Wednesday, September 27, 2006

ARM Adjusting on Condo, owe more than it's worth

On the AllForeclosure Message Board, there is this message posted about a condo in San Diego:

I bought a condo in April of 2005 in San Diego with zero down, we got a 2 year ARM loan, so in April of next year it will adjust. We also have a heloc on the 2nd that started at 8%, but has gone up to over 10%. My neighbor is trying to sell for roughly the same price we bought ours and is having no luck. I enjoy the place, but really don't care if I lose it. I am married, but I am the only one on the loan. My credit was good, so it gave us a better rate to just have me on the loan. When our loan adjusts, I will still be able to pay the loan, but almost all of our income would be going to it. What happens if I just walk away. I don't even care that much if my credit is screwed up, because we can just go rent a place using my wifes credit. Will I owe the difference on the loan if I just walk away and have the bank sell it?
People are hurting. The housing bubble, which is a speculative episode, is causing hardship across the United States.


  1. one thing is for sure (and this is what the Lance :troll: ignores) is that THIS IS THE SOCAL MENTALITY.

    i'll just walk away.

    and that is when the prices really start the way down,

    we ain't seen nothing yet, been here seen this.

  2. I believe that there is a law in California that says that the bank can come after you for the property or for the loan, but not both. In other words, if they accept the property back then the additional losses are theirs. In practice they will always take the property back; furthermore, the worse they think you are as a credit risk the more certain it is that they will do this.

    This is what gave rise to what we, in an earlier property down cycle, used to call 'jingle mail' (when the keys arrive at the lender's office in an envelope)!

    Plus ca change...

  3. David -- kudos to you for having enough heart to be sympathetic to these people. Me, I wonder if they were test-tube babies, without parents to teach them right from wrong and a modicum of common sense.

  4. "When our loan adjusts, I will still be able to pay the loan, but almost all of our income would be going to it. What happens if I just walk away. I don't even care that much if my credit is screwed up, because we can just go rent a place using my wifes credit."

    I think this says it all. This loser would find a way to reneg on their loan agree in any market. They can pay, but would rather leach on the rest of us. They're not looking for a hand up but a hand out ... I feel sorry for whoever ends up renting to them. It won't be long before rent payments get walked away from too!

  5. These foreclosures are only going to get worse. I live in Bethesda, Md and if you look through the land records you can see your neighbors and friends who have used their houses as piggybanks the last four years. I just can't believe how stupid these people are, refinacing and taking out $200,000 more so they can have the fancy car, or $25,000 vacation. The worst one I have seen is one idiot who increased his mortgage from $800,000 to $1.5 million with an option ARM, and now he has lost his job, his house is gone. It is absolutely going to get worse.

  6. Right now Larry better worry about keeping his wife happy. A loving wife with a good FICO score is worth more than all the granite countertop in San Diego.

  7. Walk Away Renee was wondering: "What happens if I just walk away?"

    Here's one person's opinion:

    "A non-recourse loan means that there is no other recourse available to the lenders besides taking back the home. A typical non-recourse loan is a home loan for purchase. If the house falls below the balance of the purchase loan, the buyer can walk away from the house without any serious consequences (maybe except a big blemish on the credit report). On the other hand, a recourse loan means that the homeowner is personally liable for any 'deficiency' when the lenders cannot recover the loan amount by selling off the house. A typical recourse loan is a home equity loan or a line of credit from home equity. As far as I could research, I don’t think a refinanced home loan is definitely a recourse loan. But I’m almost certain that a cash-out refinanced loan is recourse loan. As far as the legal language is concerned, a refinanced loan obviously is not a loan made for purchase."

    "So if you think that banks are so stupid for lending you a first loan of 80% LTV (Loan to Value), and piggy-back another 15% or even 20% through home equity loan, then you’re mistaken. On the first loan, the banks have a 20% cushion protection before they are not able to sell the house to recover the loan. On the other home equity loans, banks have the option of going after you in court even if after the sale, they cannot recover those loan amount. Legally speaking, you would have fare better if you took out a loan beyond 80% LTV, and pay PMI (private mortgage insurance) on the non-recourse purchase loan. The same is true for refinancing. If you have refinanced your purchase loan in the past, most likely you have just given up the ability of walking away from your home free & clear. I don’t know how adjustable rate mortgage (ARM) purchase loans are treated. But if you faked your income/asset numbers on the application, it would constitute as a mortgage fraud, and pretty much invalidate any legal protections that you have."

    Just Drop Off The Key, Lee

    ...but you won't set yourself free.

  8. Meme chose,

    well, last time, if you walked away the bank would sell the house and any amount between what you owe and the loan balance is either paid off by you or the bank will 1099 you for that difference.

    so one got a nice tax bill

    back than the amounts were about 30K-60K, alot to be sure but nothing like what will happen this time......i'm not gonna even venture a guess

  9. thread, you hit it on the button! with nothing invested hundreds of thousands of "home owners" will just walk away. when that wave of foreclosures hit the market we could be looking at a 40-50% down market...

  10. I am told, and it sounds logical, that the difference from what the bank sells for and what you owe to the bank, YOU are still responsible to pay back. If the bank forgives you for the difference, then you still have to pay taxes on the forgiven monies.

  11. My understanding is that unless he entered into the marriage with this property already owned they BOTH owe on it.... Any property bought by a married couple is automatically JOINTLY OWNED. They will both get screwed by this.

  12. They still have to pay taxes on a short sale, ha ha ha. I don't know what the IRS does to you when you foreclose. But the taxe bite on a SD condo must hurt something fierce.

  13. These homedebtors would have been much better off to rent than to buy. Buying was a mistake. Whomever talked them into buying did them a real disservice. Those who said renting is for losers were dead wrong. Being a homedebtor is for losers. Intelligent people rent in this market.

  14. Garth said...
    "My understanding is that unless he entered into the marriage with this property already owned they BOTH owe on it.... Any property bought by a married couple is automatically JOINTLY OWNED. They will both get screwed by this."

    Garth, what you're referring to only applies to community property states (which used to operate under Spanish or French laws before being acquired by the US) such as California, Arizona, New Mexico, Louisianna, etc.

  15. Insurers are using credit ratings to set prices, and some employers won't hire someone with a low credit score. Credit now goes beyond just borrowing money. I would be loathe toss a good rating away, but if his cash flow runs too far negative he may have no choice. Very sad.

    This is just plain cruel. Sure, this guy walked in with both eyes open, but I guess buying a place to live shouldn't be a risky as buying an investment. I am a free marketeer, but my heart aches for these people.

    But you know, if someone reached in and pulled them out somehow, a fair percentage would just go out and do it again in the next bubble. Better to let them fall.

    I still hate it.

  16. fogcutter said:
    "Credit now goes beyond just borrowing money."

    Most definitely. It also comes into play for any job requiring a security clearance ... and that means just about any federal job nowadays including contracting work for the federal government. For those industries that have extensive interaction with the government via government contracts (such as the IT industry), the non-clear credit barrier to hiring extends to all employees since employers are loath to hire anyone cannot easily be transfered to a federal contact if required. Walking away from one's responsibilities is not a good idea ... especially not in today's world ...

  17. Wow. Just think about the last two years of that 'Interst Only Loans' bullcrap; these people paid off $0.00, so it's real easy to just walk away.

    Sad times ahead.

  18. Lance,

    I haven't been able to find out if walking ends the debt for people. The new law makes it harder to cancel debt, and I really don't know how mortage insurance plays into it.

    Seems like everyone would have mortage insurance if it gave them a no consequence escape hatch.

    No, walking isn't what it used to be.

    My guess is that many banks will be willing to renegotiate terms rather than take the property.

    But these IO loans with resetting interest don't leave any room to maneuver as I see it. Wouldn't want to be on either end of those monsters.