More homeowners mailing keys to lenders instead of payments

[w¡n9Nµ7 §£@¥€r 123]

You can safely assume the market will grow long-term (peak to peak or trough to trough) at its long term trend rate. In my market, that's typically been 1-2% over inflation.

If you look at the entire country, housing prices have tracked with inflation. Though that does depend on what inflation stats you use.

Who cares about the entire country? When you buy a property, it's in a particular market. Every market has its own drivers.

For example, in my state we're almost 100% built out. Supply is constrained but demand keeps growing. As a good example of the opposite, you have the Dallas-Fort Worth Metroplex. When they need to house more people, they just build more homes. There is plenty of land and building permits are easy to get.

[Dan J 277]

And more than likely in the 20-30 years it takes to pay off the mortgage the market will go up and down a few more times and hopefully by the end of it your house will most likely have appreciated even if right now it has not. I never understand why people cannot see things in the long term and insist on freaking out when things get bad, as if things will always be bad. Things go up, things go down.

Edit - We just bought a house and close on Friday

I believe the average time a homeowner owns a house is less than 10 years.

Congrats on the house!

We still have a long way to go *sigh*.

Congrats, Miranda!

Thanks! I am still terrified and wondering what have we done, how can we afford this, etc!

"We paid $585,000. It was the peak of the market, but no one told us," said Shaffer, a real-estate agent from Colorado. "We would probably have to spend the next 20 years trying to get right on the mortgage. That's crazy."

Do your own research buddy. Or at least take an Econ 101 class.

Besides, you never know you're at peak until after it gets established as a peak, which means after sustained downward movement has begun. Same goes for buying at the bottom.

But you can't assume the market will keep growing, especially at the rates it has been in the last few years.

Yeah but in general over long term the market has always grown so the best we can do is assume that over the long term it will grow and after this dip there will be another peak, and another dip, and another peak, etc etc, with some dips and some peaks bigger than others but hopefully more peaks than dips!

But it has never growth at the rates seen in the last housing boom, except maybe in small niche markets.

For many people, if you purchased a house at the peak of the housing bubble, it will take a long time before the price gets back to its inflation adjusted starting value.

[Trompe le Monde 1,107]

I did not buy when I moved to LA from the UK in 2005 because I noticed that median house prices were 10 times median income in the area. You don't have to be a financial wizard to realize that wasn't going to last.

[Hilarious Clinton 452]

"We paid $585,000. It was the peak of the market, but no one told us," said Shaffer, a real-estate agent from Colorado. "We would probably have to spend the next 20 years trying to get right on the mortgage. That's crazy."

What's crazier is that this supposed re agent didn't know? gimme a break!

and 0 down on an almost $600k house is ludicrous.

It's not the banks' fault...its THEIR fault...and people like this who just want to 'give up' are the ones partially creating this problem in the first place. You buy a crazy expensive house that you clearly cannot afford, take out some dodgy as hell loan, and now you want us to cry for you?

Piss off!

exactly. No one has the patience to ride it out when the market turns around... which it will. Gawd, some people are stupid.

[kaydee457 13]

Admittedly I didn't read every single post in this thread so if this has been covered forgive me......

Firstly, any homeowner that believes that "mailing the keys" to the lender absolves them of financial responsibility, well then, they're in for a really rude awakening!

Banks do not absorb the loss on mortgages as most people believe but rather put these foreclosed homes up for sale, for whatever they can get, usually at auction....Great deal for the buyer at auction, but the delta, the difference between what was owed by the homeowner, and what the bank recovered, will forever be owed by the homeowner!

They will simply seek a judgement against the homeowner and this will haunt the homeowner all his, her, or their, life.

There's no such thing as "walking away and giving the bank the keys" as what you owe, you owe.

And if you think that the bank has an obligation to sell at what would be "reasonable" you'd be wrong again. For instance, if you bought the home for $500k, and you borrowed 490k, and the market crashes and will only bare say 200k for the house, then you owe the difference, 290K!

It's a myth that you "walk away", as my own brother can attest.....He couldn't even buy a car on credit for 10+ years following his naive notion that he could stick the bank with his loss.

Edited April 21, 2008 by kaydee457

[mawilson 2,133]

Firstly, any homeowner that believes that "mailing the keys" to the lender absolves them of financial responsibility, well then, they're in for a really rude awakening!

Banks do not absorb the loss on mortgages as most people believe but rather put these foreclosed homes up for sale, for whatever they can get, usually at auction....Great deal for the buyer at auction, but the delta, the difference between what was owed by the homeowner, and what the bank recovered, will forever be owed by the homeowner!

They will simply seek a judgement against the homeowner and this will haunt the homeowner all his, her, or their, life.

There's no such thing as "walking away and giving the bank the keys" as what you owe, you owe.

Yes, there is. Look up "no recourse mortgages".

[Dan J 277]

Firstly, any homeowner that believes that "mailing the keys" to the lender absolves them of financial responsibility, well then, they're in for a really rude awakening!

Banks do not absorb the loss on mortgages as most people believe but rather put these foreclosed homes up for sale, for whatever they can get, usually at auction....Great deal for the buyer at auction, but the delta, the difference between what was owed by the homeowner, and what the bank recovered, will forever be owed by the homeowner!

They will simply seek a judgement against the homeowner and this will haunt the homeowner all his, her, or their, life.

There's no such thing as "walking away and giving the bank the keys" as what you owe, you owe.

Yes, there is. Look up "no recourse mortgages".

It varies by state, but at the very least, you will likely end up with a tax liablity for the difference.

[Pinocchio Liberal 268]

Firstly, any homeowner that believes that "mailing the keys" to the lender absolves them of financial responsibility, well then, they're in for a really rude awakening!

Banks do not absorb the loss on mortgages as most people believe but rather put these foreclosed homes up for sale, for whatever they can get, usually at auction....Great deal for the buyer at auction, but the delta, the difference between what was owed by the homeowner, and what the bank recovered, will forever be owed by the homeowner!

They will simply seek a judgement against the homeowner and this will haunt the homeowner all his, her, or their, life.

There's no such thing as "walking away and giving the bank the keys" as what you owe, you owe.

Yes, there is. Look up "no recourse mortgages".

It varies by state, but at the very least, you will likely end up with a tax liablity for the difference.

Since when did you care about tax?

[mawilson 2,133]

It varies by state, but at the very least, you will likely end up with a tax liablity for the difference.

Explain. If the difference is negative, so is the tax liability (i.e. you claim a loss if the value of

your property is less than the adjusted basis.)

[Niels Bohr 72]

You have to realize how Bush got elected. An indication of how stupid most Americans are.

[Dan J 277]

It varies by state, but at the very least, you will likely end up with a tax liablity for the difference.

Explain. If the difference is negative, so is the tax liability (i.e. you claim a loss if the value of

your property is less than the adjusted basis.)

This is a basic explaination of it

1. The unpaid principal of the recourse debt is $100,000;

2. The fair market value of the property is $80,000;

3. The taxpayer's adjusted basis in the property is $45,000.

Assuming that the creditor forecloses on the property and that the $20,000 excess of the debt over the property's fair market value ($100,000 less $80,000) is contractually discharged (for didactic symmetry with the non-recourse example, let's assume, contrary to whole commercial point of a recourse loan, that the debt is outright forgiven by the creditor, with no actual payment), the taxpayer would realize the $20,000 amount as income from the discharge of indebtedness. That $20,000 of forgiveness would be taxable to the taxpayer as ordinary income even though the taxpayer received no "cash" at the time of the discharge.^[1] The $35,000 excess of the fair market value over the adjusted basis ($80,000 less $45,000) would be treated as a taxable capital gain on the "sale or other disposition" of the property -- again, even though the taxpayer received no "cash" at the time of the foreclosure.

http://en.wikipedia.org/wiki/Nonrecourse_d...onrecourse_debt

Edited April 22, 2008 by Dan + Gemvita

[Fandango 1,439]

Unfortunately, banks sometimes do take the loss and don't go after the HO for the shortfall...it depends on each bank. If they can't pay their mtg when they own the house, what financial sense does it make to legally pursue a deadbeat? We're seeing it all the time now....they're called 'short sales' where the HO can't make the payments, so the house is sold below mkt value to minimize sitting on the mkt. HO is still in the house tho, and it's not quite a 'foreclosure' yet, but instead a 'pre' foreclosure.

There are banks who will seek a judgment for the shortfall, though.

Furthermore, up until this Mortgage Forgiveness Debt Relief Act, much of the time, the shortfall was considered 'income' to the HO, so they'd have to pay tax on whatever the banks waived.

Now a short sale is not for people who WON'T pay their mtg....it's when they CAN'T. Simply mailing keys because you don't wanna pay your mtg is a horrible thing to do....I hope it follows them forever, tbh. We're all ADULTS here, not kiddies....whatever happened to abiding by your responsibilities?

Every HO needs to watch this developing trend....hell, every one of us should. The ripple effects from this will be felt for ages to come. These foreclosures and pf's are driving the price of homes down as we speak....as a buyer, it's a GREAT time to buy...interest rates are still low (tho climbing last i checked), but regardless of that....these F's and PF's are going to be tomorrow's comps, and that's a scary thought.

[mawilson 2,133]

You quoted an explanation of disposition of property subject to a recourse debt.

We are talking about non-recourse debt.

[Dan J 277]

You quoted an explanation of disposition of property subject to a recourse debt.

We are talking about non-recourse debt.

Forgot to add this part:

Assuming the same facts except that the debt is nonrecourse, the result would be quite different. The taxpayer would realize zero taxable ordinary income from the discharge of debt. Instead, the entire $55,000 difference between the unpaid principal of the debt and the taxpayer's adjusted basis ($100,000 less $45,000) would be treated as a taxable capital gain on the "sale or other disposition" of the property -- again, even though no cash is received by the taxpayer at the time of foreclosure.

Its still taxable, albeit differently.

[Fandango 1,439]

You quoted an explanation of disposition of property subject to a recourse debt.

We are talking about non-recourse debt.

Forgot to add this part:

Assuming the same facts except that the debt is nonrecourse, the result would be quite different. The taxpayer would realize zero taxable ordinary income from the discharge of debt. Instead, the entire $55,000 difference between the unpaid principal of the debt and the taxpayer's adjusted basis ($100,000 less $45,000) would be treated as a taxable capital gain on the "sale or other disposition" of the property -- again, even though no cash is received by the taxpayer at the time of foreclosure.

Its still taxable, albeit differently.

Not always the case anymore, I'm afraid.....