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  #1  
Old 06-09-2007, 01:45 PM
morgantire morgantire is offline
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What happens if the bank repossess your house?

Suppose I buy a house with 20% down payment, and then I default on my mortgage. The bank will repossess the house, and sell it, but what happens to the money? Do they get to keep the entire resale price of the house (including the 20% that I "owned")? Or do they get to keep only 80% of the money and they have to give the remaining 20% back to me?
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  #2  
Old 06-09-2007, 01:52 PM
SmackFu SmackFu is offline
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They get the money owed them and you get the rest. But they have no incentive to get a price higher than what is owed them, which kind of screws you.
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  #3  
Old 06-09-2007, 04:20 PM
Projammer Projammer is offline
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And, IIRC, if they don't get the amount due them from the auction, you're still on the hook for the balance.
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  #4  
Old 06-09-2007, 06:54 PM
engineer_comp_geek engineer_comp_geek is online now
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Quote:
Originally Posted by SmackFu
They get the money owed them and you get the rest. But they have no incentive to get a price higher than what is owed them, which kind of screws you.
And they are trying to sell the house quickly, so that they get back their money as quickly as possible. They don't have any incentive at all to leave the house on the market for a while to get a better price.

People who "flip" houses often buy them from bank foreclosures.
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  #5  
Old 06-09-2007, 07:46 PM
brazil84 brazil84 is offline
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Once the bank is paid off and other mortgagees, you get the rest. But there's usually nothing. Because if there was something, you would have probably sold the house yourself once you realized you were in trouble.

Say you buy a house for $200k and put $40k down. 5 years later, the house is worth $250k but you lose your job and can't make the payments. Rather than let the house get sold at foreclosure, you will sell it for a quick $225 or so, pay off the bank, and keep $80k or so for yourself.
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  #6  
Old 06-09-2007, 10:19 PM
racer72 racer72 is offline
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As my brother recently found out, he got a nastygram from an attorney demanding the $63,000 deficiency after a foreclosure sale. He paid $98,000 for the house in 1995, refinanced in 2001 for $112,000, foolishly refinanced to a 110% value mortgage 2 years ago then got hurt on the job just before his wife found out she had breast cancer. At the time of the foreclosure sale, they owed $121,000 on the house and almost $15,000 in attorney and collection fees. The house sold at auction for a little under $74,000 making my brother and his wife liable for the rest. Next stop, bankruptcy court.
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  #7  
Old 06-09-2007, 10:20 PM
gotpasswords gotpasswords is offline
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Ideally, you'd work with the bank before they send out the sheriff. Banks don't want your house, and foreclosure proceedings cost them a lot.

If you're that far gone, you may be able to get them to accept a "deed in lieu of foreclosure" which in simple terms means you move out, sign the house over to them. hand them the keys and you're done. Another option is a short sale, which is a similar process - you sell the house and the bank takes the proceeds and forgives whatever else might be owed. While unpleasant for both you and the bank, they're generally willing to accept one of these options as it will save them thousands of dollars and months of time.

Either of these will be a much lesser stain on your credit report than a foreclosure, but they will certainly haunt you.
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  #8  
Old 06-10-2007, 10:07 AM
SmackFu SmackFu is offline
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Quote:
Originally Posted by brazil84
Because if there was something, you would have probably sold the house yourself once you realized you were in trouble.
Very good point.
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  #9  
Old 06-10-2007, 10:39 AM
tremorviolet tremorviolet is offline
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Quote:
Originally Posted by gotpasswords
Another option is a short sale, which is a similar process - you sell the house and the bank takes the proceeds and forgives whatever else might be owed. While unpleasant for both you and the bank, they're generally willing to accept one of these options as it will save them thousands of dollars and months of time.

Either of these will be a much lesser stain on your credit report than a foreclosure, but they will certainly haunt you.
One problem with a short sale (which are becoming much more common in the current declining housing market) is that the IRS considers the difference between the short sale amount and the amount owed as income so you will owe extra taxes. Say as in racer72's example that you owe $112k but the bank accepts a short sale of $74k. You'll owe taxes on the $38k which, if youre in the 25% bracket could mean a tax bill of $9,500.
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  #10  
Old 06-10-2007, 12:53 PM
Cartooniverse Cartooniverse is online now
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I'm kind of interested in the personal aspects of a bank forclosing.

How do they get you out? Do they send movers to pack you up? What if I default on my mortgage and literally do not move away at all? What recourse does a financial institution have? Who would force me onto the sidewalk and lock my house up, rendering me homeless? What of my personal property that is not a part of the real estate?

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  #11  
Old 06-10-2007, 02:30 PM
Common Tater Common Tater is offline
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It happened to my neighbors.

He was involved in sub-prime lending when interest rates were low and getting lower. Everyone was re-financing and he would pay some company money for a big list of names (potential refis I guess) and get some kind of commission. Well, when the housing market soured/interest rates went up, he lost his job. The county sheriff came out and made them leave. Why he waited for that I don't know. I thought they were having a garage sale or something when I left for work, I didn't see the sherriffs car.
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  #12  
Old 06-10-2007, 08:10 PM
brazil84 brazil84 is offline
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Quote:
Originally Posted by SmackFu
Very good point.
Tx!

Quote:
Well, when the housing market soured/interest rates went up, he lost his job. The county sheriff came out and made them leave. Why he waited for that I don't know. I thought they were having a garage sale or something when I left for work, I didn't see the sherriffs car
That's right. Ultimately they evict you from the house just like a tenant who is not paying rent.
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  #13  
Old 06-10-2007, 10:09 PM
Cluricaun Cluricaun is offline
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And they will remove you with force if they have to. A forclosure is a court matter, you're basically sued out of your house for failure to honor a contract (the note that you sign at closing) and the sherriff is the officer of the court, so a couple of deputies will show up, and escort you off of the property to enforce the courts judgement of forclosure. Your stuff is generally still your stuff, but it will be carried out of the premises and you better have some way of getting it off the grounds, and quick.

Almost nobody has to be forclosed. If you miss a payment or two and have a good reason beyond "I just don't feel like paying you" then the bank is usually willing to work out a new payment schedule. Not only does the house sell for less than the note is usually held for, but if you have mulitple liens on the house there is a repayment schedule for those people where the money owed is repayed in percentages. Say (just to keep it simple) that it goes in 5% increments. 5% goes to the first mortgage, 5% goes to the second mortgage, 5% goes to any non governmental leins on the property (if you have tax leins or such the government gets payed first, and usually at 100%, which is why your 1st mortgage lender charges you a "Tax monitoring" charge when you buy. Taxes are always to be considered the first lein on property. Same goes for unpaid income taxes that reach your property too) and so on, so if the house sells for 75% of the market value it's not payed out where the second mortgage gets nothing. Everyone gets an equal share until the money is gone, so your primary lender ends up with less than 50% of the value of the loan. That's a huge loss and they do not want to take huge losses. As long as you're even close to financially solvent they're usually willing to work out something, since that still usually makes them more money than the forclosure auction.
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  #14  
Old 06-10-2007, 11:54 PM
Frylock Frylock is offline
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Quote:
Originally Posted by tremorviolet
One problem with a short sale (which are becoming much more common in the current declining housing market) is that the IRS considers the difference between the short sale amount and the amount owed as income so you will owe extra taxes. Say as in racer72's example that you owe $112k but the bank accepts a short sale of $74k. You'll owe taxes on the $38k which, if youre in the 25% bracket could mean a tax bill of $9,500.
I don't get it. Why would they count a debt as income?

-FrL-
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  #15  
Old 06-11-2007, 01:06 AM
Aestivalis Aestivalis is offline
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Quote:
Originally Posted by Frylock
I don't get it. Why would they count a debt as income?

-FrL-
But a short sale doesn't produce debt, it forgives debt, which is considered income. See http://en.wikipedia.org/wiki/Debt_se...x_consequences
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  #16  
Old 06-11-2007, 01:10 AM
AmbushBug AmbushBug is offline
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Quote:
Originally Posted by Frylock
I don't get it. Why would they count a debt as income?
Whe Aestivalis said. The bank sends you a 1099 as if it paid you, and the whole reason they do that IIRC (as opposed to trying to collect the money from you over a period of years and a plethora of collection agencies) is because they can then immediately write off the loss themselves to the IRS, and they have completely washed their hands of the property.
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  #17  
Old 06-11-2007, 01:16 AM
Monty Monty is offline
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The IRS isn't always an ogre. If you do find yourself in the taxes owed situation, try working it out with them too.
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  #18  
Old 06-11-2007, 01:20 AM
Frylock Frylock is offline
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Quote:
Originally Posted by Aestivalis
But a short sale doesn't produce debt, it forgives debt, which is considered income. See http://en.wikipedia.org/wiki/Debt_se...x_consequences
I thought you still owed the difference. Guess not?

-FrL-
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  #19  
Old 06-11-2007, 02:17 AM
Rick Rick is offline
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Quote:
Originally Posted by Frylock
I thought you still owed the difference. Guess not?

-FrL-
No. Let's put some numbers to it, and it will probably make more sense.
You owe 500,000 on your house
The market tanks, you lose your job and have to sell.
The house is now worth 400,000.
You contact the bank and ask if they will take 400,000, they say yes.
You sell the house, the bank takes the 400,000 and life is good right?
Well no, because the IRS says that the 100,000 was income to you. You now have an extra 100,000 in income for that year. Except for the fact that you don't have the 100 large, just the tax burden on 100 large.
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  #20  
Old 06-11-2007, 02:33 AM
Frylock Frylock is offline
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Quote:
Originally Posted by Rick
No. Let's put some numbers to it, and it will probably make more sense.
You owe 500,000 on your house
The market tanks, you lose your job and have to sell.
The house is now worth 400,000.
You contact the bank and ask if they will take 400,000, they say yes.
You sell the house, the bank takes the 400,000 and life is good right?
Well no, because the IRS says that the 100,000 was income to you. You now have an extra 100,000 in income for that year. Except for the fact that you don't have the 100 large, just the tax burden on 100 large.
I missed the fact that we're not talking about a foreclosure. Sorry about that.

-FrL-
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  #21  
Old 06-11-2007, 03:25 AM
shootermcqueen shootermcqueen is offline
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Quote:
Originally Posted by SmackFu
They get the money owed them and you get the rest. But they have no incentive to get a price higher than what is owed them, which kind of screws you.
What I learnt when going through consumer law was that in any mortagee / repossession sale the lien holder must make a "good faith" effort to get the best price possible. Not sure how applicable this is to the US, or even how good my memory is, but perhaps someone more knowledgeable may like to kick in?
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  #22  
Old 06-11-2007, 03:43 AM
AmbushBug AmbushBug is offline
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Quote:
Originally Posted by Frylock
I missed the fact that we're not talking about a foreclosure. Sorry about that.
From what I've read, it also applies to foreclosures, in that when the money the bank gets from selling a property in a foreclosure sale is offset against the debt plus various foreclosure fees, the remaining debt is often written off with tax implications for the debtor, on the "can't get blood from a stone" theory. The IRS may not have such compunctions regarding taxes owed

One website I enjoy reading about such things (I have no affiliation with it) is "Searchlight Crusade" http://www.searchlightcrusade.net/

One post there which has a foreclosure example is http://www.searchlightcrusade.net/po...49108554.shtml, though no 1099s ensue.

Here's a good one on short sales: http://www.searchlightcrusade.net/po...66245008.shtml

You could probably spend hours reading this stuff just for the educational value.

Quote:
Originally Posted by shootermcqueen
What I learnt when going through consumer law was that in any mortagee / repossession sale the lien holder must make a "good faith" effort to get the best price possible.
In the 'foreclosure' example above a requirement that on bank auction the property must sell at least for 90% of 'appraised value' is made (that's probably California law); I would guess that this requirement, combined with the nature of an auction to find the market price, counts as good faith And if auction sale price doesn't meet that 90% requirement then the bank has to hire a real estate agent to sell it.
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  #23  
Old 06-11-2007, 08:11 AM
Athena Athena is offline
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My parents had their house repossessed in the early 80s. It wasn't fun. I was around 12 or 13.

My Dad owned his own construction company, and the construction trade tanked in this area at this time. Still, he was doing OK. Until the bank decided he wasn't, and called in some loans that he had signed for personally. I was a kid, so I don't know the details, but from what my parents tell me, they had a plan in place to pay for the loans and they had work coming in. But the bank played hardball and insisted they pay up immediately or they were taking their house (along with another house they owned, and some other property. They had to get a lawyer to ensure the bank only grabbed what they could legally grab.)

At the time, the real estate market had also tanked, so my parents took a risk and decided to ride it out. They figured that in a few month's time, they'd have the money to pay the bank and essentially buy back their house. They had a friend who had done that, and they'd consulted with a lawyer who said it was a good plan.

Except what they hadn't counted on was that our house was nice. My Dad had planned and built it himself, and it was their dream house. The bank put a bargain basement price tag on it, and sure enough, it sold. I was the one who ran out and got the mail that day, and was "helping" my mother open it. She told me I could open the one from the bank, thinking it was a routine notice or something. Instead, it was a letter telling us we had 30 days to move.

Yes, I'm sure some of this was my Dad's fault - poor money management and all, and he took some risks. But it was also just plain bad luck. My parents pay their bills and would have pulled out of the hole they were in. (In fact, they did. They're doing fine now, 20 years later).

I remember the person who bought the house. I remember packing up to move. I have to sit on my hands whenever someone starts a thread about how they're going to buy foreclosed homes to turn a profit. Sure, they're good bargains - but to me, it's too high a price to pay to turn someone out of their home. No matter how bad the parents are, all the kids understand is that they're being turned out of their house....
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  #24  
Old 06-12-2007, 05:41 PM
BoBettie BoBettie is offline
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I have a dumb question regarding Athena's response.

"I have to sit on my hands whenever someone starts a thread about how they're going to buy foreclosed homes to turn a profit. Sure, they're good bargains - but to me, it's too high a price to pay to turn someone out of their home. No matter how bad the parents are, all the kids understand is that they're being turned out of their house...."

Isn't the house being foreclosed upon by the bank anyway? In other words, the house is already in foreclosure. Is it morally wrong for someone to buy it at an inexpensive price? If no one were interested in the house, would the family in foreclosure be able to stay there?
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  #25  
Old 06-12-2007, 08:29 PM
Athena Athena is offline
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Quote:
Originally Posted by BoBettie
Isn't the house being foreclosed upon by the bank anyway? In other words, the house is already in foreclosure. Is it morally wrong for someone to buy it at an inexpensive price?
Personally, having lived through something like that, I could never live with myself if I bought a house that I knew would involve forcing a family to move against their will. Is it morally wrong? I dunno. Everyone has to decide that for themselves.

Quote:
Originally Posted by BoBettie
If no one were interested in the house, would the family in foreclosure be able to stay there?
When my parent's house was foreclosed on, we were allowed to live there on a month-to-month lease until the house sold. So yes, we were able to stay there until/unless someone bought it, as long as we could pay the rent.

At the time, the real estate market in our town was in the pits. Houses, even nice ones at good prices, were staying on the market for years. Part of the reason my parents were forced into bankruptcy is that their last house didn't sell for a couple years after they moved out of it. And this was a NICE house - I'm living in the same town now, and that house came on the market right around when I moved back. I very much wanted to take a look and probably buy it, but it sold within a couple hours of being put on the market and I wasn't fast enough.

Given the state of the market at the time - where nice houses at low prices were taking years to sell - they had a reasonable hope that the house wouldn't sell before they could get their finances in order and buy it back from the bank themselves.

Last edited by Athena; 06-12-2007 at 08:30 PM..
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  #26  
Old 06-13-2007, 08:30 AM
vetbridge vetbridge is offline
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Quote:
Originally Posted by BoBettie
If no one were interested in the house, would the family in foreclosure be able to stay there?
YMMV, I think. The property next to mine was foreclosed by the bank. The people were "evicted" and the house sat empty for 4 years before it sold.
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  #27  
Old 06-13-2007, 09:21 AM
Jurph Jurph is offline
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I heard recently on NPR that homeowners who feel "tricked" by nasty subprime deals are taking their vengeance on the bank by trashing the place or vacating in such a way that invites vandalism. The angle of the story was that if you buy a foreclosure sight unseen at auction, you may be getting a deal on the property as it was when the bank took possession, but you might also be buying poop in the ductwork, spray-painted vulgarities on the wall, or worse. Foreclosures can be sold "as-is" which means that damage inflicted after the closing date is between the new owner and the vandal -- and good luck going after them for damages!
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  #28  
Old 06-13-2007, 12:32 PM
tremorviolet tremorviolet is offline
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Quote:
Originally Posted by Jurph
I heard recently on NPR that homeowners who feel "tricked" by nasty subprime deals are taking their vengeance on the bank by trashing the place or vacating in such a way that invites vandalism. The angle of the story was that if you buy a foreclosure sight unseen at auction, you may be getting a deal on the property as it was when the bank took possession, but you might also be buying poop in the ductwork, spray-painted vulgarities on the wall, or worse. Foreclosures can be sold "as-is" which means that damage inflicted after the closing date is between the new owner and the vandal -- and good luck going after them for damages!
Yeah, that's why banks almost always evict the foreclosees, to prevent further damage to the house. Did y'all read baout the guy who locked pigs in his house when he found out he was being foreclosed upon? What happened in Athena's case sounds like a special situation with a local bank.

The biggest problem now is that people, using exotic loans they didn't understand, have bought way more house than they could ever hope to afford. Or they sucked the equity out of a house without fully understanding the repayment terms. Even if you could refinance their loans to a reasonable fixed-rate loan, they still couldn't afford the payments on their salaries. Some people were approved for loans over 10x their salaries. In some cases they were betting prices would never go down and they could turn a tidy profit, in others they were scared they were gonna be priced out forever. It's tragic how many people were foolish about mortgages (or outright misled by unscrupulous brokers), lost lots of money, and drove housing prices out of affordable ranges.

There's not really a good solution. Housing needs to get cheaper and more in line with median income in almost all areas of the country. But a lot of people are gonna be hurtin' in the meantime...
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  #29  
Old 06-13-2007, 12:50 PM
Athena Athena is offline
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Quote:
Originally Posted by tremorviolet
Yeah, that's why banks almost always evict the foreclosees, to prevent further damage to the house. Did y'all read baout the guy who locked pigs in his house when he found out he was being foreclosed upon? What happened in Athena's case sounds like a special situation with a local bank.
'twas also 25 years ago. That obviously makes a difference.
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Old 06-13-2007, 01:29 PM
ethelbert ethelbert is offline
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Quote:
Originally Posted by BoBettie
I have a dumb question regarding Athena's response.

"I have to sit on my hands whenever someone starts a thread about how they're going to buy foreclosed homes to turn a profit. Sure, they're good bargains - but to me, it's too high a price to pay to turn someone out of their home. No matter how bad the parents are, all the kids understand is that they're being turned out of their house...."

Isn't the house being foreclosed upon by the bank anyway? In other words, the house is already in foreclosure. Is it morally wrong for someone to buy it at an inexpensive price? If no one were interested in the house, would the family in foreclosure be able to stay there?
If you look at this situation as a single point in time, then it might look immoral. However, if everyone took the same stance as you, then banks would never make mortgage loans. (they would have no mechanism for getting their money back). Think about a world where you could never get a mortgage.
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  #31  
Old 06-13-2007, 03:33 PM
ShelliBean ShelliBean is offline
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Quote:
Originally Posted by Jurph
I heard recently on NPR that homeowners who feel "tricked" by nasty subprime deals are taking their vengeance on the bank by trashing the place or vacating in such a way that invites vandalism. The angle of the story was that if you buy a foreclosure sight unseen at auction, you may be getting a deal on the property as it was when the bank took possession, but you might also be buying poop in the ductwork, spray-painted vulgarities on the wall, or worse. Foreclosures can be sold "as-is" which means that damage inflicted after the closing date is between the new owner and the vandal -- and good luck going after them for damages!
My husband is a process server* and mostly deals with real estate forclosures and evictions. Our experience (because I ride along alot) has been that the place is not trashed, just not well kept. I estimate 90% are abandoned before we get there and only one home has ever had a kept lawn, clean house, and neat appearance (and these people seemed genuinely surprised at being served).

There is typically trash in the house but nothing too gross - just a left behind couch or kiddie pool. One place had a piano and TV on the side of the house on the lawn! Anyway, I'm not saying it won't happen and we won't come across it, I just haven't seen that the gross, heavy-duty destruction has been the norm. It is more common than you think to see abandoned animals. Those are sad.

*My husband is actually a truck driver but the massive tanking in the sub-prime lending market has made it more lucrative at this time to work part-time locally and serve more papers. Who would have thought?
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  #32  
Old 06-13-2007, 07:40 PM
Sampiro Sampiro is offline
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Many mortgages require an insurance which benefits the lender in case of a foreclosure- if the balance is $100K and the house is sold for $80K the insurance policy pays the $20K. In this case, is the foreclosee off-the-hook or do they owe the insurance company the $20K?

My family had well over $100,000 [by some estimates closer to $200K] worth of land seized for less than $20K in unsecured debts, but this was during a time of much higher interest rates and next to no turnover for rural farmland. At an auction on the courthouse steps that I understand nobody attended the land was sold for the exact amount owing on it (what are the chances?) to the bank itself- again, this land was worth WAY more than the amount that was owed. It seemed unkosher at the time but we wanted that chapter of our lives closed.

Twenty years later my sister with her army of lawyers pursued the matter against that bank's current incarnation and the bank returned more than 70 acres of this land to the family that they still own (part was leased to a timber company and the other part to a cattle farmer), the other 40 acres having been sold at some point for more than the value of the loan in and of itself (this part was legal).

I'm not sure if this was implicit admission of wrongdoing at the time or just a "cheaper to give back the 70 acres we still own than fight a lawsuit over it" thing, but either way-. It makes me wonder if there is much "never mind the foreclosure behind the green curtain" stuff that goes on.
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  #33  
Old 06-13-2007, 07:47 PM
BoBettie BoBettie is offline
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Quote:
Originally Posted by ethelbert
If you look at this situation as a single point in time, then it might look immoral. However, if everyone took the same stance as you, then banks would never make mortgage loans. (they would have no mechanism for getting their money back). Think about a world where you could never get a mortgage.

You quoted my post when you wrote this. What stance are you referring to?
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  #34  
Old 06-14-2007, 08:00 AM
ethelbert ethelbert is offline
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Quote:
Originally Posted by BoBettie
You quoted my post when you wrote this. What stance are you referring to?
You are quite right. You merely asked a question. My answer was simply that it was not immoral to purchase a house in foreclosure.
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  #35  
Old 06-14-2007, 09:27 AM
BoBettie BoBettie is offline
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Quote:
Originally Posted by ethelbert
You are quite right. You merely asked a question. My answer was simply that it was not immoral to purchase a house in foreclosure.
Ah, understood. I couldn't see how it was an issue either, untill I'd read that sometimes if the bank foreclosed the person was allowed to stay there renting month to month. I could be wrong, but I suspect that's a very unusual circumstance. I'd never even heard of it happening until this thread. My thought was "I'm not putting you out on the street, you're already out on the street due to your bank dealings!" I assumed that people bought foreclosed houses after the occupants were gone or imminently leaving.
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  #36  
Old 06-14-2007, 03:53 PM
Duke of Rat Duke of Rat is offline
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I see the subprime mortgage phenom has hit the banks' bottom line as well.

Last edited by Duke of Rat; 06-14-2007 at 03:55 PM..
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  #37  
Old 06-14-2007, 05:08 PM
Athena Athena is offline
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I think that at times it's immoral. Obviously I have a bias. But put it this way: there are crooked banks out there, and they will prey on unsuspecting people. You think those banks out there that gave six-figure mortgages to people making minimum wage are not immoral? Sure, the people who entered into the deal should have done their homework. But that bit of logic tends to get lost when you're the six-year-old who only understands that you can't live in your house anymore.

Personally, I don't want to have anything to do with such practices, whether the family is living there or the bank has conveniently moved them out so I don't see them.
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Old 06-15-2007, 06:13 AM
brazil84 brazil84 is offline
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Join Date: May 2007
Quote:
Originally Posted by Athena
I think that at times it's immoral. Obviously I have a bias. But put it this way: there are crooked banks out there, and they will prey on unsuspecting people. You think those banks out there that gave six-figure mortgages to people making minimum wage are not immoral?
I agree that predatory lenders are immoral, but that's not the same question as whether participating in the foreclosure process itself is immoral.

I also agree with the person who pointed out that foreclosure seems harsh in individual cases, but in general, without the possibility of foreclosure, it would be a lot harder (if not impossible) to get a mortgage loan.
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