This is a troubling story, and a troubling trend. Brian Ban, one of the Top Producers in our Keller Williams Office here in the Lincoln Square Neighborhood of Chicago, brought it to our attention.
It's even more troubling that I can understand the logic behind the defaulting borrower's decision, as he faces foreclosure. I can see their logic - and that is what is frightening!
What goes up higher, comes down faster, and harder. So spins the Northern California Real Estate Market in 2008. Here, the foreclosure rate in some areas is among the highest in the country, and many recent home buyers are so upside-down in their loans, and their adjustable monthly mortgage payments have gone up so quickly, that some home owners are more inclined to simply WALK AWAY from their delinquent home loan.
They would rather face foreclosure, and certain three-to-seven year destruction of their credit, rather than negotiate forebearance with their lender!
And . . . it's no big deal to them!
In a story by Carolyn Said, in last Sunday's San Francisco Chronicle, she tells of one Iraq War Veteran's feelings - it's like "throwing good money after bad" to pay a monthly mortgage payment on a home that is declining in value. The more they continue to pay their escalated mortgage, the more they are getting themselves in over their financial heads, with what they feel to be no way out.
There is even a new, San Diego-based company - YouWalkAway.com - that helps homeowners in a similar situation walk away, guilt free, from their homes - for a $500 to $1,000 counseling fee.
Luckily, here in Chicago and nearby, we are not plagued with the precipitous declines in home value that those in California, Nevada, Arizona, and Florida are now facing. But we still have many, many home and condo owners that over-leveraged when money was easy - with 95%, 100%, and even 106% interest-only financing. When their adjustable mortgage payments increase, selling their home is not an option - they will sell negative!
Folks, my wife and I are of the Baby Boomer Generation. Forty and Fifty-Somethings. As kids, we were taught the importance of home ownership. Having home equity, and protecting that equity. Having stellar credit.
Today, these values we thought everyone shared, seem fleeting. Many recent buyers have very little equity, with little prospect for building much equity any time soon. While a "walk away" decision would be a wrenching one for we Boomers, it is apparently far easier for some younger homeowners little money at stake. The attachment to their home, where they may have lived for only a short time, and the homeownership process itself, is plainly not there!
Out in California, home mortgages are "non-recourse" instruments - lenders can not dog down foreclosed homeowners for the money they have lost. It's different in Illinois - lenders CAN file a Deficiency Judgement in certain situations, trying to recover some foreclosure losses, especially if fraud or duplicity was involved.
But recently, one homeowner in San Francisco's East Bay first pulled $100,000 of equity out of his home using a Home Equity Line of Credit - and built a luxury swimming pool. He then went delinquent, and is trying to re-negotiate his total indebtedness with his bank - under threat of simply walking away. Apparently, he has made progress in his negotiations.
Man, I am shocked!
Do you see this happening in your market areas? If so, it seems our entire sense of money managment and values might have radically changed. Your thoughts?
DEAN & DEAN'S TEAM CHICAGO
Hi Dean,
Yep, I think our country's ethics, morals, and values have all taken a turn for the worse. I for one have never filed for bankruptcy, never had a short sale, never had a foreclosure or other debt negotiated settlement, and I would be mortified if I ever did go through with it. There are absolutely circumstances where you have no choice, but the number of people who just give up and walk away today with no worry about their reputation is astonishing.
Hi Dean,
Well I'm one of those in CA and I've seen some folks walk away at this point. I guess depending how deep a person is, I'm not sure it's not always best in the long run. In Orange Co. we're down 16% from Feb. 2007 to Feb. 2008. And yes, some areas are really hit harder than others. We had walk aways in the 90's, yet 5 years later some couldn't buy their same home back.
I'm facing foreclosusre myself right now. Bought the house in March of 2007 and here we are just over a year later losing it. When we first bought the place we had all the nobel ideals for and all intentions of fulfilling our American Dream - buy the house and then two years down the road refinance it at a better rate and we'd be home free, maybe pass it down to the kids. Right? Worng. Before the ink was dry on our closing papers, the marked began to turn.
First of all, our mortgage payments are high. We were going to rely on our 2 sons paying rent to offset our costs. Figuring down the road one day it would be theirs, they wanted to be part of it. Then they got into some financial problems of their own and didn't have the money for rent. We ran into some financial problems during the course of the year trying to come up with the entire amount on our own, causing us to be late with some mortgage payments, so my husband made a repayment arrangement with the bank. Unfortunately, this repayment arrangement added an additional $900 to our already high mortgage payment, rendering us unable to meet the obligation.
We received our foreclosure documents via process server on New Year's Day. This was even after we contacted the lender attempting to work through this with their loss mitigation department. I guess they have to protect their assets, but getting to speak to someone is not an easy task, given their workload with the current mortgage industry fiasco. Its very hard to reach someone and it seems they must have a high turnover rate, because its as if there is always someone new working our account.
While we are working with loss mitigation, the foreclosure attorney continues to work the case, petitioning for a motion of summary judgement in March. I'm not sure if this is standard operating procedure, or if they are working it both ways to see who gets resolve first, kind of playing both ends against the middle.
We've been given a new repayment agreement, requiriing us to complete three months of repayment payments before we can proceed to the next step, the restructure of the loan. Based on an evaluation of our incomes and indebebtedness, the mortgage will be restructured to what they feel we can afford to pay. In return we must make the monthly payments on time and being late with just one payment can result in the foreclosure proceedings starting up from where they left off, without any notice given to us. We have a deadline of April 25 to come up with the first repayment and do not have the money at this point. I'm not sure if we will have it by the 25th. If we don't, its over.
We have tried to consider all of our options at this point and their aren't very many. We basically have 2 options - try to make it work or walk away. To stay and make it work means to stay in our home that is now worth about $128,000 less than it was when we bought it just over a year ago and unless the real estate market make a miraculous recovery and values soar, we will never be able to refinance it to get out of this restructured mortgage and into something new without always feeling pressured when it comes time to pay the mortgage - due to my pay periods at work being the 15th and the last day of the month, its hard to conform to some due dates. Not to mention that we will not be able to sell it for enough to even break even.
Add in to this that the lender says the new restructured mortgage will include the property taxes, but that they do not require home owners insurance, so its not included. I live in a hurricane / flood zone and they don't require insurance?? Which means we will have to get our own, and then that increases our monthly expenses yet again, and we are just about back where we were. I'm behind the 8 ball here.
I feel like I'm suffocating. I want to do the right thing, I just don't know at this point what the right thing is.
The wrong thing was to buy the house in the first place. When you have to rely on others to make it work, all you do is set yourself up to fail. This idea was not nobel, but stupid, I realize that. I tried to get out of it more than once before the closing ever took place. We told our loan rep that we could not afford the mortgage payments she set up, so she "reworked it" to make it affordable - by taking the property taxes and insurance out of it. She knew we were going to have problems affording it just as we did, but she kept resurrecting it. The final time I tried to cancel it, we called our mortgage loan representative and told her to forget it, we're done, this was on a Friday. Monday morning she called us and told us the closing was the next day.
Our property taxes are $7700 a year....
Do I right this wrong by walking away? I may have to, just because I don't have enough time to raise the first repayment payment.
EJK: My heart aches from your story. It sounds like you have really done all you can to pull this out of the fire. It also sounds like your mortgage loan representative was simply trying to close one more loan rather than recognize the obvious red flags you were trying to wave at her. In many ways, your rep was also to blame for this.
It also sounds to me that if you make these three repayment payments before you can get to the next step... that making those three payments... all at once... will pretty much clean you out financially. Never a good plan.
There are those who have given up quickly and "walked away" quickly from their homes. Then there are folks like you who are doing everything they can to keep their home... but are only getting deeper in the hole. It appears that walking away may be all that is left... and who could possibly fault you for that. You and your family are in my thoughts. Take care...
Karen: Thanks so much for your post. Its a hard choice no matter what we do and its very confusing. We've tried thnking with our hearts and with our heads and still don't know what to do.
I have stumbled upon another blog with posts regarding the same mortgage company, so there are others like us out there. Some less informed that we are and who lost their homes wihtout enough notice to fight for it, and it appears the restructured mortgage could turn out to be something diffrerent from what we were told, so we are very leery to proceed.
We may just have to walk away.
Thanks again for uour post and the kind words. it does help to have another opinion,and the concern.