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Monday, April 14, 2008
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57 comments:
For those who think that walking away is the best thing to do. In Virginia the bank can come after you for the difference of the foreclosure sale and what you owe. (Deficiency Judgments)
Not sure what that process is or if the banks are bothering.
www.foreclosurelaw.org
Virgina foreclosure laws:
Judicial Foreclosure Available: Yes
- Non-Judicial Foreclosure Available: Yes
- Primary Security Instruments: Deed of Trust, Mortgage
- Timeline: Typically 60 days
- Right of Redemption: Varies
- Deficiency Judgments Allowed: Yes
In Virginia, lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure process.
what is this in reference to?
i'm pretty sure nobody here is thinking about walking, maybe lance.
we'd love for others to walk though, stick it to the bank and have the past-homedebtor looking over their shoulder constantly
No reference, just a discussion starter. One of my neighbors is going into foreclosure and they have a new BMW and a newer SABB. So it appears they are "walking away" since they didn't try and alter their lifestyle. That "walking away" effects my entire neighborhood, by deceasing property values.
I'm curious as to what the bank does in high end foreclosures and do they come after the difference.
Interesting. If you owe money on everything you "own" (those new cars presumably come with payment plans) it seems your mortgage lendor would have no other assets to seize (typically 401K funds are exempt from seizure). It would not surprise me to find that somebody walking away from their house has $40K in credit card debt, $20K left on the car, $4000 in the checking account, and that month's household bills outstanding. I guess a court could impose some sort of repayment plan, but really, how long would it take to pay off $300K at, say, $200.00 a month (a court will not impose penury on a family to repay a debt)? After legal fees, etc., doesn't seem like a particularly smart way for the bank to spend its resources. On paper, people like this look bankrupt.
I think thats why people have to file bankruptcy in this situation.
Changes in bankruptcy law a few years ago don't get you off the hook for your debts in most cases; you'll often find you've got to set up a repayment plan. Since the bankruptcy judge isn't going to make you walk away from your new mortgage payments, your ability to make payments on your old mortgage would be somewhat limited.
Actually, I was thinking after my first post that one way to do this would be to attach a lien on to the new house. But again, you're talking about possibly decades before that lien is paid off, so I don't see a huge advantage to the original lendor. Liens for that sort of money are usually levied by government agencies to recover funds associated with fraud or thesft, not corporate types who could care less about something that isn't happening in the next quarter :-)
Bankruptcy can get you out of mortgage debt but you need to be unemployed.
If you have stable income, you WILL have your wages garnished.
Its one of the reasons rates are cheaper in VA. In states where they cannot come after you, rates on mortgages are 1/4 to 1/2 point higher.
U.S. housing collapse spreads overseas
http://www.iht.com/articles/2008/04/13/business/housing.php
steve, can you give me a better idea as to how a bank decides whether to write off the loss or to go after the borrower?
We are still waiting on our short sale offer, which the seller accepted and the bank still needs to approve. We are trying to ascertain whether the sellers could still be on the hook for the difference, and whether they know that or not.
Basically, we are trying to determine how likely this offer is to happen. Time is running out for us.
If you can break down the decision process for banks these days, I'd love to learn from you!
Tabitha,
Sorry, my knowledge is very limited on this topic. (pretty much all other topics too)
I would think each bank has their own rules, and would probably talk directly to them.
Can't believe you haven't heard back yet. Do they want to sell the house?
Tabitha, (From MSN.com)
In a short sale, the seller and the lender would agree to an unsecured repayment plan for the difference.
So it's probably stuck there.
MSN just posted a great article on walking away.
http://articles.moneycentral.msn.com/Banking/HomeFinancing/HomeownersWhoJustWalkAway.aspx
Thanks, Steve.
We gave the bank a deadline of April 11. On April 10, they said they were "halfway through the process" and asked for three more weeks. We asked for proof that there was a process in motion, and they promised us a letter detailing what they have done so far and what they still have left to do. We provisionally extended the offer to May 1, though we can still withdraw at any time, for any reason. But we do not have much more time til we need to vacate the house we are renting, so May 1 is the end for this offer.
I cannot help but think that we are suckers, and that they are just hoping a better offer comes along...though clearly nothing has yet.
But until a better solution to our housing problem comes along, I guess it does no harm to wait a little longer.
Thanks for the info. The seller rejected our offer at first, if you recall, so that may explain why: they will be liable for the difference in what they owe and what they get. But they would avoid foreclosure.
Guess they should not have used their house as an ATM...but I cannot really blame them, since the assessors' office was telling them their house had doubled in value since they bought it in 2000.
Were you the one who posted about gang activity in New Bristow Village? Are there any newspaper articles about that?
Tabitha,
Interesting details there. Hope it works out.
I replied to an posting about MS-13 gang activity a week back. I think it was Doug that said it occured in Victory Lakes. Which there has been no report of.
So maybe it occurred in New Bristol Village. I'll have to check on that.
tabby:
read franks blog here:
http://blog.franklyrealty.com/search/label/Short%20Sales
my thoughts: 1) less pool of buyers, lower home values
2) probably won't matter, most of these people should have never qualified in the 1st place.
FANNIE MAE WARNS AGAINST WALKING AWAY
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/04/13/RE34101D2M.DTL
On March 31, Fannie Mae sent out new guidelines to lenders intended for walkaways and other foreclosure situations. Fannie will now prohibit foreclosed borrowers from getting another mortgage through the giant investor for five years, unless there are "documented extenuating circumstances." In those cases, the mortgage prohibition is for three years.
Even after five years, borrowers with foreclosures in their files will be required to make at least a 10 percent down payment, and will need minimum FICO credit scores of 680.
A 10% down payment should be required in general, not just for people who walked away.
Leroy said...
"A 10% down payment should be required in general, not just for people who walked away."
I think borrowers and lenders should be allowed to agree to any terms between themselves they wish to agree to ... including less than 10% down ... or even 0% down if they so choose. In the same light, the government should not be using tax dollars to bail anyone out. Yes, it has an obligation to ensure the proper functioning of markets ... and that can include acting as an "honest broker" between delinquent borrowers and their lenders, but that shouldn't extend to using tax payer dollars to insure against the perils of life.
GT said...
"what is this in reference to?
i'm pretty sure nobody here is thinking about walking, maybe lance."
Again, you show your true ignorance. (a) I have somewhere around 50% equity in the property (b) I didn't buy it to flip it.
You really don't have a clue as to what homeownership is. To you it's like buying a stock.
"Again, you show your true ignorance. (a) I have somewhere around 50% equity in the property "
Considering your track record I think I can say with confidence that I am not the only one here who doubts your ability to estimate the value of your house.
As for Fannie and Freddie... the government is never going to be able to get away from backing them, so long as billions of dollars of taxpayer money are at risk reasonable regulation is necessary.
I say 20% minimum.
I disagree with Lance, when left to their own, lenders and borrowers created a huge financial mess that everyone is paying for.
Its time for a crackdown.
lance said
"I think borrowers and lenders should be allowed to agree to any terms between themselves they wish to agree to ... including less than 10% down ... or even 0% down if they so choose. In the same light, the government should not be using tax dollars to bail anyone out. Yes, it has an obligation to ensure the proper functioning of markets ... and that can include acting as an "honest broker" between delinquent borrowers and their lenders, but that shouldn't extend to using tax payer dollars to insure against the perils of life.
"
I couldn't agree with you more, for the first time ever. We just need to allow those banks to fail if they make mistakes and not bail out the banks, bear sterns, etc.
lance also said
"Again, you show your true ignorance. (a) I have somewhere around 50% equity in the property (b) I didn't buy it to flip it.
"
The details of your loan were discussed over at bubblemeter some time ago when you disclosed to much info. You do not have 50% equity in your home. You may have 10%. The home is already worth less then you paid for it, per the DC tax records. I know, you will say but joe blow sold his house down the street for X so my house must be worth Y. The fact remains, the assessed value of your home is less then you paid for it and DC metro is down 20% since you paid. I use these two points of data to guess that your home is likely worth less then you paid. Also, you did take a IO loan and I believe you said you either put 20% down or 10%. I gave you credit for 20% and only dropping 10% so that means you have at most 10% equity, at most. Probably less.
doug . . .
I agree with you to a point. I think the real issue is two-fold. FDIC and fractional-reserve banking. With those two beasts banks really have no reason to be responsible when lending out money. With FRB the gov. pretty much tells banks its okay to lend out all the cash you have in checking accounts and savings accounts. This prevents banks from having any measurable reserves when loans go bust. With the FDIC it tells banks, it's okay to make risky loans, if you are big enough we will bail you out (ala Bear Stearns) and you don't have to worry about paying money back to your clients.
So banks have no incentive to be risk-averse b/c they are told to be loan out just about everything they have and are then backstopped if they go belly-up.
In a true free market banking, lenders would be very strict/conservative in loaning out money, and so would borrowers.
And before someone mentions the bank runs before FDIC . . . they were mainly a function of FRB, and FDIC was put into place to protect FRB. And FRB was used to enable bankers to make more money and inflate the money supply.
Eliminate FRB--or at least have high requirements beside 10%, and FDIC and a huge chunk of the massive financial problems in the country would go away. We would still have banks that fail through stupid moves . . . but why shouldn't banks fail they are just a business, just like any other company that can fail. We would not, however have this massive financial mess we are in now.
"I couldn't agree with you more, for the first time ever. We just need to allow those banks to fail if they make mistakes and not bail out the banks, bear sterns, etc."
The problem is that if Fannie or Freddie go under we (the taxpayer) are going to get roped into paying again. These guys make Bear Stearns look small in comparison...
dcbob,
no, I put 25% down, and no DC is not "down 20%" at least not from when I bought it ... actually, rowhouses went UP 20%+ during the 12 months after I bought it. check the tax records again, per those records I have about 44% equity, per Zillow.com I have 48% equity.
Leroy said:
"The problem is that if Fannie or Freddie go under we (the taxpayer) are going to get roped into paying again. These guys make Bear Stearns look small in comparison..."
Fannie and Freddie are quasi-governmental ... i.e., profits are private but risk is borne by the government. (the best of both worlds for those lucky individuals/entities holding stock in them.) They can't go belly up, by definition the government must cover any defaulting loans.
Thanks Steve for the info. I hate that some are walking away when they can afford the payments. You are right walk aways and foreclosures do affect the values in our neighborhoods.
tabitha, I was sort of guilty in using my home as an ATM. Used the funds to do some home remodeling, and to help my ex pay off some of their debts. But I tried to keep that amount to something that we could both afford. But without their income I was forced to sell. As I get ready to buy again at the end of this month; I will never allow that to happen again.
lance, the problem in using tax records is that they don't always reflect "real comps/sales". In the community I am going in to the assessed values are averaging $201K. But the average sales this year are $180K. About a 10% difference.
It also depends on how you want to measure equity. Some will use the amount of their mortgage, others the amount of their purchase price.
Yes, Fannie and Freddie have their implicit government backing but the last thing I would want to have right now is stock in either company! Even though they have a private gain/public loss structure, in the event of a lack of liquidity scenario potentially forcing the gov't to step in, the shareholders would be wiped out, even quicker than Bear Stearns' shareholders.
Factor in the reduction in dividend that took place in the fall to preserve cash outflow (and the likelyhood of further dividend reductions as loan losses--provisions and actualized--increase), and those two companies have become high-risk low-reward for shareholders.
In addition, their implicit gov't guarantee keeps bond rates from going through the roof, so you'll never be able to get Fannie/Freddie bonds on the super-cheap even if they had a liquidity crisis (as opposed to people who shorted Bear Stearns stock and bought BS bonds on news of their liquidity troubles making a killing).
Long story short, the "lucky" individuals holding Fannie/Freddie stock (which could be you--they are publicly traded companies you can invest in any day of the week) don't get squat if the GSEs hit the rocks. And they can go "belly up," as the implicit government guarantee is not on the companies themselves, but the MBSs they sell--one of them could have a liquidity crisis, step in and back up their MBS while liquidating the company. Would this occur? No. Could it occur while still meeting the government's implicit guarantee? Yes.
Chip,
Bottom line is that I have a significant stake in the property no matter how you measure it ... as do most homeowners out there. The original poster's assertion that I was looking "to walk" was patently ludicrous ... as well as mean-spirited/ envious.
Lance said,
"Bottom line is that I have a significant stake in the property no matter how you measure it "
I disagree. We had this discussion before and you were of course proved false. But, you come to another blog and try the same game. You do not have any where near 50% equity. I will have to go look up that exact blog where you got knocked down a few pegs.
I think you paid something like 900k and the assessed value is at 800k or 850k.
Here is the other neet thing. Most banks in this area wont make loans over the assesed value any more. Wells Fargo requires a 25%LTV for all purchases in DC.
So for your home assessed at 850 x25%. 215k down. How many people have 215k down. Not very many considering 50% of all loans taken from 2003 till present were IO zero down loans. You even took an IO to get in the door.
If you bought your house to live in it (as you claim), then you should have nothing to worry about. If I owned a home I would not be on these blogs gathering information. I wouldn't care. But its obvious to me, and everyone, that since you took a loan on a 900k home AT AGE 50 you thought you would make a bundle and have a ton of cash at retirement.
The reality is, you will be working until you are 70 or 80 to pay off that home. That is why you are here. You saw your fate and are worried. That is why you argue to the point of ignorance about things that are just not true. DC, as a whole, is down over 20%. ITS A FACT. Maybe your neighborhood is only down 10%, maybe more. The only way we will know is when you will sell and then you will get a rude awakening. Other then that, save your cash because in antother six years you are going to start having to pay the piper when you IO converts to a conventioal 20yr fixed. Plus, if you are underwater, you cant refinance. Hello payment jump. And to think, you did all of this at age 50. It was a risk/gamble, it didn't pay off. It happens to everybody. Get over it.
DCBob,
You can make up any facts you like ... but they are still made up. And yes, I know you made up this same scenario before. Just saying it is so doesn't make it true. Why the obvious envy / mean-spiritedness?
Lance I didn't make up anything, and you know it.
I am not envious of a 50 yr old man who leveraged his future to try and make a buck.
Do you remember the post when you cryed about how the media was causing the housing crash? Or how about the numerous posts where you said prices in DC wouldn not drop. Or how about the post where you said townhomes in DC doubled in a year?
Why are you here?
I am here because I like arguing with idiots. It's interesting to see you expose your gross misconceptions and inaccurate understandings of how real estate (and life in general) really works.
And hopefully the serious buyers on here will learn to differentiate myth from fact once you've shown your foolishness on here ... and the envy / mean-spiritedness that motivates you.
I agree lance... never did I think that you were wanting to walk....
dcbob, if the agent I spoke with at Wells Fargo - whom I was pre-approved with - that memo that we both seem to have seen was for brokers not direct lending.
Though I will say that the lending at WF is tighter than most. They were still talking only 20% for me; but at .25 to .50% higher than others out there.
As another that is turning 50 this year I know why I am here. I have little hope that I will pay off the place. My hope is that in 15 to 20 years is that if I need something to fall back on - I will have it.
Other than that, I want a place that I can be proud about. Do what I want to make it better - when I can afford it. :)
I am buying today because it makes sense for the way I want to live. If I can make some money down the road so be it. If not I will have had a great home.
chip, I am not knocking lance because he is 50. I am knocking him because he constantly lies and trys to make everyone else feel like they are somehow "less then him" or "idiots" or "envious".
The reality is, at 50 you should be very cautious. I am only 35. I can be a lot more reckless and take more chances because I have more time to correct my errors. He took a risk at 50 with his family's well being. He wont admit it, but he did. Over at bubblemeter he let slip his address and everyone looked at what he did which is hard fact.
He took a 10 yr IO loan with a 20 yr fixed picking up at the ten year point. A year and a half ago his house was almost 100k below assessed value. Do we really believe it has went up since then? No way.
My whole point about him is that he trys to ridicule people and tell them how smart he is and there is never a bad time to buy. Well that is not true. There was a bad time to buy in DC. 2005-2007.
He took a risk and got unlucky. I don't fault him for it or think he is a jerk for that. People take risks and get burnt all of the time. He is no different.
What makes him a jerk is that he wont be honest with himself or on the boards and that is why he behaves the way he does.
You see, the only way he argues facts is by name calling. Why, because you cant argue name calling. Its a very juvenile arguing technique.
Maybe if he keeps up his nonsense I will post his address, but for now I will respect his privacy if he learns how to act like a decent human being. Maybe he could even admit he was wrong about saying prices wouldn't drop in DC? Probably too much to ask.
Did you know Lance used to post over at the housingbubbleblog? He got punked so bad on a daily basis that he ran away. Even now they still make fun of how skewed and without merit his arguments were.
dcbob,
I think you have me confused with someone else. I never posted at housingbubbleblog ... I haven't even visited it. I've posted at DCBubbbleMeter. You have confused yourself just like you have confused yourself about quite a few other things including the assessed value of my home ... Not that it is any of your business in the first place.
Lance said,
"Not that it is any of your business in the first place.
"
Actually this is not true. If it wasn't my business it wouldn't be in the public domain. Some states say its not my business, like Montana, but DC says its my business. Sorry. You are wrong yet again. Maybe I will go look up your assessed house price again. I haven't done it in a while. Oh, and it also has what you payed for it on there.
dcbob, sorry if I cam off as being offended by the over 50 comment. That was not my point.
I agree when I was 35 I had a different view point than I do now. And it drove my agent nuts in some ways. Lance and me are are different ends of means. I am coming in late in the back and forth between the two of you.
The balance I am trying for here is that the older buyer needs to look at the long term. For me as a single, I am just wanting a place to call my own that is equal or less than rent for an equal property.
I agree that I took a risk at 35 that paid off 3 years ago. May you have the same luck. :)
As to buying in DC. I used the bench mark of 4 to 7 years ago. I could have bought in the SW Waterfront for under $200K - by my search that is a tough thing to now.
In the end we are much in agreement. My one post about values was meant deflate expectations from others that read this blog.
DCBOB said:
"Maybe I will go look up your assessed house price again. I haven't done it in a while. Oh, and it also has what you payed for it on there."
Feel free to look it up, but as we've discussed previously tax assessment values aren't very accurate. Something like Zillow.com, while still not accurate, is far more accurate than a tax assessment in that it doesn't lag like tax assessment values tend to do.
Btw, when I say "none of your business" I'm talking about my financail situation or my financial plans for the future. You'll note that the advice I've given other posters has always been in regards to minimizing one's expense with buying a home. It has never been in regards to their overall financial plans, strategies, age, etc. Doing so crosses boundaries.
lance, the assessed value of my future condo is $201K ; but average comps are $180K. IMO they are trending towards the $157K that I am closing on. Hope not!
Chip said...
"lance, the assessed value of my future condo is $201K ; but average comps are $180K. IMO they are trending towards the $157K that I am closing on. Hope not!"
Chip, tax assessments tend to lag. (In the District this lag can be 3 years or more from what I've observed.) It's possible that the assessed value will drop to the $180K number which is definitely more realistic given that it is based on real sales and not a bureaucrat working from bottom up to come up with a number. Also keep in mind that tax assessments can be influenced by a number of factors. For example, I know a retiree whose house hasn't gone up in assessment value in the last few years even though the assessments of his immediate neighbors' homes have. In the same manner, I knew someone who was very active in fighting increases in assessments (organized studies and banded together neighbors) and her home was valued at far less than her neighbors' comparable homes. Tax assessments need to be taken with a grain of salt ...
lance. you have a great point. The assessed values in the condos I am looking at are based on comparable units - 2br vs 3br units. But my new place is so upgraded compared to the rest.
lance said."Feel free to look it up, but as we've discussed previously tax assessment values aren't very accurate. Something like Zillow.com, while still not accurate, is far more accurate than a tax assessment in that it doesn't lag like tax assessment values tend to do.
"
Yes, but a bank is not going to use zillow. They will send an assessor out. I know a few assessors. They rarely, in down markets like ours, assess over the state tax assessed values. Why? Because they have to do alot of justification and they risk their reputations for improper assessments. During boom markets, it really doesn't matter what they assess it as. As we all have seen.
So, why is this important. Because there isn't a bank in the area that will give a loan for more then the assessess value right now. So again, what does that mean. Well, your house is assessed almost a 100k more then you paid. NO bank will give a loan for more then that low value. Also, since the majority of homes bought in this area are zero down loans, that means the max a bank will loan is your lower DC tax assessed value. No matter what you believe this is the value of your house.
Chip sais,
" I am just wanting a place to call my own that is equal or less than rent for an equal property.
"
This is what I call being smart. I too will buy when it makes financial sense to or I am forced to because of family considerations. Till that point, I am happy banking the differential into a diversified investment portfolio and watching people struggle because they got greedy.
DCBob,
"I am happy banking the differential into a diversified investment portfolio and watching people struggle because they got greedy."
You might have to make the choice between buying and "diversifying", but why are you assuming everyone else does? I put 20% of every paycheck away ... and I'm a homeowner. I know lots of homeowners who do the same. Buying does not equate with "being greedy". Yes, what you're saying about choosing to save over choosing to buy may be right and correct for you, but when you extend it to be the right and correct thing for everyone who bought recently, you are making assumptions that just don't stand up.
lance said
" I put 20% of every paycheck away ... and I'm a homeowner. "
Yes but as the statistics have shown, most people who bought over the last few years don't have the disposable income to do that. Or why would they take an exotic loan instead of a fixed? The reality is that renting is much cheaper then buying. It would cost be about double to buy where I rent. It would have cost triple in 2005 - 2007, prices have come down. Still, double. And where does that extra money go. Well, right into the hands of someone else because it certainly doesn't go to principal. And with home prices falling I wont be building equity any time soon.
Rules of the rich, buy what appreciates rent what depreciates. Right now, with housing prices depreciaiting renting is the way to go.
Oh, and I am able to save way more then 20% of my income. I have 20% going into my 401k. I probably bank another 30% into my savings. So, the only thing that home loan would get me is that maybe it would drop me under the roth IRA limit so I could start a roth. But, probably not.
Taking a loan that you can't afford hoping to make money off of your house is leaning towards the greedy side. Most people just want a stable place to live.
"Taking a loan that you can't afford hoping to make money off of your house is leaning towards the greedy side."
No one should take a loan they can't afford. If you are putting 50% of your pay away, it doesn't sound like that would have been the case for you had you chosen to buy. And note that I said "to buy". I didn't say "to over-extend" yourself. You're assuming that most people who bought over-extended themselves. Most people who bought were like myself and simply "moving up" thereby re-investing equity. Yes, some people over-extended themselves ... but certainly not most people as you imply.
There's nothing wrong in your feeling it best to hold off since you believe what you want to buy will do down in price. By the same token though, don't go around telling everyone that everything is going down in value. As you yourself admitted a few posts ago, my home is today assessed for more than I paid for it. ("Far more" if Zillow is to be believed.) No one has ever said "buy stupidly" ...certainly not I. The lesson to be learned here is that your "Wait now and buy later" is not good or valid advice for everyone. Some of us want to buy the kind of places that are continuing to go up in value ... and not await around for those going down in value to go even further down in value. I.e., There isn't a "one solution fits all".
Lance said,
"As you yourself admitted a few posts ago, my home is today assessed for more than I paid for it."
No I did not. I said you home is assessed for less then you paid. If you want I can post the link to the web data showing that you house went down in value, but I prefer to keep your privacy intact. I would rather you just admit that per the state assessed value, your house is not less then you paid for it.
DCBOB posted:
"Well, your house is assessed almost a 100k more then you paid."
Sorry lance, that should have been 100k less then you paid. That is what is says right now.
dcbob,
I don't know where you are getting that information but it is out of date. www.dc.gov has the current information.
It's assessed at $172,100 MORE than I paid for it approximately 3 yrs ago. Zillow has it valued at $400,500 more than I paid for it.
DCBOB,
So no comment?
sorry lance, I was reading another thread. I was looking for the link which had your address in it so I could prove you wrong.
Last year, your house was appraised over 100k less then you bought it for.
So you are saying this year it went up 272k in appraisal value? Really
Zillow doesn't give appraisals. They give valuations which are based partially on tax assessments as well as other factors such as square footage and the like. Tax assessments lag a lot ... especially in the District. My assessed value has nearly tripled since I first put a contract on the house in Feb '05. It was pretty rediculously low though back then ... you couldn't get a 1 bedroom condo in my neighborhood back in 2005 for what my house was assessed at then. Now, they're finally catching up. Fortunately, in the District our tax payments (but not tax assessment) are capped at 10% increases per year.
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