Walking away from a house part deux

Some may remember a thread I started about a year ago or so (?) about "walking away" from your house. Just to be clear, I'm not walking away from my house. Anyway I found this interesting. I was at my tax ladies place the other day and she was talking about all these folks just walking away, some because they can't afford it, and others because they don't want to afford it. Well honestly, I didn't know anything about this but I kinda assumed the bank would repo it, sell it and it'd be over. Anyway, there was this article in the Detroit Free Press about what banks can (and will) do to those who just walk away. They can, in many cases garnish wages, tax returns and go into your accounts for repayment, but here's the kicker. In Michigan, they have 8 years AFTER the loan WOULD have expired to collect. That means they have up to 38 freaking years to hunt you down!
Now, our neighbors who walked away from their house even though their two income family could have afforded it with no problems (just wanted something bigger and didn't want the "hassle of selling it"), I hope they get it in the end. Other folks that ended up on the wrong side of circumstances, I hope they can declare bankruptcy and get re organized.
Anyway, just blown away that you can have to answer for your actions almost 4 decades later!

I'm having a bit of trouble with the concept of your neighbors walking away, and buying another house. How do you qualify for a mortgage with that debt hanging over you?

Maybe I'm too Canadian. I couldn't do it.

You can't walk away and buy another house.

Any debt over $50,000 can stay on the credit report forever.

There was a law recently enacted that didn't allow the lender to give you a 1099 for the loss, but yes you are liable for ages and ages.

Until the loss is paid you can't get another same type loan.

Unless you get the new loan before you walk away with the "intent" of selling the other property. There is some grey area that people have been exploiting.

if you're in a non-recourse state, I believe none of that applies.

here in AZ, it is becoming common practice for people to ditch their current mortgage and hop right into another if they get more house for their $.

They've pretty well closed that getting a new loan before you walk away loophole.

With FHA you have to be moving 50+ miles away before you can have a second FHA loan.

On VA you will have used up the vast majority of your eligibility on the first house so you won't have enough to get a second VA loan.

Basically all loan types are requiring you have 30% equity in your old home or else they will count the full house payment of your first home against you even if you have it rented.

Also loans are FEDERAL instruments so many of the federal mortgage laws trump state laws like non-recourse.

carguy123 wrote: You can't walk away and buy another house.

Let me introduce you to some people I know who have done exactly that. You most certainly can do it, and if you do it right, you come out well ahead of the game.

I'm not willing the play the game myself, but it's a game that can be played.

foxtrapper wrote:

carguy123 wrote: You can't walk away and buy another house.

Let me introduce you to some people I know who have done exactly that. You most certainly can do it, and if you do it right, you come out well ahead of the game. I'm not willing the play the game myself, but it's a game that can be played.

Yeah, I know of many folks that have done that. I don't freaking know how but they do. I know there are two houses on my street alone where someone did that. They discovered they can get 50% more house for 70% of the money and just moved out. Now our already hit property values drop more.

If the value stays low for 5 more years I could be your neighbor ;)

Yes, introduce me cause if they've done it recently they could go to prison. The rules have changed significantly in the past year.

I have a friend who did it recently too. Well the walking the house part, she did the buying of a 2nd home part over 2 years ago when the rules were different. She's tried to sell her house for all that time and couldn't. BTW she's in California where the prices are still too high to be supported by real value.

There was a study done recently that looked at areas of the country that were still overpriced and were likely to see some more "market correction". California sewed up 19 out of the 20 top spots with Floriday getting the other one. The bottom slots were the most undervalued places or places that were likely to still see appreciation - Texas had a lot of those. Fort Worth, El Paso, Beaumont, Galveston, Killeen, Dallas, Houston and a couple of others were on that list.

That study also showed that the same 7 metropolitan areas that started this crap were still in trouble whereas the rest of the nation were still being hit only by secondary effects. In other words the press had gotten people scared and the fear factor has been causing people to run scared.

In the last 2 centuries America has had an economic crisis at about this same time of the century. 180?, 1837, 1907, and of course Black Friday.

The 1907 one is what got the Federal Reserve started.

foxtrapper wrote: Let me introduce you to some people I know who have done exactly that. You most certainly can do it, and if you do it right, you come out well ahead of the game.

I'm curious to know what process they followed that makes them think they came out well. I'm not planning on following their footsteps as I'm lucky enough to not be under water on my loan, not to mention that I like my house. But I am interested to know. My line of work exposes me to a lot of foreclosure attorneys and I've never heard of folks walking away and coming off clean while doing so.

They definitely won't come away clean no matter how they do it.

I don't think that's what anyone was claiming, they were simply saying it could still be done.

There's a way to do most anything except possibly build a flux capacitor and warp the space time continuum (I checked and that IS the right way to spell it), but they have made it super difficult to walk one house and buy another without losing a huge chunk of change in the house you walk and then there's that pesky jail time problem.

I've just had to take my national S.A.F.E. test to remain a mortgage originator and they told me that the FBI had opened a special division just dealing with housing fraud issues. We were told they are very aggressively investigating issues just like walking a house, because it can't be done without committing fraud. But they go even further . . .

In class we took those little real estate books you find in the grocery stores and went thru them looking for advertising violations and we found 12 Realtors operating under the old 2009 rules for advertising. The instructor was required to report them if he was going to teach the class, so he did it in class right in front of us to better make the point. Bottom line is that we've had laws on the books for a long time, but they simply weren't being enforced. So if they are rigorously enforcing low priority laws that say you must have an equal housing logo in your ad think about how they'd be about an actual case of mortgage fraud like walking one house to buy another.

For instance the old Good Faith Estimate allowed about a $2,000 margin of error so did they simply tighten the error margin to $500 (you need at least that much variance to allow for tax and insurance variations because you don't/can't know those numbers when a GFE is issued) - NO - they came up with a new one that doesn't show a consumer their closing costs or even their total payment. Many of us have been giving consumers worksheets that show closing costs and monthly payments but HUD has recently recommended we stop that since it doesn't seem to be in the spirit of the new law. They've stopped short of making it illegal so far for us to inform the consumers, but it could soon be a law that the consumer can't see their closing costs or monthly payment till they sit down to close. Is that stupid or what?!

dyintorace wrote:

foxtrapper wrote: Let me introduce you to some people I know who have done exactly that. You most certainly can do it, and if you do it right, you come out well ahead of the game.

I'm curious to know what process they followed that makes them think they came out well. I'm not planning on following their footsteps as I'm lucky enough to not be under water on my loan, not to mention that I like my house. But I am interested to know. My line of work exposes me to a lot of foreclosure attorneys and I've never heard of folks walking away and coming off clean while doing so.

Some are commercial, some are private. I wasn't at any of the settlement tables with any of them, so I don't know the details. All I've got are their stories to me, and their lifestyles.

Two basic techniques. One is to walk away and start over, the other is to walk away and then walk back. I find the second one the strangest, but I know folk who have done it.

The first is just the classic walk off. Which around here isn't uncommon in the first place. Combine banks financing people they never should have, with properties that were wildly inflated in value, and you get lots of people walking off. Whole city blocks full of them. Many go back to their old renting habits. A few got/get financed again and start over with yet another house in their name.

The second is the most interesting to me. Don't leave, just stop paying. Hoard the money you aren't spending. Wait until the property gets foreclosed and auctioned. Attend the auction and buy it with the cash money you've accumulated by hoarding. The first time I heard of it I didn't believe it. Then I found out a friends son had done this. Then I found some businesses that did this (one ended up owning the whole industrial complex in fact, not just their unit). And lastly there was the whole news series on people doing this.

There is also a game around here involving ground rent. Don't understand the game, but somehow if you play it right, you can get end up owning land you never had title to. But if you don't win, you lose your house to the ground rent holder.

I don't know, a lot of that smells a lot like criminal activity to me. Perhaps the law is slow to catch up to these people, but I suspect someone (possibly a lot of someones) somewhere are going to made an example of. Rightly so if these things are really going on as described.

Sounds like lots of internet stories to me. Your stories are exactly the kind of things people have been complaining about vigorously right here on this forum in other threads and saying there ought to be a law. Well there is and it's being enforced.

You simply cannot get another regular, low interest rate mortgage loan (and there isn't any other type of mortgage loan out there right now) when you have another house that is behind in the payment or one in foreclosure. Even if you have a loan in good standing you need 30% equity to secure another mortgage

Buying the foreclosure back still doesn't eliminate the loss on the sale and as others have pointed out that doesn't go away any time soon. Plus if you cold hoard enough money to pay cash for the foreclosure you could have afforded the house in the first place.

Any personal loan you could secure with the foreclosure on your record would be with such horrible rates and terms you'd lose any advantage you thought you had.

A short sale or a loan mod also puts the loss against your credit. You simply cannot win by walking a house.

As far as banks financing people they never should have, that's only true in hindsight, but keep in mind they had no choice in the matter. Mr. Clinton made it a law in 1999 that lenders had to do those loans. If we didn't we were discriminating and would be put out of business and could go to jail. We fought tooth and toe nail against the new law, but lost. We explained the consequences, but consequences stand no chance against votes.

Some of us remember the old FHA 235 debacle where whole neighborhoods had to be bulldozed. At one time I was the only occupied house in an over 300 home neighborhood, the rest were boarded up.

My friends in SoCal who worked the system didn't walk away, but they did short sell even though they could make the payments. My one friend was telling me how she and her husband tried to sell their tiny condo in a bad part of town for 2 years with no luck (bought at the height of the market). He had bought it under his name before they got married. With the market downturn he went to making next to nothing (mortgage broker) so HE clearly qualified for a short sell due to his low income and high payment (she was making most of the payment with her salary). So even though they could afford to pay for it, they took the deal and short sold. Bought another condo under her name a month later.

Another couple short sold because they wanted something bigger. Again, they could make the payments, but why "throw good money after bad." They are renting a huge home now.

Now HE has a loss that is or will be on his credit report and HE can't buy again for who knows how long.

SHE was able to buy the new house because she wasn't connected to the short sale.

I forgot to mention the couple that short sold to get a bigger place (rental) didn't make a payment for 10 months (to help prove financial hardship). Saved up the cash and bought a 3 year old Sienna. Then short sold for $100,000 less than they owed and moved out.

Yeah, I know he has a hit on his record. Just pointing out how people are working the system for gain. Of course, he has the point of view that SO many people have the same hit, it won't be as big of a negative in the long run. I hope he's wrong.

$100,000 loss that follows him forever doesn't really sound like he worked the system and came out on top.

carguy123 wrote: As far as banks financing people they never should have, that's only true in hindsight, but keep in mind they had no choice in the matter. Mr. Clinton made it a law in 1999 that lenders had to do those loans. If we didn't we were discriminating and would be put out of business and could go to jail. We fought tooth and toe nail against the new law, but lost. We explained the consequences, but consequences stand no chance against votes.

You clearly know a lot more about this topic than I do, but I do know plenty of middle-class white folks that bought way more house than they could afford. That law had nothing to do with it. Not saying it didn't contribute to the overall problem, but your paragraph makes it sounds like it was the only reason banks financed people that couldn't afford their loans, and it wasn't quite that simple.

For the record, I blame the buyers as much as I do the banks. They are adults, they knew what they were signing up for. Just because someone is willing to make a loan to you doesn't mean you should do it.

Well, I agree. I hope there are some consequences to his actions as they have negatively affected us all (those with investments anyway). But his point of view is that short sells are so common in the area, it may be overlooked somewhat down the road. If not, the hit isn't forever, but several years. Also, I had thought that you were still responsible for the taxes on the $100,000 "gift" that the bank gave you, but I'm told (by my friends who short sold) that that isn't the case either. Oh well.

To him, getting out of a home he didn't want at a time when it was worth $100,000 less than he paid, living in a nice rental, and saving up cash until the hit passes is worth it.

John Brown wrote: If the value stays low for 5 more years I could be your neighbor ;)

Thanks for the warning

carguy123 wrote: Sounds like lots of internet stories to me. Your stories are exactly the kind of things people have been complaining about vigorously right here on this forum in other threads and saying there ought to be a law. Well there is and it's being enforced.

Yep, I agree. I'd considered these sorts of stories to be urban legend, or at least well embellished, until I started running into people that had actually done them. There are a few within just a few feet of me now as I type this.

You've made the mistake of thinking like an upright, honest person. And thereby limiting yourself to the rules of an upright honest person. Come out of that box and enter the world these people are playing in. There's no fear about doing something illegal. There's no worry about getting another regular low interest rate mortgage, least of all from a bank. There isn't any concern about having equity.

And I agree with you on the outstanding portion of the unrecovered mortgage debt. But you're looking at it like an honest upright person; you'd quake at the thought, they just laugh.

I suspect you'd get equally confused with the difference of winning a lawsuit and collecting. Two very different events. It's easy to win, far harder to actually get the money. Especially from a person who knows how to play the system against you.

THE NEXT BIG THANG! The next big thang is collections/judgements on those short sales and loan mods. Collection companies and attorneys are having feeding frenzy buying up all thse notes for pennies on the dollars.

Right now the mortgage companies don't think it's worth the effort to pursue all those people with all their other worries, but the collection companies and attorneys are slobbering at the mouth to do it. They are semi-quietly buying up all those notes and there will be a huge push on collections soon. Once the word is out and the publicity begins they know they won't be able to buy the notes so cheaply so they are stockpiling at the moment.