[thegmanifesto]

Strategic Defaults seem to really be picking up steam and I notice many people don't feel the "moral" bind to their houses and mortgage anymore.

And the more people that do these, drag housing prices down further, which in turn will cause more Strategic Defaults.

It is almost like a house of cards.

Anyone been through a Strategic Default?

Or know anyone who has?

Experiences?

Thoughts?

[Aliblahba]

It's dishonorable. My grandfathers were decorated veterans of The Greatest Generation. They would've died from fatigue working three jobs not to default, especially not "strategically". I stick to these principles. You get a loan, pay it back.


Semper Fi,

Ali

[Menace]

Here's another, less honorable perspective.

A mortgage is a contract between you and the lender, nothing more. It has no moral component (aside from issues of good faith and fair dealing when entering into the contract). If you breach the contract (strategic default), you suffer the consequences, which vary from state to state depending on whether they are recourse or non-recourse states (of course there will also be a negative impact on your credit score). The only consideration on your part is what makes the most economic sense, taking everything into account, and to act accordingly. If it is more efficient to default, and you can live with the credit-related consequences, then you should do so. Contract law 101.

[el mechanico]

I did on two properties..The first is my house. I applied for the making homes affordable program and got denied and asked why? They told me that my mortgage was current and that disqualified me. Mind you Bank of America took my credit lines and revoked two open visa accounts a few months earlier for no reason....They said they took a "snapshot" of my credit. So I went into default and re applied.

It took over a year of them losing my paperwork and making re-send to get it right. Finally they approved my loan at 2.2% Interest.

The second was a Commercial property which had a balloon due of 250k about 6 months ago. The banks would not give up the loan to me even though I have 5 years of payment history and could show the income.
I could of got the money from a private investor but I decided to go into default and after 2 months they gave me a new loan and dropped the interest from 9 to 7 %

At one time a couple years ago I would say about 25% of the people I know were actually paying on their mortgage..Tampa bay housing is still getting hit hard.

[Brian]

Menace is right - the old adage of what is honorable has become BS. The big banks are the biggest bunch of lying, cheating, stealing, hypocrites out there. The banks and bankers will tell you how to do whats right and honorable then go do the exact opposite thing. If I was underwater what I would do is stop making the payments until the bank changed the locks, then go rent somewhere else.

[Samseau]

Honor?


Why be honorable when our own government fleeces us before our very eyes? They allowed and encouraged the reckless lending that started the entire housing bubble in the first place! And the banks were entirely complicit on this scheme. Fuck the banks. The banks make G look like a saint.


I knew a guy who figured out he was part of the "fradclosure" scandal, and successfully argued in court that Bank of America did not have the contract for his mortgage... he's now living for free in a multi-million dollar riverfront condo!

[Gmac]

(06-20-2011 06:26 PM)Samseau Wrote:  

Honor?


Why be honorable when our own government fleeces us before our very eyes? They allowed and encouraged the reckless lending that started the entire housing bubble in the first place! And the banks were entirely complicit on this scheme. Fuck the banks. The banks make G look like a saint.


I knew a guy who figured out he was part of the "fradclosure" scandal, and successfully argued in court that Bank of America did not have the contract for his mortgage... he's now living for free in a multi-million dollar riverfront condo!

I'm in agreement here. There's no honor among thieves, and the government sure isn't my friend.

[thegmanifesto]

Yeah, I think the bankers are way more guilty in this scenario.

They along with the real estate industry were pushing the you need to buy, "housing is a great investment" tag line.

Well, if it is investment then, you are allowed to cut losses. Right?

The crazy thing about this is the "house of cards" factor.

I potentially, real estate can go down a lot further. Like half in some places.

One the plus side, you will probably be able to buy a 2 bedroom condo at the beach in CA for 200k.

[truedat]

Looks like if you are in Miami that Brazilians are ready to buy your short sales:

http://www.bloomberg.com/news/2011-06-21...rency.html

[Brian]

real estate still has further to fall. look at a graph of how real estate has performed, then look where a 'reversion to the mean' would put you on the graph, then realize that things typically over correct on the way down, and yeah, you will have a ridiculous buying opportunity. but its not here yet, and its not going to be here for 5 or so more years.

[jariel]

(06-21-2011 10:46 AM)truedat Wrote:  

Looks like if you are in Miami that Brazilians are ready to buy your short sales:

http://www.bloomberg.com/news/2011-06-21...rency.html

Real estate isn't just about buying, it's about buying right.

[Jim Kirk]

A ‘strategic default’ is simply a slicker marketing term for what in essence is giving the property ‘back to the bank.’ Someone engaged in a strategic default has the financial ability to weigh pros and cons of having a mortgage default affecting their credit lines for other businesses or ability to be insured or underwritten or bonded by a real company in other aspects of life. For most people - its’ like fighting an eviction – you simply fight, refinance, and stretch out the time you can stay in the property before the Sheriff shows up and puts you out.

An analogy – defaulting on student loans was not a big deal years ago – but Gerald Celente interviewed a Dentist out West who is not allowed to see Medicare or Medicaid patients because she is too far behind on repaying her 200k federal dental school loans. It has made her unemployable. This is brand new. There is no telling what consequences will arise down the road for simply defaulting on a home loan – this country is getting so sick I could see them revoking your passport, drivers license, put you on a list of persons unable to do business with the federal gov’t, etc. One more step and they will have debtor’s prisons again.

For poorer people, or with mortgages so underwater the buyer will never see a sales price for the house close to what they bought for – they may have no choice but to default but then its’ not ‘strategic’ in that they have no other choice. However, if you have some ability – arranging a short sale or disposing of the property in some manner with the bank’s cooperation is probably preferable to simply shutting the door and walking away and letting the asset ‘waste.’

While it does not seem people are routinely prosecuted for this NOW, the typical route for someone going out this way would be to take out a Home Equity Line of Credit at a higher interest rate to get every last penny out of the property. The HELOC $$ goes into a bank account and goes wherever. The land owner then stops making any payment. When the foreclosure paperwork comes in, a lawyer adjourns the case, files an Answer denying the complaint, files counter-reports, disputes the valuation, moves to disqualify the referee, files a Chapter 7 proceeding (had an honest to goodness South American pimp pull that on me once in housing court - I pulled out an NYPD printout with all the arrests made at his leased building including engaging/promoting prostitution of a minor under 16 - he denied knowing anything - we got the building back but it still took 6 months - this was not far from where they filmed parts of 'Coming to America' with Eddie Murphy), etc. while the ‘homeowner’ gets a roof over his head, or business income, for 6 to 18 months with little out of pocket costs. I’ve heard of straw-men signing leases for property under foreclosure to stay the sheriff’s sale – they do prosecute you for that in New York for fraud and you will do time if caught. There was another guy out here going around to bank owned properties, breaking the locks, advertising apartments on Craigs List, and then signing leases with unsuspecting victims for the bank's property. He went to jail too.

Outside of a few very special areas, housing prices have a long way to drop. The banks currently have massive amounts of vacant ‘shadow’ inventory off the market to avoid depressing prices anymore then they are. Take a walk in any middle class suburban neighborhood and look for vacant homes. In parts of California and Florida – there are more unoccupied homes on blocks than those with someone living in them.
Let the whole thing collapse, let local authorities seize vacant homes and give them to people – you could probably house 20,000 families around Las Vegas using built and unoccupied townhomes. Most real estate will never go back to what it was – the suburbs are ‘retreating’

If I were to put money in real estate – I would look for municipalities very near, or in a city that were on the brink of changing zoning laws to permit multiple dwellings – which is a 50 cent word for apartment buildings. Where I live – we only have one and two family homes unless the house is over 100 years old. If that ever changed – block after block would get bought out and 8 to 12 unit buildings would go up in every space. When the Koreans moved into Flushing, NY – which is where the Archie Bunker 'All in the Family' character lived, they used lax zoning laws, knocked down every old 6 bedroom Victorian home, including dozens that should have been landmarked, and put up 8 unit - 1000 square foot each apartment buildings made of shitty brick with no parking and get 2800 a month rent for them if not more. Half these builders got gov't loans and I would bet they got 'assistance' from foreign banks which is generally illegal.

So much is going on – they are severely limiting cash out on your credit cards compared to your overall credit limit – you wont be able to buy a home by taking out a HELOC loan for the 20% downpayment, its hard now to get that. Our economy is going to contract for decades - it's not worth working here as it is.

[Malcolm Tucker]

I haven't gone through any of this regarding strategic defaults on real estate mortgages, but grow up and face 2011.

Fuck morality. Business is business.

Not to mention the total real estate title system is FUBARed. Read up on MERS and black letter real property law. Naked Capitalism is a pretty good blog to start if you're unfamiliar with what's going on in the real estate system these days. The cases are piling up and it turns out that no one knows that who owns what to the extent that many mortgages are effectively unenforceable due to widespread corporate fraud.

It's insane and in one trial after another it's becoming apparent that the financial institutions and their whores have sidestepped every legal protection Anglo-American law has developed to keep buying, selling, and leasing real property interests remotely rational and fair.

So it's been made more than clear to me at least that in the US honoring contracts for moral reasons is for suckers. The banks and corporations do whatever they can to get out of their financial commitments. They own the local, state, and federal governments, and they do exactly what they please regardless of any moral or ethical considerations.

Why shouldn't you and I do the same? They're just reaping the harvest they've sown. So fuck 'em and take whatever you can however you can or keep complaining with the rest of the sheep.

Either way I'm hustling every day in every way to strip as much fun and wealth from this country as possible and then bailing out when I've had my fill. Going down with a sinking empire is for rubes.

[thegmanifesto]

Malcolm Tucker -

Great post.

Any links you recommend in particular?

[Samseau]

@Jim

Quote:

An analogy – defaulting on student loans was not a big deal years ago – but Gerald Celente interviewed a Dentist out West who is not allowed to see Medicare or Medicaid patients because she is too far behind on repaying her 200k federal dental school loans. It has made her unemployable. This is brand new. There is no telling what consequences will arise down the road for simply defaulting on a home loan – this country is getting so sick I could see them revoking your passport, drivers license, put you on a list of persons unable to do business with the federal gov’t, etc. One more step and they will have debtor’s prisons again.

We already have debtor's prisons. Right now, if you default on student loans or home loans, you are obligated to pay taxes on a portion of a defaulted loan, and if you cannot afford to pay the IRS... guess what happens?

Do not pass go, do not collect $200, go straight to jail.

[manilaguy]

G,

Talk to your personal banker (not the mortgage broker) first on the pros and cons. Ask them to run a scenario on default. You could also try to refinance, or take out a HELOC (home equity line of credit) if need be.

[manilaguy]

The business of a retail bank (not wallstreet) is to disburse as much loans as possible allowable under the current financial system. Like any other business, they have to play with the rules of the market/industry they operate in. They take risks with loans and mortgages just like any other business. They do this by finding the magic equality where deposits to loans are maximized taking into account the risk of default(loss). It is part business operations and part art; the art is where financial engineers of wallstreet come to play, but this is not the doing of your retail bank.

Currently, the industry is experiencing a capital stock arms race. The key to survive and declare market dominance is capital reserve. Local smaller banks are being gobbled up by much larger and older financial entities. These entities are usually global and have huge capital reserves to offset (maximize) the loans available for disbursement. They also have higher efficiencies by leveraging units from different operational regions and allocating it efficiently. It is a complex global enterprise that is still evolving. The funny thing is, the consumer actually benefits.

With the deposits processed and locked into a bank. This is where the back office kicks in, and the financial gurus tinker with the numbers. This part involves wallstreet. This part also involves the government. I like to think of this whole business side as the creative arms race fueled by "the system". The thing about this part is that the whole business of banking is constrained by the parameters set by.. who else? The government. The government is the one that sets the playing field, and banks as business, react to the rules enforced upon them. In the end, it is a sink or swim business, a business like any other.

[Malcolm Tucker]

(06-23-2011 03:34 AM)thegmanifesto Wrote:  

Malcolm Tucker -

Great post.

Any links you recommend in particular?

I try not to read too much about the details anymore because it gets me too angry. I used to be an attorney who believed in the rule of law and all that horseshit, but now I know that wealth, bread, circuses, propaganda and men with guns who work for a paid-off entity know as the government are what really matter. I just want to make money and GTFO, and right now there are better ways to invest my time. YMMV.

Real estate blog-wise I really only check up on naked capitalism with any regularity, but it's as good a place to start as any AFAIK. It's a bit pussy leftist at times but even a stopped clock is right twice a day and their coverage of issues like MERS' cases and the linked blogs and stories in their entries can lead to more interesting reading.

If you are a DIY guy and you want to know how fucked up things are from what they're supposed to be get a couple old slightly used property law casebooks (the 1L versions), read them to understand the basics of property law, then get some used general real property casebooks and read them. That will get you started.

After that you can read up on local caselaw from wherever interests you and learn the details. A cheap used legal dictionary, a cheap used guide on how to research legal cases/statutes/regulations/etc, a cheap used bluebook to understand citations (they're not rocket science even if they look arcane at first), a couple cheap used textbooks, and a bottle of NoDoz would help regardless if you are into the DIY thing. Think of it like teaching yourself Spanish like Roosh did if it helps.

That's one good thing about the textbook business I've found: if you aren't a student who thinks he has to buy the latest editions of the $150+ legal casebooks then you can buy the earlier editions for pennies on the dollar. But I digress.

Or you could just make friends with some competent practicing real estate attorneys and buy them drinks. In vino veritas and all that. They probably need the distraction and they'll be able to give you the skinny on what's really happening and answer your questions as you learn what to ask, especially regarding a particular locality or area of the business.

Other than that I can't help you.

But for what it's worth, I bet that if I knew what I was doing it could be a great time to put money into certain areas and certain properties if the risk/reward structure made sense. But if a sophisticated institutional purported note holder can't produce the proper documentation to collect on a note he/she/(sh)it claims to be overdue, state and federal judges are issuing more than the usual number of real estate law related verdicts that are clearly against the black letter law, and the record keeping system has been compromised by weird private entities so that I or my attorney can't go down to the local courthouse and research a property's ownership history with any degree of certainty, then how can I buy with any reassurance other than that I'm buying a place in line in some future massive court action and not full fee simple on a duplex or whatever?

Sure I would buy some title insurance or whatever type of insurance I needed according to the black letter law/best practices/my attorney's advice/WTFever, but I don't trust those insurance fuckers enough to pay up when the time comes these days when it's an open-and-shut case. That's what happens when a system loses moral legitimacy: can't trust nobody.

I'm nowhere near an expert though, but I bet someone reading this is and can point you in the right direction while knocking a few holes in my post too. Like I said, I try to stay ignorant about this shit as much as I can because it pisses me off too much and I eat elsewhere these days. But it doesn't take much to get me ranting in a long post or over a couple of drinks. I need to work on my not-giving-a-shit skills.

tl;dr meh