WSJ: When It's OK to Walk Away From Your Home
http://online.wsj.com/article/SB1000142405274870379500457508...
Millions of Americans are now deeply underwater on their mortgage. If you're among them, you need to stop living in a dream world and give serious thought to walking away from the debt.
No, you shouldn't feel bad about it, and you shouldn't feel guilty. The lenders would do the same to you—in a heartbeat. You need to put yourself and your family's finances first.
How widespread is this? More than 11 million families are in "negative equity"—that is, they owe more on their home than it is worth—according to a report out this week by FirstAmerican Core Logic, a real-estate data firm. That's a quarter of all families with mortgages. And for more than five million of those borrowers, the crisis is extreme: They are more than 25% underwater—the equivalent of having a $100,000 loan on a property now worth just $75,000 or less. That's true for a fifth of mortgage holders in California, nearly a third in Florida and an incredible 50% in Nevada.
Are you in this situation? Are you still battling to pay the bills each month, even when it may make little financial sense to do so?
It's time for some tough talk.
Stop trying to chase your lost equity. That money is gone. Don't think like the gambler who blows more and more cash trying to win back his losses. That's how a lot of people turn a small loss into a big one.
And do the math. Even if you hope the real estate market is near the bottom—it's possible, but by no means certain—it may still take years to see any meaningful recovery. If you are 25% underwater, your home will have to rise by 33% just to get you back to even.
Continue:
http://online.wsj.com/article/SB1000142405274870379500457508...
Think of it this way
If you were buying a house:
-the value is $100,000
-but the asking price is $125,000
Would you buy the $100,00 house for $125,000?
Of course not. It's obviously a bad investment.
Well, if you currently have $125,000 left on your mortgage and your house is valued at $100,000...IT'S THE SAME THING! It's obviously a bad investment.
But people don't want to downgrade their houses. It's a status symbol after all. And they don't want to sacrifice to pay off the mortgage early...so they'll end up paying two to three times the principle in interest.
They'll think they are wiser than those who rent, but most "home owners" will never really pay off their house mortgage. Most either get ill or something and have to short sell their house...or they'll buy a bigger house with a bigger mortgage...blowing whatever equity they have.
LOL...I don't really blame the banks for taking advantage of these idiots.
There is only one wise and moral way to buy a cup of coffee, a bar of gold, a couch, a car, or even a house...and that is with cash. Work, save, buy in full with cash.
O how I trust WSJ. Very little.
I bought my house in 1985. I converted the 1985 purchase price into ounces of gold. Then I calculated those ounces into dollars at 2010 prices.
By those numbers the value of my house was 50% of mortgage owed. Current market value is of course much lower.
Why would wall street want people to abandon their houses to the banks?
If one has made payments for 10 years, they (banks) have covered the purchase price. They get repaid the money that they created out of thin air and they get the house and maybe a bailout from the government.
Happy days are here again!?!
Free includes debt-free!
what do people do when
their home is more than just a house. What about farmers... small family farms. They cannot move so easy, their land is their way of life?
For those kind of people, debt is actually their way of life
not land
they are in a state of disbelief
Peter Schiff predicted in 2007 and 2008 that more and more
people would be left with less and less reason to keep paying a mortgage on a property of declining value and greater and greater pressure to simply walk, regardless of credit-score consequences. Here it is 2010 and the WSJ is catching on at last.
_________________________________________
"An economy built on fiat money is a society on its way to ashes."
Treg......
I read your comments and looked at your website and blog site. My brother has decided to walk away and I have forwarded this topic page to him. I hope he calls you. His name is John and he owns a home in Gilbert. Treat him with DP care brother!
Thanks, I will do my best
I'll treat him with DP care brother! In fact, if he wins the lotto and wants to keep his house, he can cancel contract with me anytime and of course for any reason.
How is that?
In peace & liberty,
Treg
A better plan...
Why walk away when you can live there for free?
Banks aren't kicking people out as it would force them to mark to market the asset via a foreclosure.
http://fedupbook.com/blog/fdic/the-banking-crisis-is-far-fro...
My Christian/Political Blog:
We the Serfs! Blog
I blog about that tatic here...
http://maricopacountyazcommercialbankownedreoblog.com/post/1...
But for most people who have not the legal savy, stamina, and desire to live under the possible ax.... I strongly recommend finding an ALL CASH BUYER who has a professional team of Bank Negotiators who can get the distressed upside down seller the all important, "Settlement on Account" letter. Then they can walk away, head held high, and be in the best position to financially rebound back into home ownership again.... usually in 16-24 months.
* Selfish plug - That is what my team and I do all day every day. www.All-cash-house-buyers.com
In Peace & Liberty,
Treg
Treg,
If you don't mind waiting a few hours (I'm promoting the article to a couple places as we speak), why don't you do a plug for your services by responding with a comment to my article.
Just address it with something like; "for those of you who are contemplating a short sale...."
I don't have a problem helping out a brother of "peace & liberty!"
...especially if they know what they're doing...
My Christian/Political Blog:
We the Serfs! Blog
Thanks ... I'll do my best
Just point me to your articles...
Treg..
comment to my article in the "a better plan" post just above.
I think it's important that those who do a short sale know what the heck they're doing (protecting their rights) rather than listening to the banker/loan folks.
Have at it!
My Christian/Political Blog:
We the Serfs! Blog
I think its better to stop
I think its better to stop paying and sue the bank pro se, then they have to spend resources to defend your law suit and in the mean time your not paying. this can drag on for years and years.
Anyone who thinks about this would
do well to take the advice of the author and consult an attorney.
The banks don't stop when you simply turn the property back over to them.
Any legal fee's, maintenance, repairs, court costs etc...that are not recouped if the property is resold, will be your responsibilty to pay...and trust me...they will come after you.
I've seen it happen.
they key word is....
bankruptcy. Do it, and they can't come after you. Then you get a fresh start. The best thing, if you can manage the money, you can probably get a good deal in a few years because this housing market isn't going to get any better any time soon.
Yes and Now the question is "HOW to Walk Away"???
The question of How to walk away, that is, which is the best way is a very important one that the article above fails to get into.
You have several choices....
1) Do nothing and let the bank take the house in foreclosure. Then you are looking at a tough time for future credit and getting a house and perhaps even a job. Job applicants these days are grilled about foreclosure and it may follow you for 7 years. Your credit takes about a 100 - 300 point hit.
2) Find an All Cash Buyer who is willing to negotiate a SETTLEMENT on YOUR ACCOUNT for you and a below mortgage price for him. This way you can walk away your head held high and your credit score will take a 50 point hit but can rebound in 16 months. That is what a short sale is.
3) File Bankruptcy. Declare yourself insolvent. Take a 300 plus credit hit and this will stay on your record for 7 years.
4) Loan Modifications. There are all kinds, all are bad, and all of them only reduce just a slight bit, making no difference in the end. They have a terrible record of success. Worst of all, these companies charge FEES! Crazy but true. And they are notoriously slow at their job because again, they are not Bank Negotiators.
*************
So what is bad or wrong about 1,3 and 4 is apparent. So lets talk about number 2, Finding a Cash Buyer and getting a Settlement on Your mortgage account - a short sale.
Certainly for the person underwater on their mortgage a short sale is the way to go. It resolves the matter and it places you in a position to rebound. So why all the complaints and bad talk about "Short Sales"???
The answer is Realtors in general. But its not their fault. It is just that it is THEY who must do the Short sale and they were trained to sell houses, not negotiate with banks. Yet that is what they are forced into becoming and they hate it. The typical Realtor approach to a short sale is they 1st take the listing, 2nd gather up the sellers financials, 3rd place the listing inside of the MLS system and 4th wait for a CASH BUYER to come along. Once the cash buyer makes an offer, the Realtor submits the buyers offer and the sellers financials to the bank, then they all wait. The trouble that Realtors have in communicating with the banks is a stuff of legend, and is just one reason among many as to why you hear complaints about short sales.
Next enter the Lawyers (who think they are the smartest people on the planet). Its the same with Lawyers, they are not bank negotiators. They do not have 10 plus years working FOR banks on the inside, they do not know the ropes, the lingo, the software, the rules, the procedures, the steps...etc. Worst of all, like
Why Sellers need is to skip 1 thru 3 and go straight to getting the All CASH BUYER. But not any cash buyer. What is needed is an ALL CASH BUYER who has hired a team of former bank employees who know how to do these short sales, step by step. IT takes a team to get the deal done for both the Cash Buyer and the seller who wants needs the Settlement on their Account. Again, what is needed is an ALL CASH BUYER WHO HAS A TEAM OF BANK NEGOTIATORS.
* Selfish plug - That is what my team and I do all day every day. www.All-cash-house-buyers.com
There are such buyers out there, they are SHORT SALE ALL CASH BUYERS... and they are good at what they do. They make their money by getting the Bank to take the big hit (who doesn't like that?) and then reselling the house back to the market at a fair price.
We are busy buying and selling houses in California, Arizona, Florida, and other states. We are busy buying other things such as apartments and so forth. Frankly, its fun sticking it to the banks. My heart goes out to those who loose their home. Just the other day I canceled my purchase contract with a California couple because 30 days into it they call and tell me that Jim, after 3 years of unemployment, has finally got a good job. We canceled that contract without hesitation. I am not out to take advantage of the homeowner who has a change in good luck. I am out to squeeze the banks....make them take the mortgage hit.
What I find crazy is that these same banks who are so stingy when it comes to doing a loan modification, (say lowering a principal balance from $250,000 to $240,000 or dropping a payment from $2,000 a month to $1800 a month.)..... But when it comes to my ALL CASH offer of $120,000 they take it. Which goes to show they care nothing about the home owner.
Further, they make the CASH BUYER promise, swear, to never ever sell to the home owner who lost the house or rent it -- or its Loan Fraud they scream! Boy are the banks out to get us on 'loan fraud' or any kind of charge, for they resent the fact that we are scooping up these houses cheaply and reselling them immediately for profit. You see, "profit for me but not for thee" is truly their motto. Meanwhile, our motto is "Win-Win".
In peace & liberty,
Treg
Know someone upside down? Tell them to go here:
www.All-cash-house-buyers.com
Want to get a good interest investing with us? Go here: www.good-interest-rate.com
Want to buy a good deal? Go here:
www.Homes-at-good-prices.com
Option 3 has tax implications, doesn't it?
Isn't the loss taken by the bank, considered as "income" to the seller?
All 4 have tax implications.... the question is, which is better
The issue of the IRS considering the loan loss as "income" to the seller can happen.... thus sending the seller a 1099. This could happen, but so far has not been the practice. On 1st Mortgages in Arizona for example, the seller walks and there is NO 1099.
But Lets say another state is not like Arizona and ... the 1st mortgage is $200,000 and the bank accepts $110,000 in cash as payoff. Then that $90,000 in loss could...COULD be considered as income by the IRS and they send you a 1099. But how bad is that? Then you would owe 15% of $90,000 (or whatever your tax bracket is at the time and most are insolvent or broke that year) Those banks and lenders who are in 2nd or 3rd position may also try to collect or issue a 1099, but seriously, fat chance on collecting a penny. For those who know the game, these lenders who are in 2nd or 3rd position sell their notes at 10 cents on the dollar or less to Collection Companies who have a system of calling and letter writing of harassment that lasts 36 months. Lose your forwarding address and phone number. Should you get a 1099, again your low tax bracket should help.
Most of all, TALK to your CPA so the two of you can strategize on how to handle a POSSIBLE if unlikely 1099 and tax claim from the IRS.
Again, in my not so humble opinion, get an All Cash Buyer who does Short Sales and has a team of bank negotiators...its the only way to go... or as we call it..."Cramming the mortgage down the lenders throat".
Yes we think this is best course of action a distressed seller can take. Once the distressed seller gets a "SETTLEMENT ON ACCOUNT" letter from the bank.... All is Good, life will rebound, and you will be back buying another house in the same neighborhood within 16 - 24 months (provided of course the seller gets back on his financial feet again).
There is option 5) as someone mentioned... taking the LEGAL lawsuit route to keeping your home. MERS is in trouble as they cannot produce the original note. But this requires lots of legal savy and diligence and living with the constant threat hanging over ones head. For the right person this may be the way to go, but for most the legal twists and turns are all new and worrisome and emotionally draining. I blog about that tatic here: http://maricopacountyazcommercialbankownedreoblog.com/post/1...
Thank you for the clarification, Treg.
I own my own home outright, but I have a great concern for the people who have negative equity in their homes.
Me too.... and for those who have equity too!
I believe renting will be the best way to go for the next 5 years. By that I mean, you may get more house for less money. But knowing this is one thing, acting on it another. Buying should be all the rage in 5 + years from now when we see real growth and appreciation. But I should not doubt the awesome market system. It is ROBUST and has an amazing ability to bounce back to life.