I keep taking my girlfriend out to dinner, and I pay with my VISA. I owe about a grand on that card now.
Here's the thing, the food is all gone, but VISA, those fuckers, still want me to pay my bill! Why should I be forced to pay full price for something that no longer has any value? There is a Subway close by where I can get the same number of meals for half price. I'm thinking of defaulting on my credit card, and using the money I'll be saving to buy me some sammiches! Cheap, uneaten ones!
H'ep me H/A, hep me be a fucker to a faceless corporation so that I might have my new sammiches prepared by a local artiste!
Or you know, I could just man up and pay what I agreed to, because at that time that is what those things cost. I saw the price, I agreed to it, and then I was loaned money at that time, for the things I wanted at that time. Depreciation is not a factor in considering return of payment, the original amount, and only the original amount is what matters. If I chose to be a fucker, I suppose I could be, but I would expect to be labeled a fucker by any institution that lends money (credit) for a good long time, if not forever.
EDIT: Because OP knows this is not right, but finds people do it anyway. Yep, some people are fuckers, and they damage things for everybody else. In real terms, you can probably 'get away with' what you are talking about with a decent real estate lawyer. But defaulting on a loan is going to have a serious impact on your credit score for a very very long time, and that comes with its own set of lost opportunities.
Do you have the ability to hold on for another couple of months? If so that may not be a bad idea, as things are weird all over and who knows if a government (state/federal or whatever) will come up with some relief programme you may be able to take advantage of. There is a fair amount of panic going on and we are seeing things proposed and implemented by governments that would have been laughed at 6 months ago.
An example being back during the Great Depression my family were fairly rich landowners and had a bit of money tied up in something like a mortgage, to other farmers - at some point in time the government (this isn't the US by the way) effectively either wiped, cancelled or nationalised mortgages of the kind they had issued, as a way of bringing relief to the aforementioned farmers. Which screwed my grandfather a fair bit, but he could at the time afford it.
I keep taking my girlfriend out to dinner, and I pay with my VISA. I owe about a grand on that card now.
Here's the thing, the food is all gone, but VISA, those fuckers, still want me to pay my bill! Why should I be forced to pay full price for something that no longer has any value? There is a Subway close by where I can get the same number of meals for half price. I'm thinking of defaulting on my credit card, and using the money I'll be saving to buy me some sammiches! Cheap, uneaten ones!
H'ep me H/A, hep me be a fucker to a faceless corporation so that I might have my new sammiches prepared by a local artiste!
Or you know, I could just man up and pay what I agreed to, because at that time that is what those things cost. I saw the price, I agreed to it, and then I was loaned money at that time, for the things I wanted at that time. Depreciation is not a factor in considering return of payment, the original amount, and only the original amount is what matters. If I chose to be a fucker, I suppose I could be, but I would expect to be labeled a fucker by any institution that lends money (credit) for a good long time, if not forever.
EDIT: Because OP knows this is not right, but finds people do it anyway. Yep, some people are fuckers, and they damage things for everybody else. In real terms, you can probably 'get away with' what you are talking about with a decent real estate lawyer. But defaulting on a loan is going to have a serious impact on your credit score for a very very long time, and that comes with its own set of lost opportunities.
A better analogy would be that VISA then upped your interest rate to 40% and you want to find a way out. There are options. Not paying is a crappy one, but so is continuing to pay. (As an example, my grandmother was being pursued for about 10k from a credit card company. Of that, she had probably spent 2k and then missed some payments and such and it eventually hit 10k. What was the advice given to her by the consultants, "stop paying. Now.")
As for everyone who is giving him a hard time.Why should he have to pay an inflated price for a place when prices were artificially driven up by investors, mortgage brokers and speculators.
There was so much gambling going on that every homeowner has been fucked.
I have lost 35% as well and am now over under in equity in a two bedroom townhouse my family is quickly outgrowing.
We are all fucked in this mess, homeowner or not, but it is not really our faults as most of us were just trying to find a nice place to live.
Do what is best for your situation. If you can get out without getting burned, do it. Your credit will take a hit, but so is everyone else's. Good luck.
Certainly, he should look into a short sale as an option. But he's 35% upsidedown, that likely means all his comparables are similarly 35% less than what he owes. There are probably a fair number of houses in or nearing foreclosure in the neighborhood, or at least on the market. Lending standards have tightened. In that environment it's a race to the bottom if you NEED to sell your house NOW, which is what you need to do to get a short sale. It's a buyers market, IF you can secure financing or have it all in cash, so he'll likely have to offer at least 35-40% less than he owes just to get the interest of buyers.
Assuming you can pay for it, and you are planning to stay in the area anyways for 5+ years, you should probably not allow it to go into foreclosure.
It kinda sucks that if you've been responsible and up to date on your mortgage that you don't qualify for relief, but that's how it is.
Perhaps the threat of letting it go into foreclosure would give you leverage in re-negotiating your mortgage, but I don't know how you'd approach doing that or if it's even legal.
Sarcasto, I think, is much better with relationship advice than financial advice. I've read his relationship advice. It's frequently great. This one is apples and oranges.
Your lender is not Visa. They didn't extend you a credit line for whateverthefuck, and the lunch you ate yesterday doesn't depreciate in value based on what the person buying a similar meal today would be willing to pay for it, and Visa certainly doesn't own your lunch as collateral. Your lender negotiated a price-specific mortgage on a known entity with you. Frankly, OP, you should have asked those five questions I listed in my first post before purchasing; chances are you would have noted that housing prices are severly inflated, that it actually would save you money in the long run to rent versus purchase, and you wouldn't have taken on this debt in the first place. Your lender, however, shares some of the culpability for buying into an overvalued property with you. Considering how much more experience they have with mortgages than you do, they should have known better.
I don't want to get into the blame game because it's not productive. Examine your options, balance your moral responsibility with your fiscal responsibility (both to your lender and to your family) and then make the best decision you can. And learn from this and do more research before making purchases like this in the future.
I am 100% sure about AZ law saying that you cannot be pursued by deficiency judgments. It does seem odd, for sure, but it does give some power to the borrower when negotiating with the lender - if they know they will lose their ass, they will be more willing to negotiate. California and other states have similar laws when using purchase money loans, but AZ covers them all.
Was this person looking at your agreement? It appears he is referencing this section of the law. Notice the important closing of it, though
notwithstanding any agreement to the contrary.
That is to say, this can be signed away. So, again, this sort of thing can be an option. Plenty of investors are doing it all over Florida right now. When you are willing to put 50k down, most banks will forego placing protection from this in the contract. When you are not able to put that much, or you don't know to argue against it, you are probably screwed.
Thinking about U.S. credit thingee monies gives me a headache, without the icecream.
However, here is my take. If you stop paying your house will be sold. The proceeds will amount to less than what you owe the bank. The bank will then aks a judge for aDeficiency Judgement and sell everything else you have, until your debt is paid. Since you presumably don't have three houses lying around, this is indeed the worst time for you to do this.
It would be a good idea, if your house was worth a lot more than the original loan, to sell it yourself. The other way around, i.e. your house being worth less, is bad.
As someone who has held off on buying a home and will probably be raising my first child in a rented townhouse because my wife and I decided that we didn't want to buy a place until we could afford something we could spend many years in and be happy, this whole thread is making me throw up a little.
I mean, I may have misread something, but the OP isn't in dire straits or anything. He bought a house and the value of that house went down, but presumably he can still pay the mortgage. He's just pissed that he's paying a mortgage for $X when his house is now worth $.70X. It's not like anyone who even touches a newspaper on a regular basis couldn't predict such a scenario, even two years ago. If the OP wants to treat his home as a short-term investment rather than, you know, A HOME, he should bear the risks. Yes, it sucks that your home has lost value. But that was a risk that you should have been well aware of. And you might want to find out if that AZ law actually protects people who default on a mortgage just because they decide they don't feel like paying it any more.
What you are doing is the result of a very poor government with no forward thining action regarding these mortgage value discrepancies. It also reflects on you as a person, but people will almost always act in their own perceived self interest. So, contact your lawyer and see if you can squeeze into a house. Then drop the other one.
I'm sure the Lord of Hosts has some sort of plan for all of us once he takes office. God Bless the Federal Government!
As someone who has held off on buying a home and will probably be raising my first child in a rented townhouse because my wife and I decided that we didn't want to buy a place until we could afford something we could spend many years in and be happy, this whole thread is making me throw up a little.
This thread should make you happy that you made the correct decision.
Renting, contrary to popular belief is not throwing your money away. That has only been true lately with the advent of people getting 80/20 and 100% loans where they did not have to have a large down payment. (Even then, getting a mortgage can be risky, don't get me wrong.)
A better analogy would be that VISA then upped your interest rate to 40% and you want to find a way out. There are options. Not paying is a crappy one, but so is continuing to pay. (As an example, my grandmother was being pursued for about 10k from a credit card company. Of that, she had probably spent 2k and then missed some payments and such and it eventually hit 10k. What was the advice given to her by the consultants, "stop paying. Now.")
Actually, the more correct analogy would be the value of your dollar going down and restaurants in the area no longer charging what you originally paid. It's really not worth it. Even if they can't come after you. This is some crazy talking here, but let's say you can't get the 35% back in selling your house, who says you need to sell it? It becomes your estate, and essentially, inheritance. That saves the rest of your family money in the long run and it truely becomes a wise investment to keep it rather than dropping $texas on transient property you own no right to other than "I can sleep here for this year."
bowen on
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
As someone who has held off on buying a home and will probably be raising my first child in a rented townhouse because my wife and I decided that we didn't want to buy a place until we could afford something we could spend many years in and be happy, this whole thread is making me throw up a little.
I don't blame you, but one of the few good things that frequently comes out of an economic downturn is that it makes us appreciate our finances a little bit more. I'm currently doing relatively okay financially, but my family got dicked over pretty royally in the early 1990s, and in a lot of ways it made us tougher and smarter.
And taeric's right. You saved yourself a lot of heartache by waiting. Depending on how much you've saved, look around for a reasonable loan and a reasonably priced house, and if you can't find one yet, hold off until you do. In all honesty, though, the people in your situation are going to be the ones that turn our economy around when the market readjusts to the point where you're willing to get into it.
As far as the OP goes, he's not going to lose his shirt, but please don't misunderstand, he is definitely in trouble. The question he's wrestling with isn't "do I have some cake, or do I have some pie?" It's "do I ruin my credit for the next decade or do I burn $100,000 in bundles of $500 at a time over the next twenty years?" I want to help him make the best informed decision he can regarding his own finances for his sake and for the sake of his family, but despite how some people are reacting, no one is going to get a free lunch out of this.
Also, good luck not paying out the ass for a decent apartment or town house. All the ones around where I live are doing credit checks. This really has like 18 ways to bite you in the ass and fuck you for the next 20 years, or has 1 way of being a possibly being a great idea if you want to do nothing but live in an apartment all your life buying used cards for $1000.
bowen on
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
You really should consult a lawyer. A mortgage company has more incentive to renegotiate the mortgage than to let you walk away. You can almost certainly renegotiate it.
edit:maybe you could negotiate a short sale? I doubt it, but maybe.
JebusUD on
and I wonder about my neighbors even though I don't have them
but they're listening to every word I say
A better analogy would be that VISA then upped your interest rate to 40% and you want to find a way out. There are options. Not paying is a crappy one, but so is continuing to pay. (As an example, my grandmother was being pursued for about 10k from a credit card company. Of that, she had probably spent 2k and then missed some payments and such and it eventually hit 10k. What was the advice given to her by the consultants, "stop paying. Now.")
Actually, the more correct analogy would be the value of your dollar going down and restaurants in the area no longer charging what you originally paid. It's really not worth it. Even if they can't come after you. This is some crazy talking here, but let's say you can't get the 35% back in selling your house, who says you need to sell it? It becomes your estate, and essentially, inheritance. That saves the rest of your family money in the long run and it truely becomes a wise investment to keep it rather than dropping $texas on transient property you own no right to other than "I can sleep here for this year."
That was the point of questions 4 and 5 in the ratios question I asked, Bowen.
Traditionally, the average price of property as a ratio to the price of renting comparable property for a year was something like 14:1, varying (obviously) by the market you were in. At the peak of the housing bubble, that number inflated to about 25:1, meaning that when you factored in interest, you would pay less money to lease a house for 30 years than you would to buy the house outright and make housing payments on a 30 year fixed rate mortgage. That's the point at which people in the housing market should have scratched their heads and said, "wait a minute, isn't this kind of retarded?" And, unfortunately, as much negative equity as the OP is currently carrying, it sounds like that's the point where he made the purchase in his market.
The only benefit to overpaying by 35%-40% of a home's intrinsic value to keep up with the mortgage is to preserve your credit rating and re-establish positive equity so you can take out a second mortgage and build even more debt. That's not necessarily fiscally responsible (edit: depending on a lot of other factors like the size of his mortgage payments, annual income, job security in an economy where unemployment is on the rise, etc.)
As far as the OP goes, he's not going to lose his shirt, but please don't misunderstand, he is definitely in trouble. The question he's wrestling with isn't "do I have some cake, or do I have some pie?" It's "do I ruin my credit for the next decade or do I burn $100,000 in bundles of $500 at a time over the next twenty years?" I want to help him make the best informed decision he can regarding his own finances for his sake and for the sake of his family, but despite how some people are reacting, no one is going to get a free lunch out of this.
He never said he was in trouble. In fact he said the opposite. He has no trouble making the payments and just wants out of a bad investment with little or no collateral damage to himself. Bad investment right the fuck now. One year from now? Maybe. Two years from now? Hard to tell. Twenty years from now? Maybe, but I'd doubt it.
Long term investments never look good from a short term scale.
bowen on
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
The only benefit to overpaying by 35%-40% of a home's intrinsic value to keep up with the mortgage is to preserve your credit rating and re-establish positive equity so you can take out a second mortgage and build even more debt. That's not necessarily fiscally responsible.
And the value of the estate over the course of his lifetime will be immense and most likely invaluable to his heirs too. Coupled with his ability to afford this (which he did say), I'd say horrible decision. However, trying to renegotiate the mortgage? Awesome decision.
bowen on
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
As someone who has held off on buying a home and will probably be raising my first child in a rented townhouse because my wife and I decided that we didn't want to buy a place until we could afford something we could spend many years in and be happy, this whole thread is making me throw up a little.
Yeah, that's kind of where I'm sitting. Which is why my first instinct is that he should burn the house down for the insurance money, with himself inside.
But I won't suggest that. Because insurance fraud is illegal.
I mean, I may have misread something, but the OP isn't in dire straits or anything. He bought a house and the value of that house went down, but presumably he can still pay the mortgage. He's just pissed that he's paying a mortgage for $X when his house is now worth $.70X. It's not like anyone who even touches a newspaper on a regular basis couldn't predict such a scenario, even two years ago. If the OP wants to treat his home as a short-term investment rather than, you know, A HOME, he should bear the risks. Yes, it sucks that your home has lost value. But that was a risk that you should have been well aware of. And you might want to find out if that AZ law actually protects people who default on a mortgage just because they decide they don't feel like paying it any more.
Yep. Here's what I see:
A) He can still afford the mortgage
The value of the home will rebound into positive equity within a few years
C) He (presumably) would intend to live in the home long-term were it not for the negative-equity situation
If (C) is not true then he was a speculative home buyer and should have to eat the fucking loss anyway. Plus that would mean he was stupid as fuck because this was easy to see coming years ago. And yes, I mean more than two.
Otherwise if all three are true he should stay put, because I'm willing to bet if he worked out the numbers he'd find that in the medium term (say, 10 years) or longer he's marginally better off owning his own home even with a smaller amount of equity than throwing money down the renter hole (with all the associated pains in the ass that come with it) for that same time period.
Sure, negative equity sucks but as long as you can still afford the payments and as long as you aren't looking to sell or refinance then in the long term you're still better in the house.
You're being a piece of shit for even thinking this.
That is to say, I am going to end up paying for a small portion of your house if you do this.
Well yeah, it's just a part of the current trend of privatizing gains and socializing losses. Had his house gone up a hojillion percent would he have sent some extra money to the IRS above the taxes owed (which would largely be offset by taxes not paid on mortgage interest)? Of course not.
This is super that it may be legally possible for you to avoid some of the ramifications of not paying your bills and living up to your obligations. Fine. But that makes you part of the fucking problem, so my advice is to not be a horrible person.
I'd honestly like to believe you're just trolling H/A with this. However, with the way things are now I can't even delude myself on that one.
Sarcasto, I think, is much better with relationship advice than financial advice. I've read his relationship advice. It's frequently great. This one is apples and oranges.
Thanks mang, appreciated. And true, finances are not my forte. You're right in your post, both the buyer and lender should have gone in eyes open, and for whatever reason they didn't see this one coming.
Theres a lot of focus on opportunity costs, and I get that- money thrown down a hole is well, money thrown down a hole. Like establishing long term rent for a place that is no longer worth that much. There probably is room to negotiate something, and there is probably a way to take advantage of the government bailouts for lending institutions.
The lenders in the US are essentially getting free money to help deal with the crisis, and in the end, the OP is suggesting nothing more than getting himself a slice of that. Its not 'real' money, so much as a way to reduce the opportunity costs of holding onto his house- but someone is taking the hit.
The seller of the house did the right thing by selling at that time, and deserves all his money. No one would suggest going back to the buyer and re-negotiating. When the house was bought, thats the sum that changed hands. In reality the sum is time-lapse, and the lending institution takes a hit by not having that money to invest, thier opportunity cost, recovered eventually and then some in interest.
The OP is essentially considering forcing himself into a bad enough situation that his lending institution, not himself, qualifies for the handout, and would be covered by whatever provision.
And I guess thats what annoys me, or rather would annoy me if I paid US taxes, because here's a guy who can afford his situation, taking advantage of a provision that is intended to help people who are well and truly fucked by thier situation. In short, if he gets it, there is someone else who doesn't.
Considering the costs involved though, maybe he is in a bad enough situation to warrant taking advantage here. I mean, the downturn and those losts funds are going to impact the OP for quite some time, possibly longer than a bad credit score. If thats the case, even though he is capable of maintaining his curent situation, he may qualify for indirect assistance.
On the surface though, you owe what you owe. Being unaware of what will happen in the future is seldom enough of an excuse to avoid its consequences.
The only benefit to overpaying by 35%-40% of a home's intrinsic value to keep up with the mortgage is to preserve your credit rating and re-establish positive equity so you can take out a second mortgage and build even more debt. That's not necessarily fiscally responsible.
And the value of the estate over the course of his lifetime will be immense and most likely invaluable to his heirs too. Coupled with his ability to afford this (which he did say), I'd say horrible decision.
You are still operating under the assumption that the estate will rise in value. Not just a little, but a significant amount. This is EXACTLY the thought process that got us in this mess. Real estate never goes down, right?
Simple math shows that it would have to go up 42% from its current value just for him to break even. (This is assuming a current loss of 30%.) You are saying that not only will this happen, but that it will continue to grow at a nice pace for a long time.
The only benefit to overpaying by 35%-40% of a home's intrinsic value to keep up with the mortgage is to preserve your credit rating and re-establish positive equity so you can take out a second mortgage and build even more debt. That's not necessarily fiscally responsible.
And the value of the estate over the course of his lifetime will be immense and most likely invaluable to his heirs too. Coupled with his ability to afford this (which he did say), I'd say horrible decision.
You are still operating under the assumption that the estate will rise in value. Not just a little, but a significant amount. This is EXACTLY the thought process that got us in this mess. Real estate never goes down, right?
Simple math shows that it would have to go up 42% from its current value just for him to break even. (This is assuming a current loss of 30%.) You are saying that not only will this happen, but that it will continue to grow at a nice pace for a long time.
No, the process that got us into this mess was that people thought their real estate was worth more than it was after living in it. Giving it to an heir after you die is a pretty good financial investment and that's money they're not having to pay. With good upkeep a house can last for a very long time. Thus, good investment even if equity in it goes down. It's still money you never have to pay once you own it.
And it'll come back up, again, but probably not as much as it would have originally by making 65% on your original purchase.
bowen on
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
And I guess thats what annoys me, or rather would annoy me if I paid US taxes, because here's a guy who can afford his situation, taking advantage of a provision that is intended to help people who are well and truly fucked by thier situation. In short, if he gets it, there is someone else who doesn't.
This is the moral argument for why the OP shouldn't do what he is proposing to do.
As far as the OP goes, he's not going to lose his shirt, but please don't misunderstand, he is definitely in trouble. The question he's wrestling with isn't "do I have some cake, or do I have some pie?" It's "do I ruin my credit for the next decade or do I burn $100,000 in bundles of $500 at a time over the next twenty years?" I want to help him make the best informed decision he can regarding his own finances for his sake and for the sake of his family, but despite how some people are reacting, no one is going to get a free lunch out of this.
He never said he was in trouble. In fact he said the opposite. He has no trouble making the payments and just wants out of a bad investment with little or no collateral damage to himself. Bad investment right the fuck now. One year from now? Maybe. Two years from now? Hard to tell. Twenty years from now? Maybe, but I'd doubt it.
Long term investments never look good from a short term scale.
Dude. You and I have no idea how much he paid for his house, how much it was worth at the bottom of the housing bubble (which is probably closest to real market value). We have no idea how much he makes annually or how much job security he has. If he's carrying that much negative equity, he could conceivably have overpaid by more than $100,000. I didn't pull that number out of my ass; it's 40% of $250,000 (which, admittedly, I did pull out of my ass because I don't know what part of Arizona he's living in, or how big his house is). The point is, since I don't know how much he stands to lose on his investment by overpaying beyond market value, and since I don't know how long it will take him to recoup that loss, he's going to need to ask questions like, "will I have enough money to send my children to college?" and the other questions a father has to ask before he, you know, dies. I don't necessarily believe that the value of his home to his heirs minus whatever he overpaid is any consolation to a new homeowner if he has to send his children to community college.
The only benefit to overpaying by 35%-40% of a home's intrinsic value to keep up with the mortgage is to preserve your credit rating and re-establish positive equity so you can take out a second mortgage and build even more debt. That's not necessarily fiscally responsible.
And the value of the estate over the course of his lifetime will be immense and most likely invaluable to his heirs too. Coupled with his ability to afford this (which he did say), I'd say horrible decision.
You are still operating under the assumption that the estate will rise in value. Not just a little, but a significant amount. This is EXACTLY the thought process that got us in this mess. Real estate never goes down, right?
Simple math shows that it would have to go up 42% from its current value just for him to break even. (This is assuming a current loss of 30%.) You are saying that not only will this happen, but that it will continue to grow at a nice pace for a long time.
The only benefit to overpaying by 35%-40% of a home's intrinsic value to keep up with the mortgage is to preserve your credit rating and re-establish positive equity so you can take out a second mortgage and build even more debt. That's not necessarily fiscally responsible.
And the value of the estate over the course of his lifetime will be immense and most likely invaluable to his heirs too. Coupled with his ability to afford this (which he did say), I'd say horrible decision.
You are still operating under the assumption that the estate will rise in value. Not just a little, but a significant amount. This is EXACTLY the thought process that got us in this mess. Real estate never goes down, right?
Simple math shows that it would have to go up 42% from its current value just for him to break even. (This is assuming a current loss of 30%.) You are saying that not only will this happen, but that it will continue to grow at a nice pace for a long time.
This is not an unreasonable assumption (that real estate values will stabilize eventually towards an upward trend) for the real estate market in Phoenix, AZ. If the OP were in Cleveland, OH. I'd probably say short sale and GTFO.
It doesn't matter what it's worth, he can afford it and that's where the problem is.
That's sort of the whole idea behind financial planning and investments.
Hey they're risky, whodathunkit?
It matters a TON how much it is worth. The point we are stressing is that continuing to pay CAN be (not is) just as irresponsible as walking away. Make no mistake about it, it was a bad idea to land yourself in a situation where this is even worth discussing. Do not believe you are stuck in a contract that is incredibly bad for you once you are in it. They have methods of breaking the contract for a reason.
It doesn't matter what it's worth, he can afford it and that's where the problem is.
That's sort of the whole idea behind financial planning and investments.
Hey they're risky, whodathunkit?
It matters a TON how much it is worth. The point we are stressing is that continuing to pay CAN be (not is) just as irresponsible as walking away. Make no mistake about it, it was a bad idea to land yourself in a situation where this is even worth discussing. Do not believe you are stuck in a contract that is incredibly bad for you once you are in it. They have methods of breaking the contract for a reason.
Does the bank have grounds for renegotiating a subprime mortgage in their eyes if the economy goes up and the value of the house is going up?
bowen on
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
It doesn't matter what it's worth, he can afford it and that's where the problem is.
That's sort of the whole idea behind financial planning and investments.
Hey they're risky, whodathunkit?
It matters a TON how much it is worth. The point we are stressing is that continuing to pay CAN be (not is) just as irresponsible as walking away. Make no mistake about it, it was a bad idea to land yourself in a situation where this is even worth discussing. Do not believe you are stuck in a contract that is incredibly bad for you once you are in it. They have methods of breaking the contract for a reason.
Does the bank have grounds for renegotiating a subprime mortgage in their eyes if the economy goes up and the value of the house is going up?
Yes. They do it all of the fucking time. Do they have grounds to force it? Nope. But I would bet dollars to donuts that anyone in a house when the market was rising received so many solicitations from banks to refinance that it wasn't even funny.
And, again, this just leads back to my original advice. Seek a consultant about your specific case, and then prepare an argument to approach the bank to see what your options are.
It doesn't matter what it's worth, he can afford it and that's where the problem is.
That's sort of the whole idea behind financial planning and investments.
Hey they're risky, whodathunkit?
It matters a TON how much it is worth. The point we are stressing is that continuing to pay CAN be (not is) just as irresponsible as walking away. Make no mistake about it, it was a bad idea to land yourself in a situation where this is even worth discussing. Do not believe you are stuck in a contract that is incredibly bad for you once you are in it. They have methods of breaking the contract for a reason.
Walking away is the irresponsible thing to do, but it may result in less personal financial hurt (not sure of that myself). Continuing to pay would be the responsible thing to do. There may be a savvy middle ground involving re-negotiation.
Oh well. Guess some people make bad financial decisions and have to pay for them. I seriously hope if he does take off that they do go after him simply because of his ability to pay and because he signed that contract. It is retardedly bad advice to tell him to take off because it's a wash in terms of percieved equity in the short term.
But no, don't do that. Talking to the advisor is best, but if you get stuck with it you get stuck with it. Shitty as it may be.
bowen on
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
It doesn't matter what it's worth, he can afford it and that's where the problem is.
That's sort of the whole idea behind financial planning and investments.
Hey they're risky, whodathunkit?
It matters a TON how much it is worth. The point we are stressing is that continuing to pay CAN be (not is) just as irresponsible as walking away. Make no mistake about it, it was a bad idea to land yourself in a situation where this is even worth discussing. Do not believe you are stuck in a contract that is incredibly bad for you once you are in it. They have methods of breaking the contract for a reason.
Does the bank have grounds for renegotiating a subprime mortgage in their eyes if the economy goes up and the value of the house is going up?
Yes. They do it all of the fucking time. Do they have grounds to force it? Nope. But I would bet dollars to donuts that anyone in a house when the market was rising received so many solicitations from banks to refinance that it wasn't even funny.
And, again, this just leads back to my original advice. Seek a consultant about your specific case, and then prepare an argument to approach the bank to see what your options are.
And he also doesn't have grounds to force the bank to renegotiate in this instance. But just like the bank can leverage rising prices to encourage people to refinance, he can leverage falling prices and any options at his disposal to encourage the bank to renegotiate for a more-reasonable interest rate or ask them to eat a chunk of the negative equity, with the provision that once he's locked in that deal, he can sign away the get out of jail free card that Arizona apparently decided to write into state code. That way the economy keeps moving forward (or at least doesn't backslide), the OP has made a fiscally responsible decision that preserves his credit while improving his family's financial situation, and the bank may not make quite as much as they thought they were going to, but they will still make *some* money, and way more than they would if they were going to have to fire-sale the property to recoup a defaulted mortgage.
I think the part that strikes me as most absurd is that we aren't even talking about somebody who got nabbed by predatory lending. This isn't a matter of a bank railroading somebody into a mortgage they wouldn't be able to afford in a couple years. He fully admits he can afford it, he just doesn't want to because the value of his investment dropped.
Hey, can I buy $500K of stock on margin then walk away from the contract if the stock goes down? Because that seems like a sure-fire no-risk way to make bundles of cash, no?
Oh well. Guess some people make bad financial decisions and have to pay for them. I seriously hope if he does take off that they do go after him simply because of his ability to pay and because he signed that contract. It is retardedly bad advice to tell him to take off because it's a wash in terms of percieved equity in the short term.
What would you tell someone holding 1 million in stock on a company that has taken a 30% hit and looks like they won't recover any time soon? Just leave the money there and wait for it to rebound?
Actually, better way to ask it, what would you tell someone that has devoted 80% of their income towards an investment that has dropped 30% and does not necessarily look like it will recover. I agree that devoting a large chunk of your income towards an investment is already a bad idea, but that is not a reason to continue to make poor decisions.
And again, there is nothing moral about the way I am looking at it. So, if this is an argument about what is "right," I apologize. I'm saying that it is a very very bad financial decision to continue paying for a contract that is hurting you.
A similar question would be if he was renting for 1000 a month. Three blocks down someone opened a complex where the rent is 250 a month. The agreement signed said there is only a 500 penalty to break early. Would you seriously tell this person to stay in that apartment for the full 10 months left on the lease instead of moving?
Oh well. Guess some people make bad financial decisions and have to pay for them. I seriously hope if he does take off that they do go after him simply because of his ability to pay and because he signed that contract. It is retardedly bad advice to tell him to take off because it's a wash in terms of percieved equity in the short term.
What would you tell someone holding 1 million in stock on a company that has taken a 30% hit and looks like they won't recover any time soon? Just leave the money there and wait for it to rebound?
Well, that's one option. The other would be to sell and TAKE THE LOSS.
Analogy kinda falls apart, huh?
See my comment regarding buying stock on margin.
A similar question would be if he was renting for 1000 a month. Three blocks down someone opened a complex where the rent is 250 a month. The agreement signed said there is only a 500 penalty to break early. Would you seriously tell this person to stay in that apartment for the full 10 months left on the lease instead of moving?
Except in this case he'd be honoring the agreement as written, by paying the penalty. Not using some government "get out of jail free" card to fuck his way out of it, at the expense of...well, ME.
Again, analogy falls apart.
EDIT: In short, the OP is the kind of person that turns people into libertarians. He should pay his bills or take the loss. He wouldn't be sending my ass a check if he'd seen a gain. Be a fucking man.
Oh well. Guess some people make bad financial decisions and have to pay for them. I seriously hope if he does take off that they do go after him simply because of his ability to pay and because he signed that contract. It is retardedly bad advice to tell him to take off because it's a wash in terms of percieved equity in the short term.
Actually, better way to ask it, what would you tell someone that has devoted 80% of their income towards an investment that has dropped 30% and does not necessarily look like it will recover. I agree that devoting a large chunk of your income towards an investment is already a bad idea, but that is not a reason to continue to make poor decisions.
Guess that's why we're coming at it from different angles, that's a bad financial decision waiting to happen.
And again, there is nothing moral about the way I am looking at it. So, if this is an argument about what is "right," I apologize. I'm saying that it is a very very bad financial decision to continue paying for a contract that is hurting you.
You're right. That doesn't absolve him from paying his debts though.
A similar question would be if he was renting for 1000 a month. Three blocks down someone opened a complex where the rent is 250 a month. The agreement signed said there is only a 500 penalty to break early. Would you seriously tell this person to stay in that apartment for the full 10 months left on the lease instead of moving?
No. But we're not talking renting which is a whole different ballgame than a drop in housing value that is most likely going to rebound.
If it was "$1000 a month and you have a $500 penalty and a chance of never being able to rent another apartment again as well as maybe having to pay the cost over the rest of the 10 months that you skipped out on" I'd seriously reconsider my decision.
bowen on
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
I think the part that strikes me as most absurd is that we aren't even talking about somebody who got nabbed by predatory lending. This isn't a matter of a bank railroading somebody into a mortgage they wouldn't be able to afford in a couple years. He fully admits he can afford it, he just doesn't want to because the value of his investment dropped.
Hey, can I buy $500K of stock on margin then walk away from the contract if the stock goes down? Because that seems like a sure-fire no-risk way to make bundles of cash, no?
Again: you're misunderstanding the situation. This isn't like skipping out on bail or alimony/child care payments or something and hiding out in a small down on the coast of Mexico where the drinks are cheap and the women are beautiful and easy. There will be substantial negative reprecussions. It's simply a matter of deciding what will hurt his family more.
Added: incidentally, no. You can't buy that much stock on the margin. The SEC will break your balls and the balls of anyone who fronts you the cash. The fact that we didn't have that sort of regulation for the housing industry should concern you because it allows for situations like this one. Also: there is diversity in the stock market. You can buy tech stocks, or you can buy manufacturing stocks, or service sector stocks, or whateverthefuck you want. In any given market, you only have three real options when it comes to housing: buy or rent. The third option, "homelessness," remains unpopular. In the market the OP lives in at the time he was buying, the correct option would have been "rent" and wait for a market adjustment as we mentioned to running man. What drives me crazy is that I swear I've seen Bowen tell people that renting is always a waste of money (I think, it may have been someone else).
Oh well. Guess some people make bad financial decisions and have to pay for them. I seriously hope if he does take off that they do go after him simply because of his ability to pay and because he signed that contract. It is retardedly bad advice to tell him to take off because it's a wash in terms of percieved equity in the short term.
What would you tell someone holding 1 million in stock on a company that has taken a 30% hit and looks like they won't recover any time soon? Just leave the money there and wait for it to rebound?
Well, that's one option. The other would be to sell and TAKE THE LOSS.
Analogy kinda falls apart, huh?
See my comment regarding buying stock on margin.
Not at all. Analogy still holds. He is looking at taking some sort of hit regardless of what he chooses. He just has a choice for which sort of hit he would rather take. Credit hit, which can be weathered through easily enough, or a huge financial one that makes his house worse than renting. (As has been pointed out, we are talking about throwing away upwards of 100k, depending on specifics. )
You are looking at this as if the agreement was to "keep paying forever, no questions asked." The agreement was to keep paying until the contract is terminated. Since it is legal to break these contracts, this is what he is looking to do.
There is a reason people don't get the loan you are talking about.
A similar question would be if he was renting for 1000 a month. Three blocks down someone opened a complex where the rent is 250 a month. The agreement signed said there is only a 500 penalty to break early. Would you seriously tell this person to stay in that apartment for the full 10 months left on the lease instead of moving?
Except in this case he'd be honoring the agreement as written, by paying the penalty. Not using some government "get out of jail free" card to fuck his way out of it, at the expense of...well, ME.
Again, analogy falls apart.
And in the case we've been discussing, he is still honoring his agreement. If the bank really did not get him to sign away that right, then they are to blame.
And earlier you said this wasn't predatory lending. If this person did not put down a ton of money upfront, I'd argue it is still predatory lending. Just because he is surviving the hit doesn't make it less of a predatory thing to do.
Posts
Here's the thing, the food is all gone, but VISA, those fuckers, still want me to pay my bill! Why should I be forced to pay full price for something that no longer has any value? There is a Subway close by where I can get the same number of meals for half price. I'm thinking of defaulting on my credit card, and using the money I'll be saving to buy me some sammiches! Cheap, uneaten ones!
H'ep me H/A, hep me be a fucker to a faceless corporation so that I might have my new sammiches prepared by a local artiste!
EDIT: Because OP knows this is not right, but finds people do it anyway. Yep, some people are fuckers, and they damage things for everybody else. In real terms, you can probably 'get away with' what you are talking about with a decent real estate lawyer. But defaulting on a loan is going to have a serious impact on your credit score for a very very long time, and that comes with its own set of lost opportunities.
An example being back during the Great Depression my family were fairly rich landowners and had a bit of money tied up in something like a mortgage, to other farmers - at some point in time the government (this isn't the US by the way) effectively either wiped, cancelled or nationalised mortgages of the kind they had issued, as a way of bringing relief to the aforementioned farmers. Which screwed my grandfather a fair bit, but he could at the time afford it.
A better analogy would be that VISA then upped your interest rate to 40% and you want to find a way out. There are options. Not paying is a crappy one, but so is continuing to pay. (As an example, my grandmother was being pursued for about 10k from a credit card company. Of that, she had probably spent 2k and then missed some payments and such and it eventually hit 10k. What was the advice given to her by the consultants, "stop paying. Now.")
As for everyone who is giving him a hard time.Why should he have to pay an inflated price for a place when prices were artificially driven up by investors, mortgage brokers and speculators.
There was so much gambling going on that every homeowner has been fucked.
I have lost 35% as well and am now over under in equity in a two bedroom townhouse my family is quickly outgrowing.
We are all fucked in this mess, homeowner or not, but it is not really our faults as most of us were just trying to find a nice place to live.
Do what is best for your situation. If you can get out without getting burned, do it. Your credit will take a hit, but so is everyone else's. Good luck.
Assuming you can pay for it, and you are planning to stay in the area anyways for 5+ years, you should probably not allow it to go into foreclosure.
It kinda sucks that if you've been responsible and up to date on your mortgage that you don't qualify for relief, but that's how it is.
Perhaps the threat of letting it go into foreclosure would give you leverage in re-negotiating your mortgage, but I don't know how you'd approach doing that or if it's even legal.
Your lender is not Visa. They didn't extend you a credit line for whateverthefuck, and the lunch you ate yesterday doesn't depreciate in value based on what the person buying a similar meal today would be willing to pay for it, and Visa certainly doesn't own your lunch as collateral. Your lender negotiated a price-specific mortgage on a known entity with you. Frankly, OP, you should have asked those five questions I listed in my first post before purchasing; chances are you would have noted that housing prices are severly inflated, that it actually would save you money in the long run to rent versus purchase, and you wouldn't have taken on this debt in the first place. Your lender, however, shares some of the culpability for buying into an overvalued property with you. Considering how much more experience they have with mortgages than you do, they should have known better.
I don't want to get into the blame game because it's not productive. Examine your options, balance your moral responsibility with your fiscal responsibility (both to your lender and to your family) and then make the best decision you can. And learn from this and do more research before making purchases like this in the future.
Was this person looking at your agreement? It appears he is referencing this section of the law. Notice the important closing of it, though
That is to say, this can be signed away.
However, here is my take. If you stop paying your house will be sold. The proceeds will amount to less than what you owe the bank. The bank will then aks a judge for aDeficiency Judgement and sell everything else you have, until your debt is paid. Since you presumably don't have three houses lying around, this is indeed the worst time for you to do this.
It would be a good idea, if your house was worth a lot more than the original loan, to sell it yourself. The other way around, i.e. your house being worth less, is bad.
repeat after me:
buy low, sell high.
Buy low, sell high.
...
Uh, did you read anything up to this point?
I mean, I may have misread something, but the OP isn't in dire straits or anything. He bought a house and the value of that house went down, but presumably he can still pay the mortgage. He's just pissed that he's paying a mortgage for $X when his house is now worth $.70X. It's not like anyone who even touches a newspaper on a regular basis couldn't predict such a scenario, even two years ago. If the OP wants to treat his home as a short-term investment rather than, you know, A HOME, he should bear the risks. Yes, it sucks that your home has lost value. But that was a risk that you should have been well aware of. And you might want to find out if that AZ law actually protects people who default on a mortgage just because they decide they don't feel like paying it any more.
I'm sure the Lord of Hosts has some sort of plan for all of us once he takes office. God Bless the Federal Government!
This thread should make you happy that you made the correct decision.
Renting, contrary to popular belief is not throwing your money away. That has only been true lately with the advent of people getting 80/20 and 100% loans where they did not have to have a large down payment. (Even then, getting a mortgage can be risky, don't get me wrong.)
Actually, the more correct analogy would be the value of your dollar going down and restaurants in the area no longer charging what you originally paid. It's really not worth it. Even if they can't come after you. This is some crazy talking here, but let's say you can't get the 35% back in selling your house, who says you need to sell it? It becomes your estate, and essentially, inheritance. That saves the rest of your family money in the long run and it truely becomes a wise investment to keep it rather than dropping $texas on transient property you own no right to other than "I can sleep here for this year."
I don't blame you, but one of the few good things that frequently comes out of an economic downturn is that it makes us appreciate our finances a little bit more. I'm currently doing relatively okay financially, but my family got dicked over pretty royally in the early 1990s, and in a lot of ways it made us tougher and smarter.
And taeric's right. You saved yourself a lot of heartache by waiting. Depending on how much you've saved, look around for a reasonable loan and a reasonably priced house, and if you can't find one yet, hold off until you do. In all honesty, though, the people in your situation are going to be the ones that turn our economy around when the market readjusts to the point where you're willing to get into it.
As far as the OP goes, he's not going to lose his shirt, but please don't misunderstand, he is definitely in trouble. The question he's wrestling with isn't "do I have some cake, or do I have some pie?" It's "do I ruin my credit for the next decade or do I burn $100,000 in bundles of $500 at a time over the next twenty years?" I want to help him make the best informed decision he can regarding his own finances for his sake and for the sake of his family, but despite how some people are reacting, no one is going to get a free lunch out of this.
edit:maybe you could negotiate a short sale? I doubt it, but maybe.
but they're listening to every word I say
That was the point of questions 4 and 5 in the ratios question I asked, Bowen.
Traditionally, the average price of property as a ratio to the price of renting comparable property for a year was something like 14:1, varying (obviously) by the market you were in. At the peak of the housing bubble, that number inflated to about 25:1, meaning that when you factored in interest, you would pay less money to lease a house for 30 years than you would to buy the house outright and make housing payments on a 30 year fixed rate mortgage. That's the point at which people in the housing market should have scratched their heads and said, "wait a minute, isn't this kind of retarded?" And, unfortunately, as much negative equity as the OP is currently carrying, it sounds like that's the point where he made the purchase in his market.
The only benefit to overpaying by 35%-40% of a home's intrinsic value to keep up with the mortgage is to preserve your credit rating and re-establish positive equity so you can take out a second mortgage and build even more debt. That's not necessarily fiscally responsible (edit: depending on a lot of other factors like the size of his mortgage payments, annual income, job security in an economy where unemployment is on the rise, etc.)
He never said he was in trouble. In fact he said the opposite. He has no trouble making the payments and just wants out of a bad investment with little or no collateral damage to himself. Bad investment right the fuck now. One year from now? Maybe. Two years from now? Hard to tell. Twenty years from now? Maybe, but I'd doubt it.
Long term investments never look good from a short term scale.
And the value of the estate over the course of his lifetime will be immense and most likely invaluable to his heirs too. Coupled with his ability to afford this (which he did say), I'd say horrible decision. However, trying to renegotiate the mortgage? Awesome decision.
Yeah, that's kind of where I'm sitting. Which is why my first instinct is that he should burn the house down for the insurance money, with himself inside.
But I won't suggest that. Because insurance fraud is illegal.
Yep. Here's what I see:
A) He can still afford the mortgage
C) He (presumably) would intend to live in the home long-term were it not for the negative-equity situation
If (C) is not true then he was a speculative home buyer and should have to eat the fucking loss anyway. Plus that would mean he was stupid as fuck because this was easy to see coming years ago. And yes, I mean more than two.
Otherwise if all three are true he should stay put, because I'm willing to bet if he worked out the numbers he'd find that in the medium term (say, 10 years) or longer he's marginally better off owning his own home even with a smaller amount of equity than throwing money down the renter hole (with all the associated pains in the ass that come with it) for that same time period.
Sure, negative equity sucks but as long as you can still afford the payments and as long as you aren't looking to sell or refinance then in the long term you're still better in the house.
Well yeah, it's just a part of the current trend of privatizing gains and socializing losses. Had his house gone up a hojillion percent would he have sent some extra money to the IRS above the taxes owed (which would largely be offset by taxes not paid on mortgage interest)? Of course not.
This is super that it may be legally possible for you to avoid some of the ramifications of not paying your bills and living up to your obligations. Fine. But that makes you part of the fucking problem, so my advice is to not be a horrible person.
I'd honestly like to believe you're just trolling H/A with this. However, with the way things are now I can't even delude myself on that one.
Thanks mang, appreciated. And true, finances are not my forte. You're right in your post, both the buyer and lender should have gone in eyes open, and for whatever reason they didn't see this one coming.
Theres a lot of focus on opportunity costs, and I get that- money thrown down a hole is well, money thrown down a hole. Like establishing long term rent for a place that is no longer worth that much. There probably is room to negotiate something, and there is probably a way to take advantage of the government bailouts for lending institutions.
The lenders in the US are essentially getting free money to help deal with the crisis, and in the end, the OP is suggesting nothing more than getting himself a slice of that. Its not 'real' money, so much as a way to reduce the opportunity costs of holding onto his house- but someone is taking the hit.
The seller of the house did the right thing by selling at that time, and deserves all his money. No one would suggest going back to the buyer and re-negotiating. When the house was bought, thats the sum that changed hands. In reality the sum is time-lapse, and the lending institution takes a hit by not having that money to invest, thier opportunity cost, recovered eventually and then some in interest.
The OP is essentially considering forcing himself into a bad enough situation that his lending institution, not himself, qualifies for the handout, and would be covered by whatever provision.
And I guess thats what annoys me, or rather would annoy me if I paid US taxes, because here's a guy who can afford his situation, taking advantage of a provision that is intended to help people who are well and truly fucked by thier situation. In short, if he gets it, there is someone else who doesn't.
Considering the costs involved though, maybe he is in a bad enough situation to warrant taking advantage here. I mean, the downturn and those losts funds are going to impact the OP for quite some time, possibly longer than a bad credit score. If thats the case, even though he is capable of maintaining his curent situation, he may qualify for indirect assistance.
On the surface though, you owe what you owe. Being unaware of what will happen in the future is seldom enough of an excuse to avoid its consequences.
You are still operating under the assumption that the estate will rise in value. Not just a little, but a significant amount. This is EXACTLY the thought process that got us in this mess. Real estate never goes down, right?
Simple math shows that it would have to go up 42% from its current value just for him to break even. (This is assuming a current loss of 30%.) You are saying that not only will this happen, but that it will continue to grow at a nice pace for a long time.
No, the process that got us into this mess was that people thought their real estate was worth more than it was after living in it. Giving it to an heir after you die is a pretty good financial investment and that's money they're not having to pay. With good upkeep a house can last for a very long time. Thus, good investment even if equity in it goes down. It's still money you never have to pay once you own it.
And it'll come back up, again, but probably not as much as it would have originally by making 65% on your original purchase.
This is the moral argument for why the OP shouldn't do what he is proposing to do.
Dude. You and I have no idea how much he paid for his house, how much it was worth at the bottom of the housing bubble (which is probably closest to real market value). We have no idea how much he makes annually or how much job security he has. If he's carrying that much negative equity, he could conceivably have overpaid by more than $100,000. I didn't pull that number out of my ass; it's 40% of $250,000 (which, admittedly, I did pull out of my ass because I don't know what part of Arizona he's living in, or how big his house is). The point is, since I don't know how much he stands to lose on his investment by overpaying beyond market value, and since I don't know how long it will take him to recoup that loss, he's going to need to ask questions like, "will I have enough money to send my children to college?" and the other questions a father has to ask before he, you know, dies. I don't necessarily believe that the value of his home to his heirs minus whatever he overpaid is any consolation to a new homeowner if he has to send his children to community college.
That's sort of the whole idea behind financial planning and investments.
Hey they're risky, whodathunkit?
Just for support of your argument:
http://technomics.org/wp-content/uploads/2008/07/national-historic-house-price-index.jpg
He may still have quite a ways to go down to balance out historically.
This is not an unreasonable assumption (that real estate values will stabilize eventually towards an upward trend) for the real estate market in Phoenix, AZ. If the OP were in Cleveland, OH. I'd probably say short sale and GTFO.
It matters a TON how much it is worth. The point we are stressing is that continuing to pay CAN be (not is) just as irresponsible as walking away. Make no mistake about it, it was a bad idea to land yourself in a situation where this is even worth discussing. Do not believe you are stuck in a contract that is incredibly bad for you once you are in it. They have methods of breaking the contract for a reason.
Does the bank have grounds for renegotiating a subprime mortgage in their eyes if the economy goes up and the value of the house is going up?
Yes. They do it all of the fucking time. Do they have grounds to force it? Nope. But I would bet dollars to donuts that anyone in a house when the market was rising received so many solicitations from banks to refinance that it wasn't even funny.
And, again, this just leads back to my original advice. Seek a consultant about your specific case, and then prepare an argument to approach the bank to see what your options are.
Walking away is the irresponsible thing to do, but it may result in less personal financial hurt (not sure of that myself). Continuing to pay would be the responsible thing to do. There may be a savvy middle ground involving re-negotiation.
But no, don't do that. Talking to the advisor is best, but if you get stuck with it you get stuck with it. Shitty as it may be.
And he also doesn't have grounds to force the bank to renegotiate in this instance. But just like the bank can leverage rising prices to encourage people to refinance, he can leverage falling prices and any options at his disposal to encourage the bank to renegotiate for a more-reasonable interest rate or ask them to eat a chunk of the negative equity, with the provision that once he's locked in that deal, he can sign away the get out of jail free card that Arizona apparently decided to write into state code. That way the economy keeps moving forward (or at least doesn't backslide), the OP has made a fiscally responsible decision that preserves his credit while improving his family's financial situation, and the bank may not make quite as much as they thought they were going to, but they will still make *some* money, and way more than they would if they were going to have to fire-sale the property to recoup a defaulted mortgage.
Hey, can I buy $500K of stock on margin then walk away from the contract if the stock goes down? Because that seems like a sure-fire no-risk way to make bundles of cash, no?
What would you tell someone holding 1 million in stock on a company that has taken a 30% hit and looks like they won't recover any time soon? Just leave the money there and wait for it to rebound?
Actually, better way to ask it, what would you tell someone that has devoted 80% of their income towards an investment that has dropped 30% and does not necessarily look like it will recover. I agree that devoting a large chunk of your income towards an investment is already a bad idea, but that is not a reason to continue to make poor decisions.
And again, there is nothing moral about the way I am looking at it. So, if this is an argument about what is "right," I apologize. I'm saying that it is a very very bad financial decision to continue paying for a contract that is hurting you.
A similar question would be if he was renting for 1000 a month. Three blocks down someone opened a complex where the rent is 250 a month. The agreement signed said there is only a 500 penalty to break early. Would you seriously tell this person to stay in that apartment for the full 10 months left on the lease instead of moving?
Well, that's one option. The other would be to sell and TAKE THE LOSS.
Analogy kinda falls apart, huh?
See my comment regarding buying stock on margin.
Except in this case he'd be honoring the agreement as written, by paying the penalty. Not using some government "get out of jail free" card to fuck his way out of it, at the expense of...well, ME.
Again, analogy falls apart.
EDIT: In short, the OP is the kind of person that turns people into libertarians. He should pay his bills or take the loss. He wouldn't be sending my ass a check if he'd seen a gain. Be a fucking man.
Guess that's why we're coming at it from different angles, that's a bad financial decision waiting to happen.
You're right. That doesn't absolve him from paying his debts though.
No. But we're not talking renting which is a whole different ballgame than a drop in housing value that is most likely going to rebound.
If it was "$1000 a month and you have a $500 penalty and a chance of never being able to rent another apartment again as well as maybe having to pay the cost over the rest of the 10 months that you skipped out on" I'd seriously reconsider my decision.
Again: you're misunderstanding the situation. This isn't like skipping out on bail or alimony/child care payments or something and hiding out in a small down on the coast of Mexico where the drinks are cheap and the women are beautiful and easy. There will be substantial negative reprecussions. It's simply a matter of deciding what will hurt his family more.
Added: incidentally, no. You can't buy that much stock on the margin. The SEC will break your balls and the balls of anyone who fronts you the cash. The fact that we didn't have that sort of regulation for the housing industry should concern you because it allows for situations like this one. Also: there is diversity in the stock market. You can buy tech stocks, or you can buy manufacturing stocks, or service sector stocks, or whateverthefuck you want. In any given market, you only have three real options when it comes to housing: buy or rent. The third option, "homelessness," remains unpopular. In the market the OP lives in at the time he was buying, the correct option would have been "rent" and wait for a market adjustment as we mentioned to running man. What drives me crazy is that I swear I've seen Bowen tell people that renting is always a waste of money (I think, it may have been someone else).
Not at all. Analogy still holds. He is looking at taking some sort of hit regardless of what he chooses. He just has a choice for which sort of hit he would rather take. Credit hit, which can be weathered through easily enough, or a huge financial one that makes his house worse than renting. (As has been pointed out, we are talking about throwing away upwards of 100k, depending on specifics. )
You are looking at this as if the agreement was to "keep paying forever, no questions asked." The agreement was to keep paying until the contract is terminated. Since it is legal to break these contracts, this is what he is looking to do.
There is a reason people don't get the loan you are talking about.
And in the case we've been discussing, he is still honoring his agreement. If the bank really did not get him to sign away that right, then they are to blame.
And earlier you said this wasn't predatory lending. If this person did not put down a ton of money upfront, I'd argue it is still predatory lending. Just because he is surviving the hit doesn't make it less of a predatory thing to do.