Sunday, August 05, 2007

Underwater home owner strategy

This hilarious comment comes from the comment section at the AZ republic from an article on foreclosures. I wonder how many other people will use this "strategy":

I will be letting my home in Surprise go into foreclosure as soon as my new cheaper nicer home is completed and closed. It is a stratigic move to get me out of a f'ed up sitiuation that my "friends" in the mortgage and realestate business helped me get into. My house appraised for $325k over 2 years ago. I owe the full ammount! Now my same "friends" tell me I can sell my house for $225k! I'm going to shove this house right up the Bank's back door. The property I bought with the equity in my house sold and put $175k in my pocket. I'm paying cash on a new build that I'm stealing in this market. The builder is eating out of my hand and sucking up to me like never before. He is my (inappropriate term) because I have the cash in hand and I can go wherever I want to buy a new house and he knows it. I'm going to pay cash for a new "fringe" home in Pinal county. Screw the banks and their BS interest. Now I can save for retirement at an increased rate then sit back and watch the sparks fly. Our vehicles are paid for and we have credit cards with zero balances on them. So I could give a dam about a credit score any more.


Raynor said...

Unfortunately this is happening around CA quite a lot now. This person is compounding the problem by not fessing up to a situation where he did a 100% loan probably to "flip" it himself! When it went south and he lost $100K in equity he decides to walk. It sounds like he took an equity draw prior to the drop in price and that was how he was able to buy the property he then sold (read "flipped").

So instead of becoming part of the "solution" this person decides to stay a part of the problem (he got into $325K house to flip to begin with - read as "greed") and even compound the original problem. The ethical person would stay in the $325K now $225K house and try and work through it by making his note and waiting out the market, and own up to his mistake!

Instead he is leaving it to the "bank" which really means all of us will "bail him out" in the form of higher int rates or even an out and out bail out of these financial institutions sometime down the road. This has to stop somewhere!

Rob Dawg said...

Hopefully he talked to an accountant and criminal defense lawyer about the tax consequences and possible criminal consequences of his outstanding loan arrangements. Stuffing the house up the banls' backsides isn't the end of his responsibilities.

Raynor said...

Yes Rob, but with all the similar situations occuring right now, the authorities may just get OBC (overcome by cases) and a clown like this will slip through the "cracks".

At least thats what is probably going through his diminutive cranium.

TheFunSucker said...

I agree with raynor...own up and pay up! These greedy SOBs thought they were so clever and looked upon folks like us as idiots! Well now they're screwed and will let someone else pay for there mistakes.

That's the story of America these personal responsibilty and the laws/regulations allow it.

These people need to be looked upon with scorn and truly feel shameful. I for one refuse to show any pity to anybody who had the intention of flipping and then got caught. There's no such thing as a free lunch, you actually have to work for it!

Gordon Gekko said...

Rob Dawg is right. As soon as this guy's current house goes into foreclosure, the bank is going to run a property and credit check. When this home shows up with equity in it, they're going to sue him for the loss and win. He's going to end up with a 100K lien again his new property.
I doubt this guy will slip thought the cracks. In 20% of the foreclosure cases, investors bought flips that ended up going back to the banks, but kept their primary residence with plenty of equity. Banks are not dumb. They always check credit and public records. They are not going to lose 100K on a home unless there is no other option.

Raynor said...

I hope you are right Gord. But I gotta tell ya, this pinhead in AZ thinks he's got it wired. Notice he says he's doing an all cash deal. He is anticipating the bank coming after him.

As you know, its one thing to sue someone and prevail, quite another to actually collect.

Even a lien might not be worth much, unless of course, your initials are IRS.

Realestateslasher said...

Question to you all if, Agent sold you on a great deal 325k start rate of 1% rate sub prime 100% finacing and all of
sudden price drops 30% intrest up to 7.75 second at 13% payment is now out of reach ,houses in the same tract selling for 100K less.

What, Raynor, how long before you walk or stop dumping money away?

Peahippo said...

Sadly, I'm going to predict a good 75% chance that this quoted, up-the-bank's-arse guy is correct.

Look, every bubble people slip through the cracks since some (to all) of the mechanisms of enforcement are part of the scam.

For example, the bank may be sitting on mortgage paperwork that even an age-addled, half-blind grandmother wouldn't approve. The numbers might well be obviously bad. If brought into court, the bank would have to submit such paperwork and be torn apart by arse-guy's lawyer.

In addition, banks do banking. That's what they do ... just like the builders wouldn't suddenly stop building once inventory became excessive. So, banks need customers to take out loans. Literally, they need the SAME GUY to take out a loan with them in spite of having short-saled or foreclosed with them in the past.

Now, let's talk about liens. A 100K lien is NOT money, since people tend to just sit in their properties with the lien attached like a tick ... a tick that is only WAITING to suck. How is such a thing that satisfying to a bank? And the lien required expense to accomplish, didn't it?

About the best thing about a lien is that it might be booked as the appropriate type of asset to give the bank its ever-desirable level of profit. Might. I don't know, but I'd bet that liens in banks don't have that kind of "staying power" with the bottom line. The lien may get sold off in 5 years at 70c on the dollar, just to get rid of it. That would further water down the value of a lien, from the beginning.

So, the banks might arrive at unwritten rules for ignoring a certain number of the "playas". We're already seeing banks NOT sending that 1099 for the forgiven value of the short sale. A 100K limit might be set, below which a bank will generally NOT pursue the player in ANY fashion.

It sure is annoying to me to see that people with clear assets and no bankruptcy can so strongly escape paying their bills, but I can reach no other conclusion. A fraud economy is difficult to effectively certify or re-validate to then become legit.

At least the shareholders in banks will suffer. That's the LEAST those little bastards deserve, having joyfully crowed during the run up in their shares, while their portfolio banks were fee-ing their customers to death.

(The latter being said, I hope everyone here has dumped the bank stocks from their portfolios, eh?)

Bill Lyons said...

Yeah it was amazing to see Cramer go on TV and tell eveyone "just walk away" if you are upsde down...keep your credit card and car instead. I have an article on for those who still have equity

xs10shell said...

How a couple of Prudential guys did it in LA. Not sure if the link will work but it is from LA Times 8/3/07

Brokers to Westside elite accused of fraud
2 Beverly Hills agents and appraisers are indicted in a scam that allegedly inflated home prices and loan amounts.
By Annette Haddad and Diane Wedner, Los Angeles Times Staff Writers
August 3, 2007,1,3534312.story?ctrack=1&cset=true

Gordon Gekko said...

We're all conditioned to think that these type of slimmy guys are going to get away with it because that's all we hear about. The 1 out of 10 that get away with it is the loudest, bragging how they scammed the system. The other 9 stay quiet because they don't want to be thought of as a moron. It's just human nature. In the last 2 years, I've heard of dozens of investors/flippers using this same stratagy. The banks know this, and go after the perpitrators.
The only way he can postpone paying up is to keep the home. He'll have the lein stuck on there forever.
This is why people do short sales, thay can get out of their property and not have the bank coming after them.

Raynor said...

slasher: In all honesty, this is one of those "this is what I hope I would have the moral fiber to do" things.

Certainly it would be tempting to just walk on the loan. I was not raised that way. I could have answered you by saying I would never have gotten into the situation in first place as I am the type of dummy who always asks: "this seems too good to be true so I don't think I'll do it" (in this case "this" being $325K nnote @ 1%). I don't do the 2 & 28's, ARM's, sub-primes, int-onlies, etc. I just don't. So I can honestly say I wouldn't have gotten into the deal in the first place.

Thats too easy though. Were I to have gotten in to such a loan on an inflated piece of RE, I hope I would try and figure out a way to make it work, at least until I could get out of it without ruining my credit and keeping everyone as "whole" as practicable.

But then, thats just me. I always pay my bills. I'm a throwback I guess. I would not make a good crook!