Short sales, personal banruptcy, foreclosure

How did they owner of the apt end up with negative equity?

I thought you can hand in the keys and owe nothing more. Am I wrong on this?

Uppereast: http://en.wikipedia.org/wiki/Deficiency_judgment

uppereast. The laws vary state to state. In California, yes. Mail the keys and leave...which is why that is the default capital of the world. The calculus for negative equity apartment owners in NY State is much more complex.

Mutombonyc....easy. Buy apartment for $2mm with 400k down. Some time later the apartment can be sold for no more than $1.5mm. ===> $100k of negative equity.

OP, pose questions to your attorney.

walther7, the great aspect of all this is the administration has no help for anyone with a $760K mortgage.. .which means the big finger for NYC :)

Walter,

In NY bankruptcy filing (very simplified explanation of a complicated process) only protects $10,000 of your primary residence, but prevents foreclosure. http://www.uslegalforms.com/realestate/homestead/. However, this would most likely be done in a Chapter 13 where you would have to have the court confirm a plan to pay off all your debts and you would also inclur legal fees.

walterh7 is NY a non-recourse state? My friend is thinking of walking potentially and thought he would only hurt his credit rating. What would happen if he walked?

boss77 -- since 2005 ny allowes one to keep 50K for an individual - 100K for an married couple of home equity -- florida and texas being the only homestead states with 100% of house value protected --

My question is if my friend walks from his mortgage in NYC and gives the bank the keys or tries to structure a short sale. Can they come after him for more money?

realestaterookie - is the loan recourse or nonrecourse? Most likely it's nonrecourse and he can walk - it will hurt his credit but he won't owe any money. But your friend should wait. The Socialist in Washington have proposed a bill that will allow a bankruptcy judge to "cram down" a personal mortgage in a bankruptcy. What this means is that your friend could declare bankruptcy (hiding as many assets as possible as in normal in bankruptcy cases) and then a court will take the mortgage (say it's $800,000) and tell the lender that the borrower can't afford a mortgage that big and that the home is no longer worth that much and the judge will be allowed to reduce the amount owed to say $400,000. Your friend would have had a foreclosure on his credit report so declaring bankruptcy isn't going to hurt his score much more. Your friend could now own his home with a $400,000 mortgage (which of course will yield lower monthly payments). He won't have to move and he's save huge money.
The bill has already passed the House. Why the government thinks it's a good idea to take a contract that was made by two private parties and then tell one of the private parties that they're screwed is beyond reason. Everyone in Las Vegas, Phx, CA and Florida will declare bankruptcy. Car loans, some credit card loans, personal loans, etc will all be wiped out. It's just foolishness. The area of personal responsibility has passed us by.

Jazzman, I had been under the impression that residential real estate loans were almost entirely recourse loans. Do you have reason to think otherwise?

"Why the government thinks it's a good idea to take a contract that was made by two private parties and then tell one of the private parties that they're screwed is beyond reason....The area of personal responsibility has passed us by."

Yes, blame the homeowners. Those darn homeowners who can't pay their mortgages because they were laid-off from their jobs because of the economy that was driven off a cliff by the banks, hedge funds and investment firms that were living/breathing examples of personal responsiblity. Is that what you mean?

As for the socialists in Washington, I seem to remember an administration from about 6 weeks ago that helped create this mess and created TARP. I also remember that it was those poor banks, who acted personally responsibly, that were the ones BEGGING the government for $$$ so they wouldn't go under. Have your personal views all you want, but don't rewrite history or make the facts up.

Yo waverly!...

While I agree with you that we all share responsibility in this fiasco, a person who can't make a $10K/monthly nut on a mortgage, I gotz no little violin that I can play... in fact most of the "help" is going to under jumbo mortgages from Washington. Good for Obama.

But I also got no sympathy for someone with tons of material stuff spent with home equity loans over the last 5 yrs and now lost a job and is looking to suspend contract law... cause "it's my home." Even if their mortgage payments are only $2K/month... just my $yen... :)

Hey w67th - A good Friday to you! (as opposed to Good Friday). I agree with you for the most part. Remember, whenever programs are created there will always be someone who will "game the system", but that should not take away the significant amount of good that can and will come from this program. The overwhelming majority that will benefit from it really need the help.

I agree it's not perfect, but is any solution to really big, complicated problems ever perfect? It's a s*** sandwich and we are all going to have to take a bite out of it BEFORE things will get better.

FWIW, I have no sympathy for the people are trying to "get over" on this either. It sucks and it is wrong. I just think the alternative is worse and doing nothing would be catastrophic. The time to smack these cheaters around will come, but not now....bigger fish to fry.

Manhattanfox, thatks for the update, I haven't been keeping up to date with my bankrutpcy law. As for the crammdown mentioned by Jazzman, will it enable a judge to modify the principal amount of a loan or merely provide for extended payment under a Chapter 13 plan?

"Yes, blame the homeowners. Those darn homeowners who can't pay their mortgages because they were laid-off from their jobs because of the economy that was driven off a cliff by the banks, hedge funds and investment firms that were living/breathing examples of personal responsiblity. Is that what you mean?"

No, I think he's talking about the homeowners who weren't able to pay their mortgages BEFORE the economic crisis hit.... which is what put the economy in its current shape in the first place...

NYC - those homeowners (flippers, knuckleheads, greedy bastards and whatever else you want to call them) did play a part in the economic problems, but they did not put us in the situation we are in now....not by a long-shot.

I think we ALL bear responsibility for this economic mess, the greed & rampant consumerism & financial profligacy. Drip drip drip, they're only little drips, but suddenly the bucket is overflowing. My question/fear is are all these drops creating a Niagara Falls?

"NYC - those homeowners (flippers, knuckleheads, greedy bastards and whatever else you want to call them) did play a part in the economic problems, but they did not put us in the situation we are in now....not by a long-shot."

You missed the point... you claim someone else put them in this spot. That is inaccurate.

"Those darn homeowners who can't pay their mortgages because they were laid-off from their jobs because of the economy "

That is backward. They put themselves in bad situations before the economy.

And if you do want to play the blame game all you want, and, yes, you needed a lot of idiots combined (including politicians), but they're at the heart and center. They and others ABSOLUTELY put us in this situation.

NYC - I am not claiming that someone else put those people in that spot. I am saying that the majority of people acted in good faith and are in a tough spot. The banks, mortgage appraisors, realtors, hedge funds/ponzi schemes behaved far worse and inflicted far worse damage.

It is not backward. Most of these people bought homes and were fine until they lost jobs, had health crises, lost life savings due to ponzi schemes, etc. NOW, they are in trouble.

I agree that there is plenty of blame to go around, but the people who lost their jobs and now their homes did not ruin the economy. That is a straw-man argument.