GUEST ARTICLE
Reprinted from preppernation.com
"Just Walk Away…?"
I think I already know the answer to this but I'll ask anyway... Anyone late on their mortgage? I don't mean like you forgot and the check didn't get out on time. I mean LATE on your mortgage and it's only a matter of time until you don't live there anymore? I see a few hands, actually quite a few!
It's not that I actually did see your hands go up but since I work in the industry and can see first hand everyday what our current real estate market is really doing. Let me say that it's a mess and I don't see anything to give an indication that it will be making even a slight recovery anytime soon. I see MANY home sellers come through my door that are behind to VERY behind on their house payments. I also see another group of folks and its that group I was going to discuss today...
Let me describe the situation that I'm hearing from this group of homeowners on an almost daily basis. They are living in a home that they purchased 3-5 years ago. This home is average by most peoples standards, meaning that it's in a decent neighborhood and of the typical size for most families. They have taken good care of the place and made significant upgrades since moving in. They almost all made minimal down payments but had equity building right out of the gate. They were content to stay living there the last few years and watch the housing market decline as they all had hoped that it would turn around before they were ready to sell and move at some point in the future.
As additional background information, they are current on their mortgage payments. Most haven't lost their job or experienced a significant drop in pay. At least for the time being they can afford to continue living in their current homes. What they have seen a drop in is their homes value! Not a small drop but a very large chunk of value that is just gone...
I know what you're thinking - you buy a home and can hope the value will increase but there isn't any guarantee! I agree, you purchase a house and hope for the best. Well, hoping it will increase in value is one thing but a significant decrease in value is something else all together. This is what too many folks are facing today. This situation can be acceptable for a time but in the long run we have a population that is very mobile, how long do you think they are going to stay put waiting for this market to turn around. I say it isn't for much longer...
I would be tempted to say that this is my educated guess but that wouldn't be quite right. These people have told me that if this doesn't rebound then they will have to just walk away. They're backwards in the home and see no other alternative? Why should they stick it out and how long should they stay?
What would you do? I say this in a broad way even though I do know that there are readers here who are in this exact situation. Did anyone plan for this recession? Is there any other option to walking away? I will hazard the email trolls wrath and bring up the moral issues surrounding this...
Didn't every single one of these people sign a Mortgage Note promising to repay the lenders money with interest over a period of time, typically 30 years? Why would anyone think that after making that commitment they could in good conscience, just walk away? I choose to believe what I was taught about our nation being built on a handshake. A man's word was his bond and all those other catchy one liners grandpa used to say... How does walking out on a mortgage get reconciled against what we were taught about a keeping our commitments?
Speaking for myself, I get pretty upset when our politicians don't keep their commitments... Which is almost 100% of the time!! So, how as American citizens can we hold ourselves to a lower standard? Is it possible that this situation is self perpetuating and before long no one's word will be worth enough to even bother writing it down? Anyone have an answer?
I don't have the answer and this situation is worrisome to say the least. Please understand, I do know that there are families that are losing their homes and they have no financial choice but to walk away. That's a sad fact but I'm not talking about those people. There will always be things that happen in life that we must all just roll with, a foreclosure isn't the end of the world. My concern is the people that can still pay but are walking away because they have lost any incentive to pay. Believe me, if this continues I may be joining their ranks... Not the walking away part but the no incentive to pay part.
Is it acceptable to expect a person to stick it out for however long it takes for the real estate market to turn around. What if that doesn't happen and I don't think it will - in case anyone wanted my opinion. Maybe we should ask everyone to sit tight for 2 extra years past when they wanted to sell their property? What if they were required to list their home for sale for 5 years before we would allow them to walk away? What if the government decided that until you could sell your home, they wouldn't allow you to move - even if you couldn't pay the mortgage?
Just when all of us DOOMERS thought we had seen about every possible slippery slope out there, I bring you this. There will be or at least may be some folks out there that this situation can't touch but there aren't many! Only if your home is paid for free and clear or at least paid WAY down are you able to avoid ever being put in this position.
What I'm driving at here is we are facing a snowball effect. The big problem with the current real estate market is the declining prices. It doesn't matter if you're the family that can't pay the mortgage or the one who can and chooses not to. That home is going to be foreclosed on and attempted to be sold by the bank. I know that we are all familiar with the supply and demand concept... The more inventory out there, the lower the prices go. The lower the prices go, the more families that will face the "Walk Away" choice. I for one am not going to place much hope in my neighbors making the choice to honor their mortgage agreement on principle, are you?
So, what do you do? If you haven't already had to contemplate this situation, get ready to. What will you do? What other choice do you have? Some people can't wait to sell, they have to move because of some outside influence says they do. You know an employer, military or family obligation. That list could go on and on but the outcome is going to be the same... Lower home values! Maybe you disagree with me? Please email me as I would like very much like to print a retraction on this depressing subject!
Is it possible the government analysts have seen this time-bomb coming? I don't see how they could miss it, I'm not the sharpest knife in the drawer and I see it. We've witnessed continual poor choices being made with our economy and I doubt that's going to change anytime soon. If they know this is happening and only going to get worse... What will they do to TRY to stop it? I think that this is correct question we all need to be asking ourselves. Will we have the option of getting off this train-wreck without "Just walking away"?
Sorry to be so pessimistic today! I think anyone that's a home owner and has the slightest idea they might want to move away in the coming years had better start thinking about an exit strategy. We plan for so many things but I doubt very many "preppers" have thought this particular DISASTER through... Might be a good time to be a renter? Just my opinion, take it for what it's worth...
Prepper
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13 comments:
I have to believe that the government and lenders know exactly how bad it is and will continue to be. I think they are just trying to buy some time in the hope that the economy will get better. But with no jobs, buying time won't make any difference. And their policies will just make it worse by dragging things out and forcing more people to look at the option you described.
There are no guarantees in life. If you sign on the dotted line you alone are responsible for that decision.
If you choose to walk away, you should find yourself on a list that precludes you from getting another mortgage for 25 years...
The 'moral superiority' in this article is disgusting. A mortgage is a business contract and not a moral contract.
Being sick of politicians not doing what they say and people opting out of their financial contracts are two separate things completely. Comparing the two is ridiculous and short sighted.
I read an article recently about how banks are coming after people who default or short sale. Wrote about it awhile back http://tslrf.blogspot.com/2010/02/think-before-you-jingle-mail.html. That they are coming after the 'strategic defaults' doesn't surprise me much. The part that would concern me is that depending on state law they could come back in a decade or even longer. Theoretically someone could get in a bad spot and short sale or get foreclosed on then totally rebuild their life and get a letter saying they owe the balance.
I agree with you. It is sad that those who are able to stay in their homes just walk out on their mortgages. I have had my house for about 3 years. I am underwater, but who cares?
My house was worth the price then, and I bought it. It is still worth the mortgage payment to me, I could care less what the "market" says.
I have lived in rentals for years. We were gouged on price, rented crapholes for more than what I pay per month now, and had to move every year or two when the landlord sold or jacked up the price.
I signed the paper, and as long as I can afford it, I'll honor my agreement. To do any less would put my manhood, my honor, and who I am into question. I REFUSE to sink to the level of a politician, no matter what it costs.
In a SHTF scenario, the LAST person I want covering my back is someone who CHOOSES not to keep his word. Like the person who CAN continue to make payments on an agreement but CHOOSES not to. If one can't be trusted when only money is the issue, how can I trust them around my food? When bullets are flying?
My $.02
Justin
III
The boats sinking and people are still eating dinner and danceing.RW
People don't see a house as a place to live. They see it as an investment. And they want more than they paid for it.
Its GREED. Sheer GREED.
And the walk aways who can afford to pay and refuse to are the worst.
Nailed my problem. I will be leaving in 2 years and I am up side down.
The problem is WHAT CAN BE DONE. No one seems to have an answer.
Anyone have an idea??? I cannot think of a way out of this mess.
Might be a good time to be a renter? Just my opinion, take it for what it's worth...
Why not the buy cheap land for cash and live on it option. In our case we live on land not quite as cheap as Jim states but cheap for where we're at financially.
The biggest reason I loath renting is landlords ultimately can not pay their note or come by for a little visit and frankly I'm not up for someone going through the place I live and get a birds eye inventory of my stuff plus it is difficult to make some adjustments to the abode to suit my needs without completely losing those improvement $$.
I guess if folks want to walk away from their bad investment, it is (still) their choice. Personally, I think the whole manner in which interest and other penalties for buying a home should be re-examined.
You go to your bank and say "I want to buy this house, it is 50k. Will you loan me the money?" The bank says "Sure,it's a great investment, and we'll give you 30 years to pay it back...but you are going to end up paying back not only the 50k, but ALSO another 125k in interest!" You agree. YOU AGREE.
Think about that.
Now, if you go to the local precious metal dealer with, say, 2k and say "I want to buy some gold, I think it will go up in value." The guy sells you the gold and says "It may go up in value, especially in these precarious times"
Now, if the gold goes DOWN in value and suddenly that gold is worth 1k instead of 2k, do you hand it back to your precious metals dealer and say "Look, I can't hang on to this any longer--it went down in value! It's not worth what I paid for it!"
I know that is simplified, but when you buy a house, you usually have to toss down a good chunk of money as a down payment. (Those idiot lenders that gave out *nothing down* house loans notwithstanding)
So, when you walk away, you lose that--monies you may have saved up over years. You lose on your credit rating as well. And then you add to the overall problem.
The housing bubble was easily *seen* by anyone that took the time to look.
Houses that sold for 50k 10 years ago were going for 200k 2 years ago. I even read about 2 years ago where a mobile home, yes a TRAILER went for one million dollars in California (a lot of the value was in the less than 1/4 acre lot).
People were stupid.
We have all been there...saw the warning signs in whatever situation we were about to go into (a couple of my marriages come to mind..also that car that ended up costing me much more in repairs than it was worth---but, I digress)
but, we went ahead and dove in anyway. We paid varying penalties for our stupid decisions.
Now all these folks that thought they were going to double or triple their net worth with their real estate *investment* are getting hosed.
I KNOW the drop in value is not their *fault*. I don't know whose *fault* it is. Everybody's, nobody's, the banks, the government, the freakin' man in the moon. Doesn't really matter.
If they stay, they are penalized.
If they walk away, they are penalized.
Stupidity has it's price.
I know what you mean. I'm a "deal is a deal person" and I even have a problem with personal bankruptcy.
On the other hand, as my Mother says, "you can't get blood from a turnip." Sometimes, the only choice is to walk away. The banks are not approving short sales and loan modifications quick enough, or at all, to keep people in their homes.
We bought new construction in early 2004 in the DC area. By 2006 we were up ~$100k. If only we'd sold then...
We got a 5/1 ARM (4.5%) since we didn't plan on staying here near that long. I hate the area. Four and a half years later, there we were.
When things started going down, we figured our area would be okay due to the good location close to DC - here you either pay through the nose, or pay a little less and spend your life commuting.
But it kept going down. If we stayed longer we'd be upside down and potentially lose a small fortune if we wanted to leave, which we did.
So I made the command decision, followed by some minor improvements (crown molding, paint, new faucets, etc.) and put it on the market.
We did FSBO, listed for free on Zillow, and had a buyer in 19 days. They had a realtor, who we paid 2% for his commission. They actually ended up paying more than our asking price for the "seller assist" on closing costs.
Overall we lost just over $10k due to what we'd put into it. But overall we still did better than renting, which would have cost more and not had the benefit of tax breaks. It was still pretty stressful.
Now we're renting. If TSHTF, we can pull chalks. It's a great feeling. When we do move out west, we'll but land and a trailer, and save for several years before building a home. By that time things could be a lot different, but that's the plan for now.
My advice; get a small bit of land paid off and live there. Save up for more if needed. Rent to avoid a gigantic mortgage.
Foreclosure? Not an option for me. Would cost me my livelihood (security clearance). We would have paid tens of thousands to move. Or more likely my wife would have vetoed a move until the price went up (she doesn't mind living here like I do).
Forclousre can't be blamed on many parties. The banks for making stupid loans. The people that bit off way more than they can chew. The banks again for not cutting deals with those people so they could continue to pay. All these people f***ed up the system, the rest of us pay.
Seems like its similar to a fire; we (our tax dollars) have to do something about it, or it'll spread. But it spread anyway.
Probably not enough learned lessons from this, and more will forget too soon.
Jim, Prepper, and Others,
For me, a mortage is a contract. There are penalties for defaulting on that contract, pure and simple. As an adult/family, you have to make the decision if you and your family are willing to pay those penalties.
I also think that you have to be careful with that attitude that you have a moral obligation to pay back the mortgage. The banks (and I not just talking about the big banks) have received money from us (throught the federal governemnt) to keep themselves from defaulting on their obligations. If the banks hadn't received that money, they would have defaulted on their obligations. The banks would have looked at that decision to default as just another day-to-day decision.
Remember, the banks and others (including me) got richer on manipulating the way that the U.S. and the World invested in mortgages. It is in the best interest of the banks for folks to continue staying in their houses paying that mortgage even if it is a bad decision for these folks.
So, if you are thinking about walking away from your mortgage, you need to get a lawyer to make sure that the "tricks" the banks will play (not accepting the foreclosure, coming to you to make up the difference in a short sell, isssuing you a 1099, or other legal action) are explained to you and what you can do about it legally.
Lastly, some folks have made fun of Jim, in the past. We are starting to see that he just might be right!
So, buy his stuff, so he can finally buy a HK-91 and join the ranks of yippie survivalists, everywhere.
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