Friday, January 25, 2008

Intentional Foreclosure - 'Is it wrong to steal when you're hungry?'

From CBS 13 (video):

This is how it works. Bob paid $420,000 for his home. Then he notices the house across the street, with more upgrades, and is selling for $315,000. So Bob, who has pretty good credit, decides to buy the cheaper house. He can't afford both, so then he walks away from his original home, letting it fall into foreclosure. That will hurt his credit, but he's willing to take the hit for a more affordable home.

"Is it wrong to steal when you're hungry? That's an issue that a lot of people are trying to figure out right now," says Linda.
LA Land has more on this trend here, here, and here.

Meanwhile, News10 (video) is reporting that squatters are now using motion detectors to protect their new digs.

From the Sacramento Bee:
Practically every Sacramento wage earner would get a tax rebate check from the U.S. government under the economic stimulus package unveiled Thursday – $600, $1,200, even more for families with kids. What's uncertain is how much good it will do for an economy in danger of slipping into recession.
...
Also uncertain is the impact of a plan to boost the upper end of the housing market by raising the ceiling on so-called jumbo loans. The plan likely will reduce interest rates in certain high-end metropolitan areas of California but may have limited effect in more affordable areas like Sacramento.
...
At Arden Fair mall, retired truck driver Irwin Hart of Sacramento said the stimulus package won't do enough to revive the economy. "People here are sweating because they can't buy a home, and others are sweating because they can't sell theirs," he said.
From the Sacramento Business Journal:
With home prices falling, retail spending down and fears of a recession looming, Lowe's has dropped plans for a giant home-improvement store at a big-box development in Elk Grove, and Wal-Mart might do the same, real estate sources said.
From the Fresno Bee:
Home prices fell so precipitously in 2007 that five cities in the San Joaquin Valley, including Fresno and Modesto, recorded some of the greatest declines in property values in the country, according to a report released Thursday. Modesto, Merced, Stockton, Fresno and Bakersfield finished in the bottom 10 of 956 regions sampled. The median price of a single-family house in the Fresno area fell 16.73% over the year ending in December, according to the First American CoreLogic Loan Performance HPI, which specializes in residential mortgage data and analysis for the mortgage industry.

24 comments:

Diggin Deeper said...
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Diggin Deeper said...
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wrong moves said...

About the intentional foreclosure guy: He's not hungry, he's greedy. If he can truly afford 315K, then he is not destitute.

It seems like the lenders have not learned anything. Quasi rhetorical questions here: Did they not see that he was already in deep on a house? Does the lender not even try to protect themselves these days?

Real question here: Is there any way the lender can put some type of contingency in the loan about the other house having to sell first or.....

Ya know, it just occured to me. I deleted a lot that I had already written because of this. The new lender doesn't give a dang if the old house gets foreclosed on. I guess I need a second cup of something.

Still, from what I have seen in my limited scope of concern, it doesn't really seem like the people handing out loans have changed their ways (much).

Gwynster said...

If the 1st mortgage has been refied, it becomes a recourse loan in CA which means the bank can go after the 2nd home, garnish his wages etc.

I expect we'll see some changes to what determines recourse/non recourse coming up a long the lines of how our BK regs were overhauled.

Diggin Deeper said...

The problem seems a lot bigger to me.

The question alone shows just how far we've allowed commonly accepted principles to erode.

If a President of the U S can lie before a grand jury, to the comic amusement of the rest of the world, are there any principles that aren't debatable?

Unfortunately, the rule of law applies only to those beneath it, like the woman we read about recently that robbed a local bank because of her foreclosure problems. She's going to jail.

Foreclose on purpose, rob a bank because of foreclosure, stealing when you're hungry. What's the difference? Is it really a matter of degree where one becomes acceptable over another, and there's accountability in one case, but no consequences in another?


It's no wonder we're facing problems in our credit and financial systems.

OT but very very funny

http://www.youtube.com/watch?v=J5z4Vs26-TI

Wadin' In said...

"People here are sweating because they can't buy a home, and others are sweating because they can't sell theirs," he said.

Hmmm, how can this problem be solved??? Tax breaks for FB's who walk? Tax rebates for all to spend? WTF is all that?

Lower the price, stupid.

Then the seller can sell, the buyer can buy and the mess is solved. That is the only solution and it is happening. The rest of the proposals are window dressing.

Patient Renter said...

"Is it wrong to steal when you're hungry?"

Not being able to own the home you want at the price you want means you're hungry? What nonsense is this?

There must be a lotta hungry people out there.

BTW: Diggn, that link was hilarious.

anon1137 said...

"If a President of the U S can lie before a grand jury, to the comic amusement of the rest of the world, are there any principles that aren't debatable? "

How about this: if a President of the US can invade a sovereign country under false pretenses and cause the death of more than 100,000 of it's citizens and the loss of some of the most important archaeological treasures in the world, are there any principles that aren't debatable?

HappyinSF said...

But what about 9-11? Oh wait, Iraq had nothing to do with that. What about Saddam? Oh yeah we captured him 4 years ago. And what ever happended to Bin Laden.. you know, the guy who actually attacked the U.S.

Worst president ever.

Patient Renter said...

"How about this: if a President of the US can invade a sovereign country under false pretenses"

Not only false pretenses, but in direct violation to our Constitution which requires a Congressional declaration to go to war. There's a reason such a thing is required - it forces us to think long and hard before doing something we might regret.

Gwynster said...

DD,

Normally I agree with much of what you say but you lost me completely on the Clinton slam. I know it's an election year but I hope we can keep the partisan politics out of our discussion and focus on those thieving rotten FBs >; )

Anyways, I see it as an issue of regulations -or lack thereof- and the basics of contractual law.

If these people are defaulting on firsts after retaining the second as a means of leveraging themselves into cheaper homes, then I think the banks should go after them for all they are worth. One really good obvious case is all it takes to set precedence and the bank attorneys are off to the races!

11:00 am and I already think I need a drink >; (

Diggin Deeper said...

My point exactly....

All of the above is true...basic principles have been watered down (regardless of political party) to a point that simple truths with simple answers are no longer available.

What's the difference between a premeditated foreclosure for personal gain, or robbing a bank for personal gain because of a foreclosure? The bank is the victim in both cases. Chances are pretty good the bank will lose more on the foreclosure than a bank robber will get from the robbery. One goes to jail, the other walks.

When accountability for actions is reduced to neglegible levels, there's no reason not to steal, or to misrepresent truth.

Diggin Deeper said...

Gwyn...i appreciate your comments and I expected no less in responses. It has little to do with party politics and more to do with leadership. Frankly, I'm apolitical with a conservative bent. I'm fed up with the politics of both major parties. Imo, there's not an administration in the last 20 years that hasn't been an embarassment to the American public.

HappyinSF said...
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HappyinSF said...

Hahaha, I never thought about it that way but you are right. How many bank robbers get away with 100grand or more. Maybe the banks can make some back room deals with some FBs. You can rob one of our branches as long as you promise to stay in your super crazy over-valued house and pay the mortgage.

Seriously though, I know next to nothing about the foreclosure process.. I take it all FB's file bankruptcy at the same time they lose the house?

Gwynster said...

Bk isn't easy and there are a variety of ways to approach it. It used to be that you could homestead and BK and retain the house depending on which type of BK you pursued. Now you loose the house with the formerly safe venue, it just takes longer.

Never BK'd in my life. I just about hear these situations that sounds like urban myths and start reading, usually starting with snopes.

G Spot1 said...

Don't weep for the banks. Their loans ultimately need to be based on the underlying asset value since that's what secures their loan. It is their f-up that they got these people into homes with little to no skin in the game and didn't account for the possibility that home values will decline.

Contract law is generally without any moral component - if you don't think a deal makes sense for you anymore you can cease performing, but you do have to pay the damages. These guys are doing the most economically rational thing. Tender the asset back to the bank and walk away.

As for recourse, the banks can take their shot at that but the reality is they are far too busy cleaning up the messes they made to get serious about that. Plus, all the purchase money mortgages are nonrecourse anyway - something the bank should have taken into consideration when the originated the loan with little to nothing down in the first place! They knew the rules of the game better than anyone - because for the most part, they wrote 'em.

Marin Family Guy said...

For those people who slam Bush for invading Iraq, shut up. If you do not realize Clinton is a moral reprobate you're stupid. The man is a congenital liar and serial sex offender. I am obviously a conservative and don't support Bush (I have voted in the past for Pat Buchanan and Alan Keyes) so I am more conservative than most but you need to get a life and not bring this into the equation of housing values dumping.

HOUSE2008 said...

Chances are pretty good the bank will lose more on the foreclosure than a bank robber will get from the robbery. One goes to jail, the other walks.

Sounds like some politicans mantra line if I ever heard one. At least a variation of it. haha. Diggin for er. City council? Senate? Nah. jk.

So, went to a development & talk about the apple from the garden of Eden. SWEEEEET! Mr. sales guy say's in the best bogart voice ( not the typical serpent voice)" tell you what kid, I'll give you $110k of dish house & on top of shat, cause I like you & your pretty dame here (my wife) I'll throw in a 2-1 buy down with dis interest thing on the turd year thru 30 @ 5%. Total cost out the door 335k." NEW 2200sf 4/3 w/optional 5th 3 car garage ect.
Just for the record I ONLY licked the apple:) But I'm going back tomorrow to see if we "qualify". I know we already do

Anyhow, need some math here. Let's say I DO rent for the next 3 yrs & then I'm out 40k in equity while the house MAY go down to 270k. I "overpaid" by 60K but am "in" 40k vs not renting. Hm. What am I missing? OOOhh shiny apple.......:)

Diggin Deeper said...

Actually what you're losing in equity by renting, you're partially making it up in tax savings if you do own. Very roughly, if you're payments (P&I) were the same as own vs rent, and you're in a 25% tax bracket, you're probably saving about $275 per month in less income taxes owed. Add in an additional $100 per month taxes saved for the property tax deduction. Over a 3 year period you negate about $13-14K in equity losses by owning. This will be offset some by depreciation and maintenance costs but on a new home, it shouldn't be all that much. So net equity downside, if you're correct, would be somewhere in the neighborhood of $50-52K at the $270,000 level or pushing 20%.Is it worth it? Maybe with the right variables and time horizon.


The real question becomes will $270,000 be the bottom? At $150+ per sq. ft. for a new 2200 sq ft home, are you sure you can't find a better deal?

Diggin Deeper said...

One more thing...you could always offer less for the home, and make you're decision even more interesting. In fact if you believe the home is going to $270,000 why offer more? They might let you walk, but if you're serious, and you qualify, there's a good a chance they'd counter back. The buy down is important and, if I was making a deal, I'd keep that as part of any offer.

Patient Renter said...

"Anyhow, need some math here. Let's say I DO rent for the next 3 yrs & then I'm out 40k in equity while the house MAY go down to 270k"

Um, no. Have you ever seen an amortization schedule?

http://www.amortization-calc.com/

On a 335k loan at 5%, after 3 years you'd have $15,500 in principal paid (equity). Calculate in the fact that the property is likely depreciating and you come out ahead renting. Try a rent vs. own calculator, and be sure to put in a realistic number for appreciation (a negative number).

http://eloan.com/s/show/calc_rentvsown

Cow_tipping said...

Intentional foreclosure - great idea, but the intender should not do it prematurely.
If the house across drops to 315 from his original 420, yes its tempting to jump, what happens when that original 420 drops to 210 ... he's stuck. One foreclosure = no more house buying. I anticipate a lot of that.
Cool.
Cow_tipping.

Richard said...

Ok, please forgive a newbie Q, but how does someone qualify for a 315K mortgage when they're already paying a 450K? The first mortgage will be on their credit report... Or is the bank accepting stated debts as well as stated income?