on NPR’s Fresh Air yesterday, they interviewed a woman talking about the housing crisis across the country. She talked about the fiasco of a court system where judges would sign off on 400 foreclosure agreements a month (obviously taking the time to review each and every document). They’ve been tasked with clearing up the backlog of foreclosure cases and won’t always stop legal procedures to even ask simple questions such as whether all the documents are present and accurate. Then there are legal mills would have people on staff who - morning noon and night- signed documents without bothering to read them. These documents would often be affadavits to the court stating that the banking institution they represented owned the property and guaranteed that they had the right to take possession of the property. This wasn’t always the case.
So it’s highly likely that in the very near future we’re going to run into situations when the new owner of a previously foreclosed property, with a shiny new certificate from the title company, will get hauled into court from the REAL owners of the property because the people who did the foreclosing had no standing to do so.
There is definitely the possibility of gaming the system. I know of someone who tried to work a deal where he was going to buy someone’s home as a short sale, then walk away from his current home and have that other person buy it as a short sale.
An owner might work out a deal. there are lots of empty homes draining investors pockets. We used to have land contracts for a few years and then get a mortgage. If you got one and paid religiously, a bank might thaw.
You can also rent if you show plenty of income.
One thing that sticks out to me is that you are essentially getting to live in your house rent-free for more than a year which seems to be a pretty good deal.
And that’s why you need to read the whole article. If you don’t, the only person to blame for your incomplete understanding of his argument is you.
It’s possible that you’re right regarding the woman in the OP. Some underwater homeowners are probably, all things considered, better off continuing to pay their mortgage. It depends on things like how much the house cost them, how much it’s worth now, what they’re paying each month, what they could pay each month if they moved, etc., etc.
But take this example from the article i quoted earlier. The author discusses a couple from the town of Salinas, California (badly hit by the mortgage crisis) who bought a home in 2006 for $585,000 (the average price for a 3-bedroom, 1,380 square foot home in Salinas at that time). Their house is now, according to White, worth about $187,000. They are paying $4,300 a month on a house that would currently sell with a mortgage of about $1,200 a month. The author notes:
Obviously, not everyone is as badly hit as this couple, but this sort of situation is also not especially unusual in some parts of the country.
That’s quite an assumption you’re making about housing values there. As the above quote notes, historical appreciation rates have been about 3.5%. The boom period between about 1998 and 2006 was incredibly unusual, and if you think that house prices are going to rebound with the sort of appreciation rates that we saw during the boom, then you’re in disagreement with just about every financial and real estate expert in the country. Prices still aren’t rising at all in many areas, and are unlikely to rise even at average rates for quite a while in many areas.
Well, whatever argument she happens to be making, i’m not arguing that it’s the morally righteous thing to do. I’m arguing only that it might be a prudent business decision.
Why bring morals into it at all? The mortgage is a contract. It specifies how much money you get from the bank. It specifies how much you have to may them every month. And, most importantly in this situation, it specifies that if you fail to make your payments, the bank gets to take your house. The terms of the contract are not being ignored; in fact, they are specifically being adhered to. She stops payments; the bank gets her house. Exactly what both parties agreed to when the contract was signed.
Why should this be her concern? It won’t be her home anymore. What obligation does she have to maintain the values of her neighbors’ properties?
I tend to agree with you. I’m not shedding any tears for this woman, and i think it would have been more honest and forthright of her to simply come out and say, “This isn’t a question of morals. I have simply determined, based on a cost/benefit analysis, that i will be better off turning the keys over to the bank.”
What I can’t understand is why the courts in many states accept these affidavits instead of the actual documents. Why is the bank’s affidavit that it has proof of its right to take possession any more legally valid than a similar affidavit from the homeowner saying the bank is full of it?
As John Mace already pointed out, mortgages are never made in good faith. That is why they are 40 pages long, with minute detail as to the legal remedies available to both parties.
Well that’s true, but you can decide not to pay your mortgage and then rent a house or apartment for what is the market price instead of paying above market for your house. You will probably spend less money on that for the same level of house, becuase that is where the market is at and you can put the difference in a savings account or anything else you desire.
They may be made in good faith, but all the legal stuff in there is precisely to ensure that they don’t rely on good faith.
After all, if you lose your job and can’t pay your mortgage, do you think that the bank will allow you to keep the house just because you show a good faith effort to get a new job and resume your payments?
When I applied for a credit card, I did it on good faith that if I paid my bill on time and maintained a good credit rating, the credit card company wouldn’t raise my rate. However, it went from 14.9% to 22.9% for the sole reason that the credit card company needed the money.
Good faith in financial transactions isn’t worth a pitcher of warm piss.
Something I don’t get about the story or these stories in general. The house was worth a million 3 years ago and 800k today. Doesn’t she have $200k worth of equity in the house by this point? People make substantial downpayments on houses, right? Plus three years of payments. Wouldn’t her current equity + the current value of the home still make it a winning proposition to keep paying off her mortgage?
Combine this with the likeliness that the value of the home will increase and it seems like sitting and holding it is an easy call. What about this situation justifies her throwing away her equity, even before considering the credit hit and all that?
Now, if a home drops in value from $600k to $100k, I could see where it’s just impractical to keep paying it. But $1m to $800k? Do people not make down payments on houses anymore?
But, who knows.