How Much is Your Credit Worth to You

now columbiacounty knows humor

you spend so much time and try so hard.

for what?

Were I a gambling woman, I'd place money on my read of the situation. But I'm not. Where is w67th when we need him?

all talk and no action.

no surprise.

all lies and deceit.

no surprise

for what?

indeed

OP: in your post from 2 months ago, you said this would be a $30K deficiency on a place bought for $400K w/ 20% down. How did it get up to $100K?

http://streeteasy.com/nyc/talk/discussion/32321-stick-it-out-longterm-or-walk

I am checking back on this discussion in hopes that someone with knowledge of current info or statistics on short sales will chime in and let me know if short sales for non-primary residences for high income solvent borrowers are being approved these days. I would also be curious to know whether banks have gotten too lazy to pursue deficiencies even where they have the right to. I really want to know if the tide has turned to that degree. Also, I think I now finally understand why Inonada and W67h spend so much time on this site; it is eye opening to hear what people are thinking. I'll be quiet now.

Hi Ino.

Inonada - I underestimated the amount of the deficiency. We got the most recent comps from our realtor and the deficiency will probably be more than I originally thought. It's not as high as $100K - I just used that as a nice, round number because I was actually curious in hearing how much $$ other people would be willing to pay the bank to maintain a good credit score. No one actually answered that question :)

About Ready - Thank you for being sane and reasonable and actually comprehending my situation and question.

NYNovice - hypothetical question: You sign a two-year cell phone plan for $100 per month; penalty to back out within the two years is $50. One month later, your cell phone company offers a special price of $10 per month for the exact same services. Are you telling me that you stick with your original two-year contract because that is the moral and ethical thing to do? You would not back out of the first contract, suck up the $50 penalty, and enter into a new contract at 1/10th of the price?

Hey NYCNovice. Yeah, I've been AWOL recently. Work & life.

I answered your question on the other thread. I think credit is generally worth approximately the amount of your annual income. So when it was $30K against your $400K income, no way: not worth it. At something approaching $100K, starts looking more worthwhile but probably not.

Think of it this way. The cost of keeping good credit is going to be about $10K a year. For that price, you get a bunch of things. There's a bunch of conveniences: regular credit cards, utility sign-up through regular routes, etc. Then, there's cost of loans. Don't know if you have plans to lease a car or buy a house in the next decade, but figure you'll pay a few to several percent extra if you need it. Then, there's opportunity cost: you won't be able to buy a home, start a business, etc. for the next decade. Then, there's the job thing: there's some chance that you'd be rejected for a job due to this. Losing on the right opportunity can be costly, not just because of the immediate income differential, but also because of growth potential. Then, there's uncertainty: will the lender sue me for recourse?

I'm not particularly into morality w.r.t. loans. Your obligation is to pay the loan, and the security you provide is the home, you personal assets, and your personal credit. You renege, the lender's obligation is to take the home and eviscerate your assets and credit. For this credit risk (and pre-payment risk), they take an interest rate higher than that found in treasuries. Well, the credit risk in your case is being taken by taxpayers like myself because it is that part that is covered by Freddie / Fannie. Not a policy I particularly believe in, but I'm not going to blame you for trying to stick me with losses that some politicians signed me up for. On the other hand, I'd hope you'd get thoroughly eviscerated by my agents for defaulting.

FWIW, I have some knowledge of people who strategically defaulted last go around (1990's). Twenty years later, I can tell you it did not go well. The "strategic" $100K was very expensive relative to what should have been earned & grown. Life is short, the ability to make money & grow income is limited, and a decade is a very large fraction of you earning / compounding years.

I would honor the original contract and pay the penalty; very different from course of action you are contemplating. In an efficient breach situation, original contract is honored and breaching party pays damages per the original contract. Situation you are contemplating is more akin to hold-up doctrine where breaching party tries to modify the original contract by taking advantage of situation.. This is where your post and all those "savvy" financial advisors drive me nuts - efficient is not the right word for the type of breach you describe (forgive me, my econ training is coming out with my legal training now). Better for you? Yes. Better for the lender? Not in your case. In any event, our legal system is amazing when it works and has concepts in place to deal with this entire situation. If everything works per the letter of the law, your husband will not be able to renegotiate this debt on the facts presented (even if you find a forgiving intermediary who is sympathetic to your story, there are checks in place to make sure that institutions cannot give sweetheart deals). However, if you are willing to bend the truth, you may be able to beat the system. I leave that decision to you. Just one final caveat - before you spend a lot of money on an attorney who tells you they can get this done for you, check their references.

Ino must have been typing at same time I was; the "you" I was referring to was OP in response to posed hypothetical.
Ino - Always nice to hear your input.

Your attempts to distinguish the cell phone contract analogy are weak. Frankly, you sound like a very rigid person who only sees the world in black and white. You've previously mentioned that we will never have to deal with each other out in real life, and for that I am glad. I prefer empathetic people who can actually see all the shades of gray in situations like this.

Inonada, thank you, very helpful analysis.

NYCNovice, do mortgages include some sort of able-to-pay clause? If you take out a loan in a non-recourse state and decide to default, turning over the collateral per your contractual obligation, what part of the contract have you breached? I'm all for following a contract, but if it's not in the contract then haven't you been charged extra for the credit risk?

Obviously this case is different as it's a recourse state, but what is your feeling on non-recourse states and non-recourse loans in general?

>Your attempts to distinguish the cell phone contract analogy are weak. Frankly, you sound like a very rigid person who only sees the world in black and white. You've previously mentioned that we will never have to deal with each other out in real life, and for that I am glad. I prefer empathetic people who can actually see all the shades of gray in situations like this.

Shades of grey? My money has shades of green. I'm with NYCNovice. The lender couldn't and shouldn't give a crap about your personal problems. More to the point, a renter by choice, take inododo for example, weighs the pros and cons of renting and the pros and cons of buying - one of the cons of buying is your situation and one of the pros of renting is greater flexibility. Perhaps if this default on your mortgage option had no personal and credit repurcussions, inododo, if he were on the border-line between the two choices (and I know he's not and hasn't been - this is a hypothetical) would have chosen to buy instead - so you are asking for special consideration that wasn't available or known to others.

The cell phone contract has a specific penalty clause (e.g. like liquidated damages). In fact, you don't break the contract at all, you merely choose the early termination option and pay the pre-specified penalty. It has no equivalence whatsoever to your situation.

Flip your situation around: assume you lent some money to someone, and now that person doesn't want to pay you back in full because of whatever excuse is convenient - how do you feel about that?

Nada - You are correct that situation is different with non recourse state.
OP - Um, my "weak" attempt to distinguish the cell phone contract is called legal analysis, which I generally refrain from posting, but your posts are so nonchalantly brazen that I could not help myself.
HB - Yes. Desperately hope this OP is on other end of her life philosophy some time; live by the sword, die by the sword.

P.S. to Nada - Also no problem with a person's simply turning over collateral in a non-recourse loan. Part I can't stomach is when someone runs away with the collateral and also doesn't repay the loan. All depends on the terms of whatever contract is at issue. There should only be a hit to the credit rating when someone does not honor terms of the contract.

Well, I see this discussion spiraled to strange places over the weekend. I don't see this as having anything to do with morality. Breaching contracts, absent a contract for unique goods, is within the perogative of the contracting parties under our law. A mortgage is simply an agreement to pay fungible cash. Anyone is free to breach it.

But I think the discussion of the consequences of the breach are significantly off base. To be sure, corporations and individuals breach their contracts every day. For an individual or entity in the zone of insolvency, the decision to breach may have little practical consequences. Some breaches are economically meaningless for both sides, sides so no one cares about the breach. In other cases, like the well-worn NYC practice of renters breaching their leases in one form or another at or near termination, the practice is overlooked because the cost of enforcement it too high. But solvent individuals and entities that breach contracts for substantial sums do so at their peril, and oftentimes with disasterous results.

It is true that most, but not all, short sales include a release of the mortgage. If you can accomplish that, godspeed to you, and absolutely make sure that the sale releases the mortgage. On the other hand, the foreclosure process with a very underwater property has a very real prospect of the lenders pursuing a deficiency judgment, and they have many years to make that decision post-default. In NY at least, foreclosure is no bar to seeking to enforce the promise to pay, and if the bank goes that route the potential liabilities are substantial, and include not only the fire-sale deficiency itself, but the bank's costs, fees, as well as NY's insane pre/post judgment interest rate of 9%.

So, I pass no judgment on the morality of breaching the mortgage contract. I suggest that you approach this question with your eyes -- and wallet -- wide open.

>A mortgage is simply an agreement to pay fungible cash. Anyone is free to breach it.

Does the addition of the word 'fungible' turn being a deadbeat into something legitimate?

>Anyone is free to breach it.

That's like saying that you aren't supposed to shoplift, but anyone can try with an aluminum foil lined bag.

a contract, and the law that has interpreted it, sets forth the consequences for breach of contract. if a bank has two alternatives, foreclosing or going after the cash in hand, it has a tough choice in this environment. if the OP can achieve a short sale, and I believe that finally these are increasing in our region, then that is one option. actually, there has been a history of banks not pursuing deficiency judgments, and there has been little press regarding same, other than some wacky tales involving banks getting smacked in court. the banks are not high on most judges list of reputable dealers in contracts regarding real estate these days.

"Desperately hope this OP is on other end of her life philosophy some time; live by the sword, die by the sword." Like being a fortune 500 company bank? Maybe she can try that on for size.

I really hope OP lets us know what happens, because if a short sale is approved here and everyone starts thinking and acting like OP, then everything falls apart. This is part of the reason this is such a hot button issue for me. These mortgages are not your ordinary contracts as we all know; those who originated them succumbed to a moral hazard; we all insure them as taxpayers or hold them in our retirement funds; we did not enter into these contracts, but we will be left holding the bag. These are not ordinary times and these are not ordinary contracts. The good thing is that I remain confident that no short sale will be approved here; however, I would like to know if I am proven wrong, because it will have an effect on my investment decisions going forward.

No, these are not ordinary times for contracts with banks. They negligently and recklessly wrote huge numbers of mortgages that never should have been written. From the fallout people are starting to view their relationships with banks from a more business-like perspective, rather than one of slavish obligation.

As a taxpayer, I'd say your concern is a bit misplaced if it is focused on the still minority who is inclined to default by choice. The banks have been propped up more than sufficiently to take their lumps over a very extended time at everyone's expense.

Why are you taking this so personally? You'd think you were the bank. Where some functionary is paid to care a little bit and nothing gets done for a long time.

I am taking it personally because I am a Dem who fights with Republicans all the time for programs that are designed to assist people like my pro-bono clients who really do need mortgage relief to stay in their primary residence that somebody convinced them they could afford and had them sign over their life to "buy" even though they barely speak English. And then I read a post like this from someone who seems more than able to care for themselves who just wants to get as much for themselves as they can. I could not care less about the bank in OP's transaction; the bank has already taken its money and run. That's my point. I do care about taxpayers and the economy, and it is precisely the article that you cited advising people that OP's course of action is financially savvy and OP's considered pursuit of this course of action that disturbs me. I don't believe in advocating any course of action that exercised on a large scale is detrimental to society. I don't think it's okay to say, "don't worry, it's just this one person." Especially when the reaction of many on this board appears to be "go for it; everybody is doing it!"

I actually care about this issue on multiple levels and rather than continue to bore the board, I will just let it go. I have mixed feelings about all the mortgage relief programs, but advocate for them because my probono work focuses on immigrants and it is a significant issue for that community in the some of the areas around DC.

>They negligently and recklessly wrote huge numbers of mortgages that never should have been written.

Takes two to tango. And the money went to the borrower. Hard to look at the lender as the greater guilty party.

>but advocate for them because my probono work

What is your regular work?

Here's where people are being cheated and mistreated. Not the OP.
http://www.nytimes.com/2012/10/15/business/reverse-mortgages-costing-some-seniors-their-homes.html?hp

HB, only in your twisted world would a person with considerably more than half a century of life experience and decades of homeownership experience be considered a less sophisticated financial consumer than a person who most likely had fewer than three decades of life experience -- and never owned a home -- at the time she was lied to and bullied by the mortage-industrial complex.

so let me get your point of view straight: the elderly woman wasn't cheated but the OP who makes $400K was cheated by the "mortgage-industrial complex" and deserves to default without repercussion.

Regular work is representing tech corporations in transactions; prefer litigation, but it has never been good lifestyle fit - last year's trial was all consuming; had not lost before and don't want to go out on a loss, but I'm tired. And thank you for getting my frustration with this whole thread; this mortgage situation is a mess. I do have sympathy for people who did not have the education or language skills to understand what they were "agreeing" to, as opposed to people who knew exactly what they were agreeing to and want to change the terms of a deal they knowingly signed. I am willing to pick up the tab for the former; not the latter. I have lots of friends who don't want to pick up the tab for any of them; I also know a few who believe that if we pick up the tab for some, we have to pick it up for all. I will cast my vote and expend my resources according to what I believe in and respect everyone else's right to do the same. Will be interesting to see down the road how it all turns out.

It's worth sprint times one millions times $7.3/share. Fk'a yeah.

NYCNovice was right. He explained the cell phone contract analogy correctly. If the Op has to pursuade the lender to grant her a short sale with a declaration of hardship, then it is plain lying and could be criminally liable.

She has also mentioned that their future is looking bright. They are not street bumps. Their credit and reputation is very valuable. They cannot afford to ruin that.

Folks. To clarify the facts, I recently MARRIED into this situation. My husband bought this property before I even met him and the mortgage is in his name. I never even lived in the property. Perhaps these facts makes no difference to you, but I don't think marriage should create an ethical obligation to cover all of one's spouses pre-existing debts. I married him despite this dead weight property, because he is a wonderful person and I am not a gold digger. His financial situation, income, and career trajectory are vastly different than mine. I am the breadwinner with the "bright" future. I am the one who can afford to pay off the deficiency - NOT him. He does not have enough assets or cash to pay it off himself. Therefore, I am also the one who isn't particularly thrilled about turning over MY hard-earned savings to the bank, yet I am considering doing this to save his credit score because we are a team now. But I personally do not feel any moral obligation to the bank - this wasn't my mortgage. If you can't understand why I would have questions about what to do, then please just don't reply. I was asking for FINANCIAL advice, not seeking the morality police. Lastly, there will be no "lying" to the bank. As far as I understand it, the bank is not entitled to see my finances, given that the mortgage and deed are solely in his name. His financial situation alone may justify a short sale. If we (i.e., me) decide to pay off the deficiency instead, it will be because it makes more financial sense for our future than killing his credit score. Frankly, that may very well be what we end up doing, but I was simply curious if anyone had a different opinion FINANCIALLY, not ethically.

I actually answered your question: How much is your credit worth to you?
My answer: To ME, more than any amount of money because it is a question of character. Sorry you didn't like the answer. I also provided you with some very helpful free legal advice, but feel free to spend money on an attorney and have them tell your husband the same thing (unless you were not forthcoming about facts of your husband's employment and income; as I have stated, we can only go on facts your provided, which you now seem to be changing); OR, be like many people who are charged $5000 in legal fees by an attorney who tells them they can help only to be left with both the original debt and the new legal bill. Also, while you are considering asking your husband to default on his government-backed mortgage loan (don't you get it that the bank is not the one holding this debt?) without any qualms, why not also default on any government-backed student loans he may be holding as well? What do you care? It's good for you, and who cares about what kind of country you are leaving your kids? I don't usually beat up on anyone on this board, but you are hitting all of my hot button issues.
W67th - I owe you an apology. I get it now.

As you said, you are a team now. You too live in the same houshold. You may be filing your tax return seperately without his SS#, but you are seen as the same family. You are earning much more than he does, but he is not a street bump either, right? If he crash his credit, then he will forever live under your shadow. He will have little chance to be as sucessful as you, carrier wise. Think about that cost. It could be a marriage issue. More than the percieved financial cost.

vic64, you are right, I agree that is an important factor (maybe THE most important factor) and why I am considering paying the deficiency. Just trying to weigh all of the options. I believe it's important to research large "purchases" if this could be called that, before pulling the trigger.

You married him, luv, so you married his mother & his co-op & his poor financial decisions. Eat the loss & move on.

I would love to hear the husband's take on this situation; being the "team" that they are, I am sure he is aware of all that is being said about him and what decisions his spouse is contemplating making for him. How generous she is being in spending "her" hard earned money to save "his" credit rating because she wants him to default on a property that was fine for him and that he could afford, but that just doesn't work for her. Somehow I think his credit rating would not be in jeopardy had he remained single, happily living in his bachelor pad that he purchased with his hard earned money, but again, I don't have all the facts. Okay, I really will stop now.

Enough. You've made your point (endlessly).

CC - I apologize. I knew it was only a matter of time before you (or someone else) shushed me. Personally, my favorite "shushing" came from AH to another poster on the QE3 thread - "Can it crazy." I was expecting that at any moment. Consider me shushed.

Also, apologies to OP 19NYC78: Bad form on my part. Good luck in your situation.

I am starting to sympathize with the OP's situation. The bad part of the problem is that it is a coop, which I assume that long term leasing is not allowed. They must be leaving the property vacant and paying the carrying cost. If they are allowed to rent it out, then it will not be such an urgent issue. Can the OP find out if they can rent it out at all? Get some income from the place and wait it out

Nobody except for a sadist doesn't sympathize with the OP's situation. The question is, in this situation, what does she do?

Actually, I don't sympathize with OP's situation. I am so sick of lay people with no/substandard training in law, economics and philosophy citing Brent White's drivel as justification for their poor behavior. Strategic default is not cool in any state today, recourse or non. See Curtis Bridgeman, The Morality of Jingle Mail: Moral Myths About Strategic Default, 46 Wake Forest L. Rev. 123 (2011). The article is not perfect, but is the most accessible explanation I could find.

And ColumbiaCounty: STFU.

Difference between the situation the OP faces, and how the OP responds to the situation.

cc didn't say anything new since yesterday when you apologized to him. Not sure why you felt the need to apologize to him at all, but since that time, he's had no comments.

My apologies to both CC and OP were insincere. By apologizing for mocking OP and annoying CC, I was trying to be respectful of others' views, but the insincerity of my apology was eating away at my soul.

Actually, my lay person drivel is derived from fairly substantial conversations with my husband, who is a commercial litigator specializing in contract law at one of the ten largest law firm. I amso sick of overly moralistic people who can't see gray, and have no concept of how the behavior of large corporations, particularly banks in lending, has changed the perception of moral obligation.

Good for you! You cite a law review article. Over the past four years there has been extensive discussion of strategic default, and much of it sides with the defaulters.

Your soul is your own concern, but by all means recant the only civil comments you've made on this thread If being respectful makes you feel any discomfort.

AR - You've already revealed your limitations. We are done here.

promises, promises.

good morning columbiacounty

Hilarious. You are not the hall monitor of this board. Although you certainly try to be.

Was that comment directed to me, columbiacounty or NYCNovice?

You may be only twelve, but I'm sure you can figure that one out.

NYCNovice, The Op's situation remains sympathetic until she does something unethical or illegal. Since she put her trust on her fellow forum members to advise her to do the right thing, she has not done anything wrong yet. She is at a crossroad and was tempted to do something dangerous and we can help. Condemnation alone won't help (although telling her to go ahead with the short sale when they can afford to pay is not morally justified either).

I knew a young female coworker whose fiancee bought a house in AZ (which was like $200K under water) and were relocated to NYC. They rented out the AZ house to reduce their carrying cost. Even after her fiancee was laid off later, they did not go into foreclosure or short sale because they value their reputation very much. The guy's credit was kept and was able to find another job later (he was in financial services). Should he take the quick route, his crumbled credit may prevent him from standing up again.

My colleague could no longer afford his home in California, a non-recourse state; however, he paid $200k to the bank to pay off his mortgage when he sold it because he knew his ability to secure a new job would be jeopardized by the blight on his credit record. To answer the poster's question, his credit was worth $200k to him. Only you and your husband can decide how much your husband's credit is worth to him.