Posted on 05/02/2011 12:32:17 PM PDT by Notary Sojac
More than half of homeowners in Sacramento,San Joaquin and Stanislaus counties are upside down on their mortgages, owing more than their homes are worth. You can bet the conversation whether people should keep making the payments or walk away from a bad investment is happening in every single neighborhood in our area.
I dont know what were going to do at all. I dont have a clue, Amilia Blackwell said.
Married with a toddler and a baby on the way, she and her husband Jakob are feeling the pressure of living in an underwater home. They owe $40-thousand more than their Citrus Heights home is worth. The couple faces the moral versus business decision; should they keep making the payments or walk away?
Thats our main conversation. What are we going to do? Jakob said.
Financial expert, TV host and author Suze Orman says everyone should be looking at the value of their homes.
If you own a home that is 50% underwater, 70% underwater, it will never ever, ever come back to where you purchased it. Orman said.
In her book The Money Class, Orman says if you like your house and are only 10% or 20% underwater, keep making your payments. But what if its worse than that?
Do the calculations everybody. How much is it costing you to actually stay in that house? How many years will it take for you to pay more than that house is worth? If its 3 years, 4 years, 5 years; are you kidding me? Thats a house you really need to say bye bye. Its not worth the money.
Using her theory, say your house is worth $150,000 and your monthly mortgage including property tax and insurance is $2,500. You will pay $150,000 dollars; the current value of your house; in five years. In that case, Orman says try to get your bank to modify your loan.
If the banks will not work with you, then you need to either do a short sale. If they will not allow a short sale, then do a deed in lieu of foreclosure. If they wont do that then walk away. Its just how it is.
When Mary Beth and Bob Stucky say the bank wouldnt work with them on their Somerset home which was underwater more than $200,000, they walked away becoming renters.
We were there on moving day last year. Mary Beth was still struggling with the morals of walking away.
Its probably from my father that you dont walk away when you make a commitment, she said during while choking back tears in December 2009.
One year later?
Im happy. I feel secure, she says.
Mary Beth realizes it was a bad investment. She and Bob are now renting a bigger home with more land and a rental payment a fraction of their old mortgage. Its allowed them to build up a healthy savings account.
Were doing quite well and at the end of the storm, were going to be positioned to get back into the market and make our lives better, Bob said.
But it could be years before theyll qualify to buy a home again.
Rob Sorenson of Folsom walked away from his home a couple years ago. Its the only blemish on his credit history and was enough to cause his credit score to plummet.
Slowly but surely all the credit card issuers said you know wed rather not have your business anymore because of your credit risk, Sorenson said.
When his yellow lab Rosco got sick Rob had to ask family for help. He had no credit card to pay for the $2,000 dollar vet bill.
Thats what I depended upon for my safety nets before. Now I dont have that safety net,
Sorenson and the Stucky family knew the risks of walking away. They have to live on cash. If they dont have the cash they have to save up to buy whatever they want.
Beth Mills with the California Bankers Association warns walking away, or strategically defaulting as its called, has a larger impact bringing down your neighbors property values keeping the housing market from recovering.
When you signed a loan document, you made a commitment you made a promise to pay, she said. We hope people will continue to honor that commitment.
But Orman says if you failed to get your bank to listen, you shouldnt feel guilty.
You have to make the attempt to work with them. If they wont work with you, then I think you can stand in your truth and leave that home.
Orman says the new American dream may mean never owning a home again.
And if you do rent for the rest of your life, its not a big deal. Who cares? Just invest that money you wouldve put in your home somewhere else.
The Blackwells realize any decision they make involving their home will hurt somehow.
With a baby due in September, theyre up against the clock to make the right decision.
We want to be proactive now and figure out a solution, so that in September with baby #2, were not as bad off at that point, Amilia said.
Orman says if youre thinking of walking away or doing a short sale, now is the time to do it. Sometimes it takes a year or more for a short sale or foreclosure to go through. A federal tax break for short sales and foreclosures is set to expire at the end of 2012. That means come January 1, 2013 you may have to pay tax on any home loan you walk away from. So if youre $100,000 underwater youll have to pay the federal government taxes on the $100,000.
Before making any decision, you should talk with a real estate or tax attorney to see the potential impacts you could face.
Orman says its time to erase feelings of hopelessness, rethink your ways and moving toward the new American dream.
The new American dream really is a dream that allows you to sleep at night where you feel secure, and you know what is yours cannot be taken away again, because of the actions of others.
Since it's California centric, it doesn't deal with living in a mortgage recourse state, where walking away is not so easy.
I love this part, it's so tasty when corrected:
Beth Mills with the California Bankers Association warns walking away, or strategically defaulting as its called, has a larger impact bringing down your neighbors property values keeping the housing market from recovering helping housing to reach a market clearing price and getting the system back to equilibrium.
There, that's better.
this is part of the progressive push to collapse the system
Well this is a test of whether we’re consistent in our ethics.
Do you believe in being a keeper of covenants, or are some covenants more...flexible...than others?
I’d love to see what happens to Suze Orman when someone who lives in a mortgage recourse state tries this and gets sued to recover the balance of the debt owed.
Don't worry.....WE'LL pay for it!
Something isn't right here.
Exactly!
I wouldn't loan this loser a plugged nickel. Nor his loser wife. She feels secure? Nice fat bank account? Good for them, they're gonna need it. I don't think their credit is worth a damn - they'd better save up cash for the next one they buy.
Suze Ormann is a loser too. It doesn't make a damned difference in the cost to stay in the home whether it's worth nothing or a million dollars. They payments are what they are when they agree to make them - when they thought they could rake in a killing on housing escalations and move up. The baby she has/had will learn its morals from a couple of losers.
You assume a risk, and so does the bank.
A prime example of why we are now screwed as a society. Your word is your bond is such an old fashioned idea. /s
You forgot to add the “/sarcasm” tag onto your comment!
There is nothing great about Suze’s advice. Backing out on a commitment, esp. one regarding money, is a huge deal, as the people in the article are eventually finding out. I am currently seeking employment, and virtually every application asks questions as to any bankruptcies, defaults on loans, or judgements placed against me. Thankfully I can answer “no” to these questions, but I cashed in my IRAs and sold equity in my house to a family member to see that all my creditors were paid.
Maybe some people truly do have no other choice, but many just don’t feel like cashing in some of their assets. Too bad then - any negative hits to their credit scores or other repercussions are probably deserved.
Uhhh??? Exactly the amount YOU agreed to pay to stay in the house???
Sorry but I don’t agree with your comment. It IS a moral issue—for the ones who made the decision to take out the loan and made a promise to repay. “It’s better not to make a vow than to make one and then break it.” Ecclesiastes 5:5
Almost all of this housing crunch is the result of GREED on the part of the BUYERS and foolish decision. Ms. Orman’s comments about renting were equally valid 20, 30 years ago but people got envious about everyone else’s McMansion and used two incomes to get the biggest loan possible. No one at any time had a gun put to their head by a bank loan officer to force them to borrow 90 to 100 percent of the value of a McMansion.
If the contract calls for you to either (1) keep making the payments or (2) give up the collateral to the lender, you've honored the contract whichever one you do.
Businesses do this all the time. If a business can improve its cash flow by giving up a purchased or leased capital asset and freeing itself of the payments, it would be violating its fiduciary duty to its stockholders if it did otherwise. I suggest we think of our families as "stockholders" and make decisions on the same basis.
Some of the same businesses who have done this are probably the same ones that hire PR staffs to lecture consumers about "moral responsibility".
Now, if someone stops making payments and continues squatting in the house, I agree that that's an ethical breach and I would not endorse it.
I did mention that in post #1.
What part, the amount of the vet bill? I know a guy who has a beagle at the vet right now. Tests, Xrays and MRIs from this "specialist", who has yet to actually operate, total over $5,000.00.
http://www.bizjournals.com/boston/stories/2009/12/14/story11.html
It's OK for a Big Bank to walk away, because it's a "business decision"....
Someone told me they were thinking of walking away from their underwater house because they could buy a similar house for a lot less money. It never occurred to them that no one would lend them money after they turned in the keys.
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