Sinking values prompting homeowners to consider strategic default

[n2doc]

By Mary Ellen Podmolik, Tribune reporter
May 22, 2011

Strategic default — opting to walk away from a mortgage you can afford — isn't a new phenomenon in the housing crisis. But with home values continuing to decline, more owners are finding themselves in a position where they may see it as a savvy business decision to destroy their credit rather than wait years for prices to recover.

Marty Likier is one who knows the mental hurdles that have to be crossed to make the decision.

Likier put almost 20 percent down to purchase a $312,000 townhouse in Westmont in 2006 and lived there until two years ago, when he remarried and bought a home in Chicago Ridge. For a year he rented the townhouse. When a change in rules at the community meant Likier's days as a landlord would end, he called his lender and asked if he could rework the loan, but he didn't have enough equity left to refinance the $240,000 mortgage.

Likier, 55, took a long look at his finances and the combined monthly mortgage payments of more than $4,700 and decided last fall that the struggle wasn't worth it.

more

http://www.chicagotribune.com/business/ct-biz-0522-strategic-defaults--20110522,0,3910292.story

[Uben]

1. What? They are cheaters........

.....who are cheating the cheaters who cheated them! (say that five times real fast)

[n2doc]

2. In other words, they aren't rich enough to be allowed to Cheat!

Gotta meet certain minimum wealth or family connection guidelines (hello Neil Bush!) to rob banks, the Treasury Department, or people's savings without penalty. Everyone else, especially whistle blowers, gets the book thrown at them.

[Fumesucker]

3. Default is part of the contract..

The consequences of default are spelled out in the contract so it's part of the deal.

[coalition_unwilling]

5. That is so true. The banks and investors who loan the money

for these mortgages walk away from no-longer-feasible deals constantly, using the bankruptcy code to do it. So why shouldn't homeowners do exactly the same?

N.B. The owner referenced in this snip brought some $62,000 to the table when he bought the property. He is walking away from those funds too, a fact the Trib does not see fit to mention, but which underlines the strictly business nature of the strategic default.

[slackmaster]

10. Yes, that is correct, but the contract doesn't fully explain how a default affects the borrower

I encourage anyone who is considering a strategic default to discuss it with a tax adviser before taking any action.

[Fumesucker]

14. My point was to the "morality" of the default..

I don't see how it can be immoral if it's pre written into the contract and both sides have signed it.

[slackmaster]

15. It's perfectly moral to default even if you can make the payments

As you said, the consequences have been agreed upon by both parties to the contract. I just want to make sure that people understand that there are consequences beyond the influence of the contract.

[Name removed]

4. Deleted message

Message removed by moderator. Click here to review the message board rules.

[lunatica]

6. At this point in our economy it's bogus and plain ignorant to talk morality

People are faced with no recovery, ongoing falling house prices no real security in their jobs, rising costs of gas and food, credit card companies cutting their limits or even freezing their access to their accounts or protecting their future by not depleting their retirement accounts.

Anyone who still thinks that banks and mortgage companies who refuse to work with homeowners and end up forcing foreclosures are somehow above reproach and have the right to moralize about 'contracts' is fucking evil.

These people would have you deplete your life savings just to do the 'right' thing and honor a contract that will spell doom for us in our old age. It would be nice if these banks who have person rights also had person obligations of morality the way they like to cram down people's throats.

And some DUers still think themselves so morally superior. It must be nice not to be affected financially in today's world. Bully for you.

[coalition_unwilling]

8. Thank you. There is a contract and it specifies exactly what

happens in the case of default, i.e., foreclosure. In other words, the person signing the mortgage contracts to pay the monthly mortgage payments and if he or she can't, the bank forecloses. That IS the contract.

The banks would prefer to get paid and would prefer not to foreclose. But no one held a gun to their heads to force them to loan the money in the first place and no one held a gun to banks' heads when they agreed to the contract as specified.

[Horse with no Name]

7. My mom was telling me (in Arizona) that she works with several

colleagues that make six-figure salaries and are not in any type of financial difficulties whatsoever (think Physical Therapists, Occupational Therapists, etc) and they ALL hate Obama and everything he stands for.

These people purchased homes during the real estate boom and of course they overpaid for them. They can still afford them....but she says 3 of them decided to just let it foreclose. They first purchased homes when they hit rock bottom prices and then dumped their others on the market.

The moral of this story...THIS is what people who can afford to do, do. They do not have any moral responsibilities to you or to me or to this country.

Why we bend over backwards to accommodate their tax cuts is beyond me.

[spartan61]

9. And they think this mortgage mess is all

Obama's fault????

[Horse with no Name]

11. Worse than that...they think EVERYTHING is his fault

we've had numerous conversations about this. She doesn't understand because these are educated people and have the capacity to know better. The capacity to understand politics. The capacity to understand cause and effect.

BUT their radios never leave the likes of limpballs. So...they are very low-information--even though their demographics should speak otherwise.

[eilen]

12. Ironically, this was on my front page today:

http://www.syracuse.com/news/index.ssf/2011/05/inside_the_destiny-citigroup_n.html

Inside the Destiny-Citigroup deal: Lender cuts off money, mall owners escape personal guarantees

"Citigroup will provide no more money for the expansion of the Carousel Center shopping mall in Syracuse under an agreement that settled a two-year lawsuit between the bank and developer Robert Congel.
Under the terms of the settlement completed in March, Citigroup Global Markets Realty Corp. will not loan Congel’s Destiny USA Holdings any money beyond the $86.63 million it has loaned to the developer. That’s far short of the $155 million the bank originally agreed to lend the project.
The deal leaves unanswered how Congel will complete his 1.3-million-square-foot mall addition, a project he has said is part of a plan to transform the Carousel Center into a world-class tourist destination called Destiny USA."

Of course it gets more complicated and basically allows Empire Zone funds (aka taxpayer money) to be used to pay off contractors that Congel's Destiny had stiffed yet absolved Congel of any personal liability.

The other thing is that the Syracuse Development Corp needs to decide whether to continue to extend the sales tax credits (like I said-- complicated but the article explains all).

Anyway, the gist is.... There was a contract btw. Citigroup and Destiny. Citigroup bailed.

There was a contract btw Destiny and ..... the city of Syracuse, the state of NY and the federal Gov for various tax credits, grants etc. Destiny bailed.
yet no ethics investigation, the state nor the city has taken over the Destiny project nor has the IRS closed down Congel's developer dreams by endless audits; nor has Citigroup foreclosed upon the Destiny mall. Meanwhile we have a half finished concrete gulag sitting in our community, many out of work people and some store closings (notably Borders which was heavily impacted by the construction) as well as no sales tax revenue for our fair but sinking city. Personally, I think as part of repayment Congel should be forced to update and repair all the public city schools. So why the fuss over a townhouse? There are bigger fish to fry.

[eilen]

13. Just to add-- Courts say that

"Citigroup does not have to sink any more money into a project it views as a failure."

So why should a homeowner?

[Liberal_in_LA]

16. Townhouse community is cutting its own throat by not letting owners rent out

So now one of their owners will foreclose. Better to allow renters until the market improves