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I am in a condo in downtown San Diego with a fixed rate of 5.75% until 2014. Several units have been foreclosed on in my building and are currently on the market for prices that have effectively wiped out any equity I had plus another 10-20%.
I bought in 2003. My next door neighbor had their property appraised (smaller unit, same view) for $1 million in 2006 so I felt pretty good at the time about having a 65% loan to value.
Why should I continue to pay full price for an asset when the banks (Countrywide) have crushed the prices all around me?
It is highly unlikely that my unit will be above water anytime in the next 7 years so why not take my lumps now (with a foreclosure) and walk away?
That's exactly what I've
Submitted by patientlywaiting on November 30, 2007 - 3:58pm.
That's exactly what I've been wondering with all the talk of bailout, reset moratorium, etc...
Why continue to pay full price on something that has depreciated a whole lot?
If you carefully read your mortgage contract you have an "option" to walk and let the bank foreclose. Nothing wrong or illegal about that. Just be sure you know what you're doing.
If you didn't refinance your initial purchase loan (non-recourse loan), then there's not a thing the bank can do but take your condo back.
That is the big picture.
Submitted by sandiego on November 30, 2007 - 4:06pm.
That is the big picture. Even if you don't have a subprime or Alt-A loan, you are getting slammed by your neighbors bad choices.
Well your credit is going to
Submitted by kewp on November 30, 2007 - 4:09pm.
Well your credit is going to get dinged, so no one is going to want to lend you money to buy a house again anytime soon.
HOWEVER, given that tossing the keys will be the new black for '08 I would not be surprised if lenders once again lowered their standards in the future to drum up business.
If I save $3000 per month
Submitted by sandiego on November 30, 2007 - 4:20pm.
If I save $3000 per month renting for the next 7 years, I would have a pretty good downpayment. After living through 1990-1997 and now, I think that homeownership is overrated.
What are the banks (and builders/ car dealers) going to do when they have 2+ million customers with credit dings due to bad loans in the next few years, not make loans? That seems like a pretty big number of customers to ignore.
Why don't you just demand
Submitted by betting on fall on November 30, 2007 - 4:32pm.
Why don't you just demand that the goverment lower your loan balance. Get a protest started. Government should bail you out in no time.
But seriously, I do think a far better way the goverment could deal with this is giving people a mulligan- The right to eliminate any one ding from your credit report.
Now I haven't thought through all implications of this, but overall I thinks its far better than the goverment's current bailout plan of encouraging debt servitude by keeping people in bad deals.
I am not asking for anything
Submitted by sandiego on November 30, 2007 - 4:38pm.
I am not asking for anything from the Gov't. I am willing to take my lumps on my credit.
I didn't cause this problem (by taking out a bad loan), but I am suffering for it because my neighbors did.
Where is your part in all of
Submitted by Rustico on November 30, 2007 - 4:47pm.
Where is your part in all of this sandiego? If I understand properly you are already losing your down payment too? 2003 wasn't such a great time to put a lot of money down on a downtown condo I guess.Did you get the 45% equity you once had from your own capital investment? The appreciation that happened after that is because of bad choices by banks like Countrywide and by your neighbors. So effectively any hole you got yourself into your did it yourself. Am I missing something?
I do't care about the staying or walking part I just can't see justifying the decision by the mistakes other people made.
There are so many people in
Submitted by nostradamus on November 30, 2007 - 4:50pm.
There are so many people in your situation that foreclosure will become a standard on credit reports and not looked down upon. In fact, there will probably be a whole new market opening up with recourse-based loans and credit packaged for people with a foreclosure on their credit history.
Once you have digested the fact that the housing market is not likely to turn around anytime soon, there is no reason not to walk. Unless you feel sorry for the poor wittle banky wanky.
I'm with Rustico on this
Submitted by sdrealtor on November 30, 2007 - 4:56pm.
I'm with Rustico on this one. Where is your responsibility on this? When you were giddy with equity how come you didnt offer to pay the bank more because you were paying less than full price for the asset when the banks gave money away and inflated the value of your property.
San Diego- I did mean the
Submitted by betting on fall on November 30, 2007 - 4:59pm.
San Diego-
I did mean the government bail out as a joke. I do admire you for trying to make the most rational descion based on the reality of your situation. Unlike folks whose first reaction is to demand help from someone else.
But I would not be surprised to see the current "rate freeze" proposal move up market to folks who got those stupid option ARMs- many of your neighbors. You, of course, would get punished for buying with a more responsible loan.
My bad choice was buying a
Submitted by sandiego on November 30, 2007 - 5:03pm.
My bad choice was buying a home to live in. I wasn't counting on the 45% equity and I never "realized" it because I didn't sell.
I would be perfectly happy if my home had stayed flat for the past 4 years.
Instead, Countywide et al, made a bunch of bad loans to people who couldn't afford them causing them to foreclose. Now Countrywide et al is dumping these units back on the market at reduced prices because they have to get rid of them.
If Countrywide hadn't loaned $900,000 to 25 year olds at teaser rates, no one would have been able to afford the units. Therefore, prices would have been tempered and we wouldn't have the overbuilding and wild price drops.
Units in concrete buildings are now trading near replacement costs.
If you did 100% financing I
Submitted by waterboy on November 30, 2007 - 5:15pm.
If you did 100% financing I would walk....actually run. It will be years before those units get back to their peak price
I just wonder if you
Submitted by sd gal on November 30, 2007 - 5:23pm.
I just wonder if you foreclose, do you have to give up all your savings and belongings such as car?
....if you make certain amount of fixed income, do you still have to pay back some of the debt?
If you are going to take
Submitted by IONEGARM on November 30, 2007 - 5:26pm.
If you are going to take your lumps you might as well lose less money. The average time delinquent before forclosure was filed was something like 5 months. So add 120 for the NOD and trustee sale and you could probably save 9 months worth of mortgage payments if you did it right.
If they pass the mortgage debt forgiveness act (which they will) there will be no penalty whatsoever for homeowners walking away. I think the ones able to do a bit of math will do so in droves, the rest with their emotional attachment hangups will hang on and drain every savings account and retirement fund and be financially destroyed at the end anyways.
"Where is your
Submitted by DaCounselor on November 30, 2007 - 5:27pm.
"Where is your responsibility on this? When you were giddy with equity how come you didnt offer to pay the bank more because you were paying less than full price for the asset when the banks gave money away and inflated the value of your property."
If I were answering these questions I would say that I did in fact pay full price for the property at the time I bought it. Regarding offering to pay the bank more at a later date due to an increase in value based upon events out of my control...well, I would absolutely be required to do so if that were part of my agreement with the lender. If that's what the lender wanted, write it into the deal. Period.
On a purchase money loan in CA, the deal is the borrower agrees to make the payments and if they do not, the lender can take back the property. That's it. As with any contract, if both parties agree to modify the deal, fine. Otherwise, no tears. Especially from a lender who is in the very business of entering into such deals over and over and over....
That is bankruptcy, not
Submitted by sandiego on November 30, 2007 - 5:33pm.
That is bankruptcy, not foreclosure.
If the debt is "recourse", they can go after your other assets.
It is not as if I am getting a free ride. My $100,000+ downpayment is already gone. Also, the bank will be getting $50,000+ in upgrades (lighting, built in cabinets, flooring, etc.).
At this point, I would be glad to sign a Deed in Lieu of Foreclosure if they wanted to save the time and money of an actual forclosure. I don't know the advantages/disadvantes of doing this.
Ouch. I'm very sorry to
Submitted by nostradamus on November 30, 2007 - 5:57pm.
Ouch. I'm very sorry to hear you are in the hole for $150k+.
As another poster mentioned, if you decide to walk, you might want to walk slowly (i.e. stop making payments but live there until they kick you out 9 months down the road). At least that way you'll get something back in the form of 9 months rent saved.
What building are you in downtown?
"I am not asking for
Submitted by marion on November 30, 2007 - 6:04pm.
"I am not asking for anything from the Gov't. I am willing to take my lumps on my credit.
I didn't cause this problem (by taking out a bad loan), but I am suffering for it because my neighbors did."
No, you're suffering because YOU, yourself made a bad choice. Don't blame it on other people. You didn't have to sign on the dotted line. You have a brain just like everyone else. You bought in an overinflated market, you should have known the risk. You should have used your own intellect in determining if that piece of property you bought was really worth 1 mil. Just because your neighbors bought their unit for 900k doesn't mean your unit was worth 1 mil. If someone told you to jump off a cliff and you won't get hurt, are you gonna do it?
These kind of attitudes are why the government is considering a bail-out, and it's not fair to those of us who chose to act judiciously during crazy times. So, the government bails you out and guess who loses? I do.
P.S. I have nothing against you and I hope you can do whatever you can to minimize the pain. Hopefully these people on here can give you some good suggestions, but NO goverment bail-out, please.
No, you're suffering because
Submitted by asianautica on November 30, 2007 - 6:14pm.
No, you're suffering because YOU, yourself made a bad choice. Don't blame it on other people. You didn't have to sign on the dotted line. You have a brain just like everyone else. You bought in an overinflated market, you should have known the risk. You should have used your own intellect in determining if that piece of property you bought was really worth 1 mil. Just because your neighbors bought their unit for 900k doesn't mean your unit was worth 1 mil. If someone told you to jump off a cliff and you won't get hurt, are you gonna do it?
That's pretty harsh coming from someone who complained about their alimony being reduced. One can easily say the same thing about your situation. You're the one who CHOSE to marry the POS ex-husband. My point is that, it is part of his part but it's also the bank's fault for the whole lose lending. He's just asking for ideas about the ramification of walking.
These kind of attitudes are why the government is considering a bail-out, and it's not fair to those of us who chose to act judiciously during crazy times. So, the government bails you out and guess who loses? I do.
P.S. I have nothing against you and I hope you can do whatever you can to minimize the pain. Hopefully these people on here can give you some good suggestions, but NO goverment bail-out, please. Last I check, he/she didn't ask for government bail out. That actually got stated implicitly once and he/she never asked about it either.
So prices are now pushing
Submitted by HereWeGo on November 30, 2007 - 6:15pm.
So prices are now pushing below 2003 levels in SD condos?
Given that many SD downtown condos didn't exist back then, ouch.
"If they pass the mortgage
Submitted by marion on November 30, 2007 - 6:16pm.
"If they pass the mortgage debt forgiveness act (which they will) there will be no penalty whatsoever for homeowners walking away."
So, when those of us who acted more responsibility during the bubble are ready to buy homes, we will have these people right there bidding on the same house. Not fair.
What can be done to stop this mortgage debt forgiveness act from passing?
"That's pretty harsh coming
Submitted by marion on November 30, 2007 - 6:31pm.
"That's pretty harsh coming from someone who complained about their alimony being reduced. One can easily say the same thing about your situation. You're the one who CHOSE to marry the POS ex-husband. My point is that, it is part of his part but it's also the bank's fault for the whole lose lending. He's just asking for ideas about the ramification of walking."
Nope, apples and oranges. Yes, I married my ex and I already paid for that by the pain my 10-year marriage has caused me. Therefore I took my lumps. It has nothing to do with his responsibility to pay alimony. If you know anything about the law regarding child support, If I had made more money than my ex and he had been the stay-at-home parent, I would have to pay HIM alimony.
Regardless, you can't blame this on the banks. If a buyer chose to buy a house he couldn't afford, it's HIS fault. Nobody held a gun to his head. If I choose to believe a chocolate cake is worth 1 million dollars, whose fault is it? The one selling it to me? Or mine?...
"Last I check, he/she didn't ask for government bail out. That actually got stated implicitly once and he/she never asked about it either."
No, he didn't ask for it. But, he is passing the buck on his responsibility in this situation. He chose to buy, nobody forced him.
While it doesn't sound like
Submitted by Navydoc on November 30, 2007 - 6:31pm.
While it doesn't sound like you're in a position where you NEED to sell, you are seeing value disapear before your very eyes. You didn't say what your plans for the future were. Do you like where you live and can afford it and plan to stay there? Or are you looking to leave?
I've posted in an earlier thread about a foreclosure I survived in 1994, but my situation was I couldn't afford the house at the time, and because of depreciation, couldn't afford to sell either. As far as the foreclosure goes, plan on really shi**y credit for about 2 years, then people will actually begin to trust you with money again. You need to take out a few high interest loans first, like a used car loan or something. Oh, and you absolutely do not have to give up your other assests if it's non-recourse debt. If it is, prepare to bend over, and there will be no lubricant used.
I find it interesting that someone in an allegedly good financial situation with good credit is considering the move you have suggested. It makes me wonder how many more people are out there considering the same thing, even if they are not "distressed sellers". If there are a lot of you then I can't see how our current banking system can possibly survive.
I expect a further decline
Submitted by sandiego on November 30, 2007 - 6:44pm.
I expect a further decline in prices and a flat market for 5 years. I don't hink that this property will be worth as much as I owe for at least 7 years.
Very simple math. I may decide that it is not worth losing $6,000 a month (Mortgage, Taxes, HOA) for the next 7 years ($504,000 total) while not gaining any equity (and probably losing more).
"I can't see how our current
Submitted by 4plexowner on November 30, 2007 - 6:46pm.
"I can't see how our current banking system can possibly survive"
which is why we have this monstrosity being discussed - and what a name! "HOPE NOW ALLIANCE"
http://online.wsj.com/article/SB119638615868608863.html?mod=hps_us_whats_news
If I choose to believe a
Submitted by citydweller on November 30, 2007 - 6:47pm.
If I choose to believe a chocolate cake is worth 1 million dollars, whose fault is it? The one selling it to me? Or mine?...
Great analogy, marion. And if the bank had loaned you the million dollars, would it be their fault? No.
sandiego's predicament is exactly why the fundamentals that I've learned from Rich and all the Piggington posters should be taught to high school seniors.
From his/her posts it appears the condo was purchased for $750K with $100K down. At 5.75 fixed the mortgage is probably around $3500, prop tax $750, HOA at least $300, opportunity cost on the $100K down at least $400 per month. Assuming the highest tax bracket, tax savings of approx $950 per month, so monthly expense minimum $4000.
If you could rent this condo for anywhere near that, then it's not such a bad deal, whatever selling prices of nearby condos are going for.
However, if you could have rented this for a lot less, and had been aware of real estate fundamentals, you would have thought twice before buying.
Another mistake is not getting 30 year fixed. I'm sure you assumed that when the time came you could refinance, but people need to be aware that there is always a risk involved in not locking in for the entire term. A lesson you've learned the hard way.
No wonder foreigners hate
Submitted by Chris Scoreboar... on November 30, 2007 - 6:56pm.
No wonder foreigners hate americans, they are right.
This is a disgrace!
Thanks for the econ lesson
Submitted by sandiego on November 30, 2007 - 7:09pm.
Thanks for the econ lesson CITYRENTER. Good thing you aren't an economist becasue none of your assumptions is correct.
When your banker becomes your adversary and your competition it is time to rethink the relationship.
Refinancing is not the issue. I got a 10 year fixed @ 5.75% and still have 6 years on it. Why would I have chosen a 30 year at 6.25% (at the time)? How many people live in a condo for 30 years?
The bank didn't loan ME anywhere near $1 million but they may have loaned 80% of that to several of my neighbors (using fradulent appraisals and very loose lending standards). Now they are "writing off" $200-$300k per unit by dumping these problem properties on the market and killing the comparible values.
I've decided that I may take a "writeoff" of my own.
Chris your post is kind of
Submitted by Rustico on November 30, 2007 - 7:15pm.
Chris your post is kind of vague are you referring to the OP , 4-plex's link, both or something else?
The right to eliminate any
Submitted by desmond on November 30, 2007 - 7:28pm.
The right to eliminate any one ding from your credit report. Now I haven't thought through all implications...
No you have not, what if they owed you the money? ding ding ding
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