Walk Away From Your Mortgage!

Well, Morgan Stanley did it. If its good for the banks, lets do it back to them!

me likie.

The next trend will be buying back your mortgage at a deep discount after forclosing - much like what the developers are trying to do at Warehouse 11. That would be truly "strategic".

I believe most homeowners who are (or near) underwater including those in NYC believe (hope?) that they will recover their equity soon. But given the economy, bubble prices, and the insignificant correction we have a long way to go. Walk away as the banks do.

pitchfork, if it were an "insignificant" correction, then why would so many homeowners be underwater? I don't know how you can call what's happened insignificant.

This would be a good article if the writer had only admitted right up front that walking away from one's mortgage in New York state is not the clean break that it is in other states like California and Nevada: New York is not a "non-recourse" state, and the bank, after selling your foreclosed property can (and most certainly WILL) sue you for the difference.

Gary Barnett, the head of Extell, walked away from a $84,000 personal loan commitment (apparently strategic default) - a mortgage on a property he was personally accountable for. I wonder if there was any repercussion. Doesn't seem the press ever went after him.

"pitchfork, if it were an "insignificant" correction, then why would so many homeowners be underwater?"

The correction is insignificant for NYC so underwater owners are mostly those who bought the last 2-3 years.

"New York is not a "non-recourse" state, and the bank, after selling your foreclosed property can (and most certainly WILL) sue you for the difference."

Whatever. NY is a single recourse state and the lender can either foreclose or sue not both and WILL certainly NOT sue given the magnitude of owners underwater.

pitchfork, your statements just don't jive. How could owners be underwater if there hasn't been a major correction? It doesn't make sense. Unless you think only something like 70% would be "significant." I don't think that'll happen.

bjw2103 you are incomprehensible

pitchfork, not sure what's so difficult to understand. You're saying that two things have happened: 1) many owners are underwater, and 2) there hasn't been a significant correction. One can't really happen without the other. In other words, you take out a mortgage, and if the property value doesn't change all that much, how can it all of a sudden be less than your mortgage? You need at least 10% down in this city, and in most cases 20.

" One can't really happen without the other. In other words, you take out a mortgage, and if the property value doesn't change all that much, how can it all of a sudden be less than your mortgage? You need at least 10% down in this city, and in most cases 20."

Here's how it can happen:

You lose your job. You max out your home equity when your savings runs out. The value of your home drops just 5%.

Voila. You're now underwater.

Suze Orman,

Promotes walking away from mortgages underwater while on Larry King. I was shocked.

Matt, you are totally clueless, New York lenders cannot foreclose and then sue the homeowner for the difference. You have confused non-recourse with "one-action." New York is a "one action" state, which means the lender must choose between foreclosing or suing the owner for the entire amount of the debt, they can't do both. And it's very time-consuming and risky to sue, lenders have far too many hurdles to make it worthwhile.

A mortgage is a collateralized loan. If it IS underwater and they won't go after your assets or you don't have any they can touch....NO BRAINER. Do you think the wealthy approach this any differently?

That said, if you cannot handle the debt load, do not assume it!

Suze Orman,
Promotes walking away from mortgages underwater while on Larry King. I was shocked.

Don't be she's a shameless self promotoer. Her FICO scores got many people into trouble thinking they were rich, when they were not.

What about your credit? An ability to buy a home sometime in the future again for a non-double digit interest rate. My job ran a credit report before hiring me.

UWSer.
That's part of the equation. Compare the temporary loss of credit against the underwater equity.

There are many things you can do to improve a tarnished credit report. Just listen to Suzie Orman!

NYCMatt, sure, but I'd call 5% significant. The point is, I don't know how someone can say there's been no significant correction here. That's ludicrous.

I understood him to mean that there was no positive "correction", no increase in prices.

Buy anything you want for any price by borrowing as much as you want. Have no intention to pay the loan back. When you tire of your purchase, walk away without remorse or consequence. The developers and sellers love you. The real estate agents and mortgage brokers get their commission. Taxpayers get to underwrite the whole process. Criminal bonuses from criminal financial entities provide fuel to the fire. And we get to talk about the future of the real estate market. What a country.

It's amazing how late to this story the NY Times is. Strategic defaults have been going on for some time now and have been well documented.

Out of 30,000 Mnh sales from 06 to 08, what's the guess on percentage currently underwater? I don't have the breakout but for argument sake lets say condo vs. coop is a 50/50 split. Likelihood of smaller dp and drop in market value that would put an owner underwater today is condos. Likelihood of additional heloc activity to pay for funky new modern furnishings and a summer share in the Hamptons is more likely in condos, as coops require additional equity at time of purchase and everyone knows coop owners already have a place in the hamptons.

Would it be 5k, 10k? Now how many out of that number are willing to bear the consequences of walking away? If they walked and destroyed their credit would any landlord in the city rent to them?

Studies show it takes about a five year period for owners to get attached enough to their homes to the point they are less inclined to do a strategic default. For a non-investor primary residence purhcased in 2006, if they don't exercise a put this year, the default risk due to being underwater will largely have passed. Defaults for them would more likely be a function of being able to carry the mortgage.

"Studies show it takes about a five year period for owners to get attached enough to their homes to the point they are less inclined to do a strategic default."

You're also less inclined to do a "strategic default" if you're UNEMPLOYED and have nowhere else to go.

Riversider,

Thnx.

"Let the house go back to the lenders. The bank will throw the mortgage in the garbage. Reality will return. Prices will fall – perhaps dramatically. Systemic mortgage debt in the United States will be reduced.

Default is now a patriotic duty. It is a courageous intelligent act. Take the right steps so we can beat the Chinese. We need the jobs. We need to get back to work. We don’t need the phony debt issued to buy a bubble.

The government has screwed up management of the financial crisis by granting debt assets special status. What the owners of debt assets deserve are losses. It’s time for the people to fix the financial crisis."

http://newobservations.net/2010/01/12/default-is-a-patriotic-duty/

Wow and I get to live rent free for eight months!!

http://www.youwalkaway.com/index1.php

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You CAN stay in your home for up to 8 months or more without having to pay anything to your lender!

You may even be able to have the foreclosure REMOVED from your credit!*

Well, at least it's nice to see that there's some help for those of us on MAIN STREET.

Washington seems to only care about bailing out Wall Street.

Lenders and borrowers need to wake up to the fact that a mortgage is a put with the borrower controlling the option. Absent a gov't entity buying mortgages at irrational prices the result of the market pricing in the put option will be lower LTV limits on loans. 80% LTV may not be conservative enough and we may well see the market moving to a 70%. Right now the single biggest threat to housing is that home owners have no skin in the game and are now waking up to the fact that their most rational choice in many cases is handing the bank the keys to the house.

http://www.ft.com/cms/s/0/a93abcea-1fe7-11df-8deb-00144feab49a.html

“The biggest problem is trying to convince myself it is not morally wrong to walk away,” she says. “I’m approaching my home as an investment that went bad. I’m not stealing anything, the bank will get the property. But my parents raised me to be responsible.” She has decided the “responsible” thing for her to do is get out of the flat and rent somewhere else for less than the $1,200 monthly mortgage payments.

In the meantime, Ms Gaughen is waiting to hear from her bank, Bank of America. She has hired You Walk Away, a company that offers legal advice, tracks the documentation process and lets people know how close they are to eviction.

You Walk Away estimates that she can live in the apartment without paying the mortgage for 12-16 months, leaving her with a nest-egg of cash at the end. Jon Maddux, chief executive, says the time people can stay has been steadily growing. His company, which charges a flat fee of around $1,000 for its services, started just over two years ago. At that time, most of his clients were extremely agitated and phone calls were often peppered with tears, Mr Maddux says.

"Mortgage Applications Plummet To 13-Year Low As Tax Cuts Expire"

There was a spike in purchase applications in April, followed by a decline to a 13 year low last week. As Fratantoni noted: "The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season."

http://www.businessinsider.com/mortgage-applications-plummet-to-13-year-low-as-tax-cuts-expire-2010-5

"Owners Stop Paying Mortgages, and Stop Fretting"

"A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.

This type of modification does not beg for a lender’s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads."

http://www.nytimes.com/2010/06/01/business/01nopay.html

Mortgage applications decline 35% in the last four weeks.

"Purchase applications are now 35 percent below their level of four weeks ago, as homebuyers have not yet returned to the market following the expiration of the homebuyer tax credit at the end of April,%u201D

http://www.calculatedriskblog.com/2010/06/mba-mortgage-purchase-applications_09.html

This is the negative side of the home buyer tax credit and ref-burnout. Our political leaders would be wise to not react.

"BofA unexpectedly exits wholesale mortgage market"

"Local mortgage brokers caught totally unawares; departure of second such huge lender leaves big gap."

"The move came as a surprise to local mortgage providers who did business with the Charlotte, N.C.-based bank. It means that mortgage brokers and their clients will have one less option when they are looking for a loan to buy a condo or co-op in the city."

http://www.crainsnewyork.com/article/20101005/REAL_ESTATE/101009928

Ruh-roh.

"I’m approaching my home as an investment that went bad."

Well, if it was a mortgage for your primary residence, then, that's just stupid; and you essentially lied when you applied for the loan. Sounds like an idiot- first-time-buyer.
If it was for an "investment property", then that's a fair conclusion.

OH NO! NYC RE NEVER FALLZ?!!!!! and how CAN foreclosures affect "city" kids IF IT DOES NOT OCCUR? OMFG, someone IS lying to me.....

http://www.crainsnewyork.com/article/20101004/REAL_ESTATE/101009958

"Is HR3808 The Equivalent Of TARP 2 And Obama's "Get Out Of Bail" Gift Card For The High Frequency Signing Scandal?"

"( ) virtually every single foreclosure in the US in the past several years is under question, with the impact on mortgage servicers (who just happen to be the TBTF banks) could be just as dire as the fallout from the credit crunch, it appears that the get out of jail card for the banking syndicate has once again materialized ( ) "

HR3808 "if enacted, could protect bank and mortgage processors from liability for false or improperly prepared documents. In other words, with one simple signature Obama has the capacity to prevent tens of billions in damages to banks from legal fees, MBS deficiency claims, unwound sales, and to formally make what started this whole mess: Court Fraud perpetrated by banks, a legal act, and to finally trample over the constitution."

http://www.zerohedge.com/article/hr3808-equivalent-tarp-2-and-obamas-get-out-jail-gift-card-high-frequency-signing-scandal

Wow....

Maybe I can use this argument come tax season. Federal, state and city taxes are too high so I just won't pay. Somehow, I think I'd end up in jail.

"Pre-foreclosure notices soar in NYS"

"State banking department cautions that the reporting system is too new to draw many firm conclusions on the data; nearly 30% of troubled loans are less than $100K."

"Queens, with 15,184 filings, maintained its seat as the county with the state's second highest number of pre-foreclosure filings for owner-occupied 1-4 family properties. Suffolk County was hardest hit, with 19,880 filings. It's not surprising that Queens represents 11.3% of all notices sent in the state, because it is home to a number of neighborhoods like St. Albans and Jamaica, which have become known as ground zero for foreclosures in New York City."

http://www.crainsnewyork.com/article/20101007/REAL_ESTATE/101009886

This is good news! Cheap housing in NYC coming up. You just need to gentrify Jamaica. :/

"We Now Have A De Facto Moratorium On Foreclosures, As Citi And Wells Are Set To Freeze"

http://www.businessinsider.com/we-now-have-a-de-facto-moratorium-as-citi-and-wells-are-set-to-freeze-foreclosures-2010-10

See, I knew this would happen. So now, IF I can get a loan, chances are I will never have to pay it back and the bank will never foreclose on me. FREE HOUSING!

with banks not having to foreclose... who pays the property taxes and the maintenance fees?

In co-ops, the bank is responsible for paying the monthly maintenance. That's the reason for the "recognition agreement" signed at the closing.

Garbled as usual.

The recognition agreement obligates the coop to inform the bank of any unpaid fees before initiating foreclosure proceedings to collect those fees. At that time, the bank can elect to pay those fees to avoid the coop foreclosing.

If you walk away from your morgage and the banks walk away from your savings account, an eye for an eye just isn't worth it.

and the property taxes during the foreclosure limbo?