the property or that they would take another loan before the first defaulted- they should be in jail for fraud and deliberate destruction of property... I shudder to think we are grouped with the likes of that...
We live in age of no accountability- from our schools, businesses, politicians, shoot even our families- 50 percent divorce rate- surely of that 50 percent of divorces many could have worked out their differences if they had been taught that nothing comes easy and that a commitment is a commitment... not all but better then 50 percent... numbers are rising for children in foster care, the US leads the numbers for child abuse compared to other first world countries...
Rarely do you see folks hang on to things they bought until they are beyond repair, nope, once the color or style is no longer the latest and greatest we toss it- we seem to be heading into an era where we treat morals and people the same way-
I was on that path- but I am feeling pretty lucky that I got a wake up call :-) If I get better and can work again, if our incomes take us back to where we were, I think I am going to appreciate it a whole lot more :-)
I agree. Why would someone buy a house without the intention of ever making a payment?
I know that some people do this, but I think it has much more to do with a spending problem or addiction than it does.
Speculation drove much of it, but I've also come across many people who just chose to buy a house that was WAY out of their price range. I remember talking to one individual who wanted to refinance. He really wanted to keep the house he was in, but the day he moved in, he and his wife never made a payment because they didn't make enough money.
They loved the house, they wanted to keep it and against all good judgment someone gave him the money to buy it.
He called me 3 months after purchasing. He bought it zero down. It was when there was still appreciation, but of course it hadn't appreciated anywhere in that time and no bank is going to give you a loan with recent mortgage lates anyway.
Someone who read the "books" and thought he knew how to make millions. In a normal period of time, no bank would have EVER given him the money to buy eight properties if he didn't have the liquid capital to back it up.
Anyway, most people don't buy a house with the intention of never making a payment. The lax lending just allowed irresponsible people to borrow however much they wanted so they could "live the dream". It was nothing more than a high priced shopping addiction for some people.
Why would someone buy a house without the intention of ever making a payment?
I agree that precious few people buy homes with the intention of never making a payment. However, there may indeed be people who decide there is no point in making more payments once their home has lost so much value that it is no longer worth what is owed on the mortgage.
I would like to see if there are REAL examples of people in this situation (i.e. who are perfectly able to make their mortgage payments but decide not to do so since they are under-water).
I would like to see if there are REAL examples of people in this situation (i.e. who are perfectly able to make their mortgage payments but decide not to do so since they are under-water).
A friend of mine in Vegas is seriously considering it. He makes megabucks, but his originally $200K condo is now worth about $130K. It's a business decision and legal. I think it's good for the country if people walk away en masse. It will make the middle class stronger, stemming the onslaught against them by the corporatocracy. A corporation, BTW, could get sued by its shareholders if it didn't walk away from a large debt when it could do so legally.
his originally $200K condo is now worth about $130K. It's a business decision and legal. I think it's good for the country if people walk away en masse. It will make the middle class stronger, stemming the onslaught against them by the corporatocracy.
He's willing to have the credit rating of a deadbeat for 7 years for a measly $70K? Strange definition of megabucks. It's one think to have to explain to future employers your health reasons, but how is he going to explain he just didn't feel like paying? If he is such a hot shot, how is he ever going to get a bank loan for expansion or whatever with that kind of track record?
People who destroy the stores in their neighborhood during a riot to get back at the man end up only hurting themselves.
How shot his credit rating could get depends on how many people walk away. If things get as bad as many predict, it should be relatively minor ding to one's credit rating, one to three years blacklisted and that's it. (Consider Vietnam draft dodgers. They were pardoned because it was more profitable to pardon them, given that there were so many of them.) He'll be able to pay all cash for his next house anyway; he doesn't need credit anymore.
The "explain to future employers" thing, and other effective scarlet letters, is just what the corporatocracy wants. They'll do whatever they can to make people pay their debts in full so they can profit the maximum, even as they walk away from their own debts when they can. However, if millions walk away from their homes, the scarlet letters won't be as profitable.
I doubt it will hurt his job opportunities if he is higher up the management chain or is more specialized.. as I said for my husband it was not a problem as long as he told them up front...
Also, we had no problem getting a car at a very good rate after our credit was hurt by non payment... it seems that having good credit is just not as necessary as it used to be... and in our case avoiding using credit has been a good thing-something more folks should practice...
I am wondering though, as it becomes harder to buy a home and more and more are either bought up by real estate companies or rented by the bank, I am afraid they will be able to up the rental rates since rentals will be in higher demand-
He's willing to have the credit rating of a deadbeat for 7 years for a measly $70K? Strange definition of megabucks. It's one think to have to explain to future employers your health reasons, but how is he going to explain he just didn't feel like paying? If he is such a hot shot, how is he ever going to get a bank loan for expansion or whatever with that kind of track record?
The value of "good credit" is exaggerated. If you are living the right way - if I might be so bold as to say ethically - you will have essentially no debt. Debt for real estate, expenses to start a business, and student loans are the only kind I think are appropriate. Again, I'll elaborate that any other deficit spending is unethical. In light of this thread, I'd call the other deficit spending even more unethical than walking away, as the armies of people living in debt are damaging America in more ways than those walking away. Also, debt punishes the next generation, whereas walking away has a distinct cost now and then we pay for it and move on.
Again, I'll elaborate that any other deficit spending is unethical. In light of this thread, I'd call the other deficit spending even more unethical than walking away, as the armies of people living in debt are damaging America in more ways than those walking away. Also, debt punishes the next generation, whereas walking away has a distinct cost now and then we pay for it and move on.
I agree that passing a debt to another generation is highly unethical, more so than even walking away from a debt since they had no chance to even consider the risks. There are some exceptions for such things as long term capital improvements such as roads, schools, etc. and even education or other expenses genuinely done specifically for the benefit of the next generation, where those debts are in effect incurred as their guardian.
Is borrowing for Christmas shopping or a winter vacation really unethical? I don't think so if you have the discipline to pay it off.
I haven't had a car loan since 1989 and that one only because of its low interest rate. My wife is always complaining about our beaters, and even I'm embarrassed now about my car. Is leasing a car unethical too?
In the finest sense of ethics, I think you are correct to a degree that staying out of debt is a more virtuous life, but the difference between that and walking away from a loan is no comparison.
Yes the feds look at credit, but our nephew just signed up for the Navy with hideous credit and since they needed him so badly they "waived" the credit flagging-for his security clearance
Bad credit makes somethings a bit more difficult to obtain but not impossible-
We are adjusting to "bad credit" and finding it a relief to pay off each bill and buy each item in full and totally own it before it is worn out...
Is borrowing for Christmas shopping or a winter vacation really unethical? I don't think so if you have the discipline to pay it off.
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In the finest sense of ethics, I think you are correct to a degree that staying out of debt is a more virtuous life, but the difference between that and walking away from a loan is no comparison.
I take a utilitarian view of ethics in general. That is, actions which produce good results are generally ethical, actions which produce negative results are unethical and actions which produce neutral results are usually none of my business.
That said, I think I could make a very strong argument that borrowing for gifts or travel is unethical. Every bit as much as other vices like say gambling, alcohol consumptions, sex, and eating (copious amounts). None of those activities are particularly harmful in moderation but each is extremely risky if done in excess (for sex assume excess means many many partners).
Debt will cause more divorce, systematic poverty, crime, suicide, depression, and drug use than walking away will over the next 20 years. If I were a gambling man, I'd put money on it.
Debt will cause more divorce, systematic poverty, crime, suicide, depression, and drug use than walking away will over the next 20 years. If I were a gambling man, I'd put money on it.
And I would take that bet. If you were to ask a bunch of divorced, poor, criminal, suicidal, depressed drug users if they had even walked away from a debt, how do you think that answer would compare to people who were none of the above?
In the back of your mind you just know there is something like karma for not paying back people who lend you money. Sooner or later. If not karma, then just the character trait. If not a character trait, then their conscience. If no conscience, then just the fear of the questions that may or may not be asked at a job interview, or the look from your date when you pay for dinner with cash because you can't get a credit card, or you can't rent a car on your vacation. It's one thing to eschew all those things out of principle, its totally another to have them forced on you because people don't trust you anymore.
In the back of your mind you just know there is something like karma for not paying back people who lend you money. Sooner or later. If not karma, then just the character trait. If not a character trait, then their conscience. If no conscience, then just the fear of the questions that may or may not be asked at a job interview, or the look from your date when you pay for dinner with cash because you can't get a credit card, or you can't rent a car on your vacation. It's one thing to eschew all those things out of principle, its totally another to have them forced on you because people don't trust you anymore.
First, karma does not exist. If it did, Sharon Stone would be punished by fate for suggesting that impoverished Chinese farmers deserved a deadly earthquake for holding down Tibet. All sorts of bad stuff happens to people who don't deserve it and the sleaze at the top usually don't get what's coming to them.
Other than that, you just stated the obvious that the actions a person takes will directly affect their own life and that some people may be embarrassed about their financial affairs. Whup-de-da. I can't buy a home on my own terms due to the bubble, which is mildly embarrassing. Half of all bankruptcies are caused by illness, I'm sure that's embarrassing as well. Being embarrassed about something is not the same as it being unethical. It's usually just a sign that the embarrassed party is concerned by social stigma if they don't tow the line.
Jon, I understand your concern, but it seems like your main worry is that people feel sufficiently guilty. Life is too short for that. Most people are altruistic and empathetic, they want to help others and for the world to be a better place. They don't need one more thing to feel bad about when it's so much healthier to just enjoy life.
Yes the feds look at credit, but our nephew just signed up for the Navy with hideous credit and since they needed him so badly they "waived" the credit flagging-for his security clearance
Funny how supply & demand works for the military too. If millions walk away from their mortgages, their credit won't look so bad either.
his originally $200K condo is now worth about $130K. It's a business decision and legal. I think it's good for the country if people walk away en masse. It will make the middle class stronger, stemming the onslaught against them by the corporatocracy.
He's willing to have the credit rating of a deadbeat for 7 years for a measly $70K? Strange definition of megabucks. It's one think to have to explain to future employers your health reasons, but how is he going to explain he just didn't feel like paying? If he is such a hot shot, how is he ever going to get a bank loan for expansion or whatever with that kind of track record?
People who destroy the stores in their neighborhood during a riot to get back at the man end up only hurting themselves.
JON:
You sound like a Banker or a Mortgage company person...
I agree a person has a moral obligation when his home is totally underwater...and that obligation is to his FAMILY....
The lender had all the cards when the contract was drawn....they decided the Terms, and wrote the contract....they vetted not just the Borrower, but also did an appraisal of the property. Most of the payments made in the first critical years went directly to the bank and not to equity....It is a legal arrangement...that involves risk on both sides but all the EQUITY on the side of the Lender.
Who does the Borrower have a moral obligation too...a legal contract or his family....I think the answer is clear....especially when someone in a house that is way under water is dooming his family to a life of poverty if he continues to throw good money after bad because the money he throws into the pit goes directly into the pocket of the bank.
I can not speak for corporations, but I know the Federal Government still looks at your credit history closely for potential employment.
When people look at your credit rating they look at the whole thing...My personal rating is over 800...If I walked away from my home...and that is the only blemish I doubt I would be refused a JOB..Especially when this is a national issue affecting millions of people and the Financial institution has dirty hands in many cases.
This whole thing is not a moral issue but a financial and contractual issue....You made your house payment on time every single month...notified the bank you could no longer continue for whatever reason, Most likely you had to move for your/a job or had an adjustable rate that you could not afford an increase in or you couldn't afford the cost of a big commute any longer, or as in the case of my relatives your children have terrible allergies and need to move to a different part of the country AND YOU CAN'T SELL THE HOUSE..without suffering a huge loss compounded by 1000s in sales tax (thanks gregor) and 10s of 1000s in real estate sales costs...
You get the advice of an attorney...You make sure the house is in as good condition as when you bought it....You take pictures...you lock everything up and tell the bank when you are leaving...you shut off the water and power...and you move, the bank has the house as stipulated in their Contract with you. they have your Attorney who you continue to pay to be sure the bank is fully informed and to handle any legal issues.
What happens next...The bank sends you payment notices for months...you send back registered mail and your attorney contacts them until he is blue in the face and it is like spitting into the wind. The bank ends up as incompetent in this end stage as they have been all along...SURPRISE...
The lender had all the cards when the contract was drawn....they decided the Terms, and wrote the contract....they vetted not just the Borrower, but also did an appraisal of the property.
Huh? The buyer made the decision to buy, how much to spend, who to borrow from, who to use as an agent, etc. No one has more control over the transaction than the buyer.
"they "waived" the credit flagging-for his security clearance"
Reference security clearances, nothing is waived, it is a subjective consideration of risk that depends on the level of clearance and the individual. This is considered by the adjuticator, so what works out for one might not work for another, or may be reconsidered in the future.
Comments
We broke a promise and in our minds a great American tradition and went against the culture we were raised in...
We consulted an attorney, the mortgage company, we did thousands of dollars of improvements(ourselves thankfully we are capable), but ultimately, health, finances etc we just could not keep making the payments. We left it clean and tidy, we left emergency contact numbers, we paid for 3 months of lawn mowing to hopefully prevent our neighbors from having a glaring eye sore, but you know what, the bank doesn't want it-by taking it back they could save themselves thousands but would rather drag it out..it sits empty. We were not the people who quit paying and squatted on the property-we left before the last payment.
When I cannot sleep at night, when I realize we gave up the dream of home ownership for many years I try to remind myself that we did pay over 80 thousand toward the home in 2 years, we did improve the home, and there was no way we could have anticipated the trail of bad events-
Should the government bail me out? NO. Should tax dollars? NO. This is between me and the bank-lots of contracts break in all sorts of situations and hopefully it will be resolved per the contract. Mortgage companies are equally at risk as the home owner- I suspect that the price I am paying for breaking the contract will be a reminder to think much more clearly about decisions-
I will say, that this was our third home. We were quite shocked at the amount of money the banks were willing to throw at us and encourage us to use-
Perhaps they will learn something from all of this-unless their foreclosure insurance pays out better for our house then we did-
Although I know I am not alone, it sure feels that way.
leaveseattle
And don't kid yourself. during those first few years, only a small fraction of your payment is principle anyway.
But the bank is betting on you like a stock investor bets on a stock. If the stock goes down and the investor loses money, unless laws were broken there is nothing immoral going on.
It "feels" that way when you turn in the keys, but really all you did was use the "escape clause". Feelings can deceive, although one can also sear their conscience.
Your example is exactly what I was getting at with the other hypothetical question of borrowing 100% from your family. Regardless of how we like to think of a traditional mortgage, it is really a lease-to-own deal (at least in non-recourse states). The bank has every right to try to convince you that you have additional moral obligations, and I would not be surprised to see commercials from the banking industry to advocate how staying in an underwater home is your patriotic duty, but that's kind of the end of the line.
It sounds like the primary difference of opinion is how we each view this chain of effects. You, obviously, consider it a bad thing. But several people on this board - I'm one of them - would argue that what you laid out is a very painful and natural result of any bubble. Most of the construction jobs were not sustainable and people were clearly buying more house than they could afford. To the extent that people walking away hastens the return to a normal market I am all for it.
I will grant you the point that I'd rather not live in a society where people turn back on every agreement once it becomes inconvenient. I think the problem is that you're now reaching the fundamental societal limits of capitalism. If it's in my companies best interests, they will out source my job, and if I find a higher paying one I'll leave. Neither breeds trust or loyalty, and thus we've seen a massive decline in each over the last 30 years. It was once common for people to expect they'd keep the same job essentially until they retired. Now, ask anyone in my generation (in their 20s) and they probably expect to change careers - not employers, but careers - 3+ times during their life. This is systematic and far larger than "walking away".
I think there is a lot more contributing then just a change in integrity,business is different, folks move frequently for work, we are not as family oriented as we once were,and homes are more investment then family centered.
It should be interesting to see where this all ends up, I think my guilt is not so much from me personally breaking my obligations(I agree that odds are bank was far more aware of the risk then I should have been), but more in the impact that it has on my neighbors and community. I cannot help but think of my friends and neighbors who bought a home to live in for the rest of their lives, and because of my actions are now watching their values dive down..again, not that I am the whole cause, but I am partly to blame.
Hopefully, the banks will recover and like myself be a bit more savvy instead of greedy when they are back on their feet.
If you don't mind my prying, I am very curious about your mortgage default. Was this truly a situation of "vuluntarily" walking away (or a "ruthless default", as Tanta at CalculatedRisk puts it)? It's one thing to make a conscious decision to default when you are deeply under-water to cut your losses. It is quite another thing to default when one can easily make the payments and has the financial wherewithall to stay in the house.
Not that I am saying that even "ruthless defaults" (i.e. when the borrower defaults even when they have the means to continue making payments) is immoral, but that is a very different situation from a case where the borrowers really can't make ends meet and must go delinquent.
Not prying at all- I figure by posting here I am volunteering.
Husband lost 6 figure job due to a company going bankrupt.(not foreseeable)
Wife(self)diagnosis of cancer(not foreseeable)
We sold everything- we even sold our good car and bought a beater for emergencies and bus passes for the rest of the needs.
We used college savings, retirement savings, sold our furnishings and even inherited family items.
We finally gave in when we just could not even come close to paying mortgage and since we bought in 2006 though we tried to sell, we could not possibly lower the price to the point to get it sold. The bank was unwilling to do a short sale, and our attorney advised that it was time to pack up and go. He said even if they would do a short sale that would still pretty ruin our credit, and it would only sooth our moral values- he actually recommended squatting, but that is not something we could do.
So, now we rent. The medical bills are tremendous but they have been fairly willing to work with us- but heck our credit is so destroyed already just from the non payment they are pretty much grateful that we are willing to pay anything as they have very little to hold over our heads.
The bank will not take the house in deed of lieu nor after 6 months have they even begun proceedings- they simply send us certified mail every other month asking when we are going to make a payment. They would not speak with our attorney(who we can no longer afford but he did make a few attempts) they will not do more then tell us no and ask when we plan to make a payment when we do call.. We called a few non profits but they are more in the business of trying to help folks refinance - even if we refinanced we would end up in trouble down the road- in my mind that would be fraudulent.
On a positive note, my sons both received scholarships and grants to get through college-and we figure we will be out of medical and other debt in about 10 years at which point we can see what is going on in the real estate world.. I strongly suspect though, that we won't be buying anything bigger then a very basic salary could pay for...we ended up moving out of state for my medical care and for the boys college- The colleges in WA did not have much to offer as far as aid vs high tuition and we found a few colleges with much better tuition and more scholarship money even as out of state folks..
We are renting a surprisingly nice home in a nice neighborhood for not even a tenth of what our note was.. friends and family have been kind and my health is on the mend. I have found a new creative side to making something out of nothing- you would be very surprised at the great stuff people throw away- some paint and nails(which can also be found in the trash) and I am now almost furnished. We no longer use credit and have rediscovered the merits of true living vs living for the buck. The husband has a great job(employers have had no problem with the foreclosing issues, may I note honesty is the best policy)and now I also know who my true friends and family are- it is shocking how folks treat us like we have the plague- but that too is the cross you bear when you make the decision to walk away.
So, we try to hold our heads high, and stand tall. It really is not the end of the world. But, it still stings. We now are concerned because I would think since we still own it we will have to pay the insurance? Then also what about the taxes? But, we just cannot afford an attorney and the mortgage company is not in the mood to explain much to us despite our repeated calling and writing-
I wake each day a new person with a new respect for the dollar- but, I am watching the spiral of the real estate world and am curious how far all this will go.. Our attorney thought it would get much worse as the banks are very slow to foreclose and it will be months before the majority of those actually start to show as stats- His thoughts were also concerned about the impact on state taxes and budget.. Even folks best efforts are not always good enough,, and I think about the folks that have to move and cannot sell- how long can they handle a double payment? The reduced amount they are spending retail, the reduce loan amounts, the higher down payments, the lower values, lower tax revenue- it is mind boggling and hopefully one day I will be sitting with grandchildren telling how we were apart of the crash-perhaps one that will end up making the books..
Situations like this are why non-recourse laws, 7 year limits on bad credit and debt forgiveness through bankruptcy are so important.
The people who abuse those mechanisms by walking away from their obligations for gain and not for need will end up hurting families that have fallen on hard times, by causing those mechanisms to become less available, as was done a few years ago for credit card debt.
If a society has strong ethics, then 3% down loans are an acceptable business risk and everyone benefits through being able to get comfortable houses and a strong economy. With weak ethics where everyone views everyone else as a potential sucker, then even 20% is not enough, and everyone loses. The excesses of the boom can be traced to fraud, price gouging, and over-exuberance in land speculation, created by a sudden release of new money. Had it been more gradual, the rapid run-up in prices could have reached a new plateau gradually. Even so, the big losses are confined and even 50% drops only erase a year or two of gains in those markets. It is the stupid banks that have been the biggest losers so far, and a I expect a rather small number of people who actually put in fresh equity at the peak, as opposed to flippers rolling over massive RE gains. Hopefully it be contained to that.
I knew this reply was coming, but I didn't clearly enough verbalize the different point I was making. When interest rates rise, you can only buy a smaller house for the same financial load. If the load itself was unsustainable, then it is a double hit.
Well, it looks as if you are not one of those "ruthless defaulters", who consciously decided to walk away even though you had the ability to pay.
I am beginning to wonder if such creatures really exist... Tanta (over at CalculatedRisk) has been talking about this for quite a while. Although we keep hearing about how people are "choosing" to walk away, there seems to be few real examples of where this is true. More often than not the people who default seem to have come to a situation where they were simply unable to make the payments.
Those folks should be hung by their toes- Admittedly despite my situation we deserve what we get as written in the contract- that is life. Everyone gets hit unexpectedly sometimes, it is how one handles the situation that counts..
We did get involved with a number of online groups and we were shocked to read about what some folks were doing to the property or that they would take another loan before the first defaulted- they should be in jail for fraud and deliberate destruction of property... I shudder to think we are grouped with the likes of that...
We live in age of no accountability- from our schools, businesses, politicians, shoot even our families- 50 percent divorce rate- surely of that 50 percent of divorces many could have worked out their differences if they had been taught that nothing comes easy and that a commitment is a commitment... not all but better then 50 percent... numbers are rising for children in foster care, the US leads the numbers for child abuse compared to other first world countries...
Rarely do you see folks hang on to things they bought until they are beyond repair, nope, once the color or style is no longer the latest and greatest we toss it- we seem to be heading into an era where we treat morals and people the same way-
I was on that path- but I am feeling pretty lucky that I got a wake up call :-) If I get better and can work again, if our incomes take us back to where we were, I think I am going to appreciate it a whole lot more :-)
I know that some people do this, but I think it has much more to do with a spending problem or addiction than it does.
Speculation drove much of it, but I've also come across many people who just chose to buy a house that was WAY out of their price range. I remember talking to one individual who wanted to refinance. He really wanted to keep the house he was in, but the day he moved in, he and his wife never made a payment because they didn't make enough money.
They loved the house, they wanted to keep it and against all good judgment someone gave him the money to buy it.
He called me 3 months after purchasing. He bought it zero down. It was when there was still appreciation, but of course it hadn't appreciated anywhere in that time and no bank is going to give you a loan with recent mortgage lates anyway.
Another good example of this was http://iamfacingforeclosure.com/history.html
Someone who read the "books" and thought he knew how to make millions. In a normal period of time, no bank would have EVER given him the money to buy eight properties if he didn't have the liquid capital to back it up.
Anyway, most people don't buy a house with the intention of never making a payment. The lax lending just allowed irresponsible people to borrow however much they wanted so they could "live the dream". It was nothing more than a high priced shopping addiction for some people.
I agree that precious few people buy homes with the intention of never making a payment. However, there may indeed be people who decide there is no point in making more payments once their home has lost so much value that it is no longer worth what is owed on the mortgage.
I would like to see if there are REAL examples of people in this situation (i.e. who are perfectly able to make their mortgage payments but decide not to do so since they are under-water).
He's willing to have the credit rating of a deadbeat for 7 years for a measly $70K? Strange definition of megabucks. It's one think to have to explain to future employers your health reasons, but how is he going to explain he just didn't feel like paying? If he is such a hot shot, how is he ever going to get a bank loan for expansion or whatever with that kind of track record?
People who destroy the stores in their neighborhood during a riot to get back at the man end up only hurting themselves.
The "explain to future employers" thing, and other effective scarlet letters, is just what the corporatocracy wants. They'll do whatever they can to make people pay their debts in full so they can profit the maximum, even as they walk away from their own debts when they can. However, if millions walk away from their homes, the scarlet letters won't be as profitable.
Also, we had no problem getting a car at a very good rate after our credit was hurt by non payment... it seems that having good credit is just not as necessary as it used to be... and in our case avoiding using credit has been a good thing-something more folks should practice...
I am wondering though, as it becomes harder to buy a home and more and more are either bought up by real estate companies or rented by the bank, I am afraid they will be able to up the rental rates since rentals will be in higher demand-
Rent control.
The value of "good credit" is exaggerated. If you are living the right way - if I might be so bold as to say ethically - you will have essentially no debt. Debt for real estate, expenses to start a business, and student loans are the only kind I think are appropriate. Again, I'll elaborate that any other deficit spending is unethical. In light of this thread, I'd call the other deficit spending even more unethical than walking away, as the armies of people living in debt are damaging America in more ways than those walking away. Also, debt punishes the next generation, whereas walking away has a distinct cost now and then we pay for it and move on.
Challenge!
I agree that passing a debt to another generation is highly unethical, more so than even walking away from a debt since they had no chance to even consider the risks. There are some exceptions for such things as long term capital improvements such as roads, schools, etc. and even education or other expenses genuinely done specifically for the benefit of the next generation, where those debts are in effect incurred as their guardian.
Is borrowing for Christmas shopping or a winter vacation really unethical? I don't think so if you have the discipline to pay it off.
I haven't had a car loan since 1989 and that one only because of its low interest rate. My wife is always complaining about our beaters, and even I'm embarrassed now about my car. Is leasing a car unethical too?
In the finest sense of ethics, I think you are correct to a degree that staying out of debt is a more virtuous life, but the difference between that and walking away from a loan is no comparison.
Bad credit makes somethings a bit more difficult to obtain but not impossible-
We are adjusting to "bad credit" and finding it a relief to pay off each bill and buy each item in full and totally own it before it is worn out...
Credit is a business not a necessity...
I take a utilitarian view of ethics in general. That is, actions which produce good results are generally ethical, actions which produce negative results are unethical and actions which produce neutral results are usually none of my business.
That said, I think I could make a very strong argument that borrowing for gifts or travel is unethical. Every bit as much as other vices like say gambling, alcohol consumptions, sex, and eating (copious amounts). None of those activities are particularly harmful in moderation but each is extremely risky if done in excess (for sex assume excess means many many partners).
Debt will cause more divorce, systematic poverty, crime, suicide, depression, and drug use than walking away will over the next 20 years. If I were a gambling man, I'd put money on it.
And I would take that bet. If you were to ask a bunch of divorced, poor, criminal, suicidal, depressed drug users if they had even walked away from a debt, how do you think that answer would compare to people who were none of the above?
In the back of your mind you just know there is something like karma for not paying back people who lend you money. Sooner or later. If not karma, then just the character trait. If not a character trait, then their conscience. If no conscience, then just the fear of the questions that may or may not be asked at a job interview, or the look from your date when you pay for dinner with cash because you can't get a credit card, or you can't rent a car on your vacation. It's one thing to eschew all those things out of principle, its totally another to have them forced on you because people don't trust you anymore.
First, karma does not exist. If it did, Sharon Stone would be punished by fate for suggesting that impoverished Chinese farmers deserved a deadly earthquake for holding down Tibet. All sorts of bad stuff happens to people who don't deserve it and the sleaze at the top usually don't get what's coming to them.
Other than that, you just stated the obvious that the actions a person takes will directly affect their own life and that some people may be embarrassed about their financial affairs. Whup-de-da. I can't buy a home on my own terms due to the bubble, which is mildly embarrassing. Half of all bankruptcies are caused by illness, I'm sure that's embarrassing as well. Being embarrassed about something is not the same as it being unethical. It's usually just a sign that the embarrassed party is concerned by social stigma if they don't tow the line.
Jon, I understand your concern, but it seems like your main worry is that people feel sufficiently guilty. Life is too short for that. Most people are altruistic and empathetic, they want to help others and for the world to be a better place. They don't need one more thing to feel bad about when it's so much healthier to just enjoy life.
JON:
You sound like a Banker or a Mortgage company person...
I agree a person has a moral obligation when his home is totally underwater...and that obligation is to his FAMILY....
The lender had all the cards when the contract was drawn....they decided the Terms, and wrote the contract....they vetted not just the Borrower, but also did an appraisal of the property. Most of the payments made in the first critical years went directly to the bank and not to equity....It is a legal arrangement...that involves risk on both sides but all the EQUITY on the side of the Lender.
Who does the Borrower have a moral obligation too...a legal contract or his family....I think the answer is clear....especially when someone in a house that is way under water is dooming his family to a life of poverty if he continues to throw good money after bad because the money he throws into the pit goes directly into the pocket of the bank.
When people look at your credit rating they look at the whole thing...My personal rating is over 800...If I walked away from my home...and that is the only blemish I doubt I would be refused a JOB..Especially when this is a national issue affecting millions of people and the Financial institution has dirty hands in many cases.
This whole thing is not a moral issue but a financial and contractual issue....You made your house payment on time every single month...notified the bank you could no longer continue for whatever reason, Most likely you had to move for your/a job or had an adjustable rate that you could not afford an increase in or you couldn't afford the cost of a big commute any longer, or as in the case of my relatives your children have terrible allergies and need to move to a different part of the country AND YOU CAN'T SELL THE HOUSE..without suffering a huge loss compounded by 1000s in sales tax (thanks gregor) and 10s of 1000s in real estate sales costs...
You get the advice of an attorney...You make sure the house is in as good condition as when you bought it....You take pictures...you lock everything up and tell the bank when you are leaving...you shut off the water and power...and you move, the bank has the house as stipulated in their Contract with you. they have your Attorney who you continue to pay to be sure the bank is fully informed and to handle any legal issues.
What happens next...The bank sends you payment notices for months...you send back registered mail and your attorney contacts them until he is blue in the face and it is like spitting into the wind. The bank ends up as incompetent in this end stage as they have been all along...SURPRISE...
Huh? The buyer made the decision to buy, how much to spend, who to borrow from, who to use as an agent, etc. No one has more control over the transaction than the buyer.
Reference security clearances, nothing is waived, it is a subjective consideration of risk that depends on the level of clearance and the individual. This is considered by the adjuticator, so what works out for one might not work for another, or may be reconsidered in the future.