Las Vegas Sun

July 31, 2014

Currently: 100° — Complete forecast | Log in | Create an account

Scott Dickensheets:

To walk or not to walk: Underwater homeowners face moral dilemma

Mine is a nice house. Big enough for a family and all of its furniture and clothing and toys and books and papers and dogs and more books and miscellaneous junk and even a cat. Decent-size back yard, for a suburban tract home. Good-enough neighborhood.

Sometimes I really dislike that place.

Not for aesthetic reasons, although it is exactly the sort of home people have in mind when they sneer about the stucco banality of the suburbs. I’m OK with that.

My bouts of bad mojo have more to do with, of course, money and, perhaps surprisingly, morality.

We bought this house new in 2006, not market-savvy enough to sense the trapdoor already opening beneath us. In truth, we bought a little more house than we should’ve; we had a granddaughter on the way, she’d be living with us and ... well, never mind the exculpatory details. Point is, it was a stretch, but we could, and still can, pay the bank its monthly vig, even though the house has hemorrhaged half of its value.

Not everyone can or wants to. The people next to us moved out recently — short-sale, I think, not foreclosure — and soon enough a U-Haul will back into the driveway, and a happy family will spill out of a minivan, all smiles at having nabbed a bigger house than ours for a lot less than we paid. It’s already happened around our neighborhood, short-sale or foreclosed homes snapped up on the cheap.

Each time, I’m reminded of the choice we’ve made, my wife and I, not to bail on this house. Not to walk away, not to short-sell, not to declare bankruptcy — not to do whatever you do to rid yourself of the terrible dragging burden of a debt that will probably never be the investment you meant it to be.

At moments like that I hear two conflicting voices. One is the internalized voice of my late father, reminding me that it’s important to fulfill my obligations. He was big on personal responsibility; we like to believe that’s an American virtue. That’s a mark of your character, I can hear him say, and that if you default on your responsibilities just because it’s easier, it says something about you that you don’t want said.

But I also hear another American voice, the voice of capitalism’s moral relativism, the one that preaches “enlightened self-interest.” Because America also salutes doers smart, nimble and entrepreneurial enough to game a bad situation to their advantage.

That voice tells me I’m a chump for sticking to my outmoded principles while all these other people are snagging great deals. Look at your new neighbors, this voice purrs, they’re getting the same amount of house for half what you paid.

(Actually, there’s a third voice, one that wants to cram a fistful of negative equity down some mortgage-broker’s craw, but let’s leave that for my future shrink to deal with, shall we?)

I’m far from alone in this. “I’ve seen sellers agonize over whether or not to walk away from their homes,” says Realtor Diann Tonnesen of Prudential American Group; she’s a 28-year veteran of this crazy market. “It’s not what they want to do, it’s not how they were raised. But at the same time, they feel it would be stupid not to in this market.”

She explains that even people who don’t have financial hardships can wrangle a short sale for a house they no longer want to pay for, if the investor — not necessarily the bank, but the investor who ultimately holds the note — agrees. (Some investors would rather get the money from a short sale than risk getting less down the line in a foreclosure.)

“They’re rewarding people who walk away from their responsibilities,” she said sternly. Meanwhile, “the person who lives up to his responsibility feels like a sucker.” This doesn’t sit well with her. “People should be forced to live up to their obligations, or go to debtors’ prison, like they do in England,” she says. I chuckle. “I’m serious,” she adds.

Hey, me too. I don’t like the way homeownership, cornerstone of the American dream, kindles this kind of moral quandary. This kind of self-re-evaluation. “It’s up to each person to search their own soul,” Tonnesen concludes, “and figure out what they’re going to do.”

Right now, the voice of my father still wins; we’ll stay. But sometimes I wonder ...

Join the Discussion:

Check this out for a full explanation of our conversion to the LiveFyre commenting system and instructions on how to sign up for an account.

Full comments policy

Previous Discussion: 72 comments so far…

Comments are moderated by Las Vegas Sun editors. Our goal is not to limit the discussion, but rather to elevate it. Comments should be relevant and contain no abusive language. Comments that are off-topic, vulgar, profane or include personal attacks will be removed. Full comments policy. Additionally, we now display comments from trusted commenters by default. Those wishing to become a trusted commenter need to verify their identity or sign in with Facebook Connect to tie their Facebook account to their Las Vegas Sun account. For more on this change, read our story about how it works and why we did it.

Only trusted comments are displayed on this page. Untrusted comments have expired from this story.

  1. Good for you Scott. You're father was right. It does show the character of the individual who does not meet his financial obligations. My main gripe with those that seek bankruptcy or short sales or just walk away is that there seems to be an attitude of "screw the bank". Like the bank forced you to borrow. The bank forced you to buy a house too big. The bank forced you into an ARM. Personal responsibility has all but vanished. We've become a nation of "not my fault"....

    You made a bad investment. It happens everyday in the stock market. You don't get a do over when you buy a stock at 50 and are forced to sell at 20. You've lost. Money gone.

    The shyster lawyers in Las Vegas glamorize the ease that "we can wipe out your debt" when in reality all parties should seek avenues to MEET YOUR OBLIGATIONS.

  2. I'm not ready to judge the actions of other people that I don't even know, Scott.

    But there is no excuse...and I mean NO EXCUSE for YOU to abandon your house.

    I'm willing to help with your house payment by living in your garage...$50 a month help out?

    How about $60 / month?

    Come on. Work with me here, Scott.

    $75 for the northeast corner of your damn garage...say a 6 month lease.

    Okay, okay...a year.

    Now...about the power bill. I feel that...

  3. Ironically it is the little guy who suffers. The corporations, Wall Street and banks had no moral dilemma , theu borrowed from us. "No one forces us to invest, either, do they? It is called "trust", and it isn't something the American people are feeling right now.
    Retirement funds were wiped out, millions unemployed with small hope to find jobs. Throw in the pious and judgmental attitude of our narcissistic society and US citizens are screwed.
    Obligations? If the fabric of our own society is in the faces of corporations and government we should
    truly be alarmed.

  4. ...your summary of this situation brought from a personal perspective is the only way to do it justice. There is, after all, something tied to what a home is supposed to mean beyond its equity?

    And, yet, the issue only gets addressed in dollars and cents terms. It gets addressed out of context by not realizing the markets rely on trust...something that can't be quantified.

    We're not handling this well. This mistake that has so many layers, is being dealt with from the sole perspective that may matter least. Sadly, since retirement is equated with security, this is why we're going to have a quality of life issue for years to come; and, in years to come as the home owner ages beyond capability we'll have it, worst?

    Unless, and until, we forgive these loans system wide!

    Finally, though it may seem novel to suggest such a thing. Loan Forgiveness is a device used to save countries all throughout history. Yes, think outside the box and see America has having a problem it for once may not solve, even though it can. Get away from missing the point over the wrong issue, see a simple mistake not the convoluted explanations causing a quagmire, if not a death spiral.

    Do so or get stuck in a set of homes that are going to provide not security, but just the opposite.

    Thanks!

  5. A good article, Scott. Perhaps you could do a follow-up setting out the pros and cons of walking away from one's home.
    As a retired lawyer in Canada, which has totally different mortgage default rules, I feel that "no-recourse" mortgages are an abomination and should be forbidden to avoid a future housing mess like this one. One should not be allowed to walk away from one's home without losing one's other assets.
    Having said that, bankruptcy laws are there to protect people who get way too far in debt, and in my opinion one's family is more important than the concept of trying to repay one's crushing debt no matter what hardship that causes your family.

  6. Foolish.

  7. good article scottie...

  8. At the end of the day a house is an investment, the biggest one many if not most homeowners are likely to make. When investments lose value, divestiture should be seriously considered. I don't believe it's a moral issue at all, it's a financial and economic one.

    Granted, it's a highly charged personal and emotional issue as well. However, businesses sell distressed assets or walk away from them all the time.

    On the other side of that coin are the mortgage holders, and to some extent the government, who don't seem understand that about the only solution to this extraordinary issue is to reduce the principal amount of the loan. Mortgage modifications, the few that have been granted, are "iffy" at best and do little to recognize the fallen value of the asset.

  9. Some of the examples people have posted are moral dilemmas, like being responsible for the personal injury to another, but even in accident cases we assign responsibility based on the law. In your case the law was in place and known by the lender when they made the loan, it was a known risk and one the lender assumed; presumably the interest rate reflected that known risk. As a retired attorney, I have no problem with non-recourse loans. I saw many of them used in commercial transactions, often with 100% loans, and occasionally with loans as much as 125%, and saw the interest rate reflected the assumed risk. You shouldn't feel guilty because your bank or lender made, what turned out to be, a bad bargain. People should be held to their word and part of the lender's word in this case was to give you an out if things went bad. You really didn't promise to pay back the loan under all circumstances, you put in a clause that allowed you to walk under certain circumstances and the lender accepted it. Presumably the economics of the entire transaction reflected the risk assumed by each of you. Keep your word and exercise your option to walk if that is your best deal. Doing so is completely ethical and moral. I represented banks and can tell you that they believe that any behavior complying with the terms of the contract is completely ethical and moral.

  10. You have to treat your home as it was sold to you...was it touted as an investment. If so what kind of investment is it now... only a sucker hangs on to his investment that is obviously a bad one and losing money for them every day. Don't let the people that are reminding you of principles in borrowing when they were ignoring principles in selling you this suckers investment. Bankers and lenders and sales people knew long ago this was a gold mine that was gonna run out... a game of musical chairs. The banks will win even if you short sale or permit foreclosure. The consequence is you will be a renter after its over unless you have "cash" to buy.

  11. Great story about stategic forclosures.
    Only a $uck*er would pay their mortgage at this point.

    http://www.csmonitor.com/Business/Paper-...

  12. cnev...you're the bomb!

    That was a perfect depiction of reality...just perfect.

    As opposed to the Canadian, who does not acknowledge the complex manipulation tactics of the corporate gangland that bullies the American "little people."

    Corporations have been bullying the third world, using our military for security, while stealing foreign resources...

    ...and encouraging slave states for cheap labor in Taiwan, Puerto Rico, China...protected and allowed by international and American WHAT?

    ...LAW.

    After decades of worldwide plundering and abuse, they have brought these terror tactics home.

    Belleville...laws and its associates produce...nothing.

    The "law" protects those, who take, take, take and crushes (not protects) everyone else.

    You represent the "takers" and exist outside the current realm of pain...hence your skewed view.

    But keep talking.

  13. I paid the mortgage on my rental property for three years even though the rent was only about 2/3 the mortgage. I felt strongly that I should honor my contract for as long as I could. Unfortunately, my ARM nudged up, my tenants wanted reduced rent in this rent-dominant market, and I realized that I have a balloon due on my 2nd in 10 years, which I will not be able to cover without winning the lottery or megabucks, and will end up losing my property anyway.

    However, I was surprised when I talked to an attorney for advice on letting the house go with tenants in it, that she recommended bankruptcy for everything, even if the bank doesn't come after me for the balance owed. I can pay all my other bills. I don't need to file bankruptcy altogether, and if the bank does want to come after me for the balance, I can file bankruptcy for just that debt. I don't want to screw everyone else I owe money to. I made the choices to run up the debt, and it is sad that so many people don't feel any personal responsibility for the decisions they made.

  14. No dilemma...corporations and businesses walk away from bad investments everyday.

    Just propaganda from the banks to protect their investments.

    There is two sets of rules ..one for the haves and one for the havenots.

    Look out for your family not the banks.

  15. BTW

    The bank also made a bad investment when it made the loan... and not because they made it to you. The entire market collapsed. That's not your fault.

    They just don't want to eat their share of the loss if they can put you on a guilt trip to bail them out.

  16. Who's zoomin' who here???

    Banks:
    Too Big To Fail!
    Corporations:
    Too Big To Fail!
    Wall Street:
    Too Big To Fail!
    BAILOUTS, BAILOUTS, BAILOUTS.

    You:
    Buck up!
    Fail!
    "Moral Dilemma"!
    Personal Responsibility!
    Do The "Right Thing"!
    Fail! Fail! Fail!

    Americans who are neither rich nor reckless have been asked time and again to bail out the people who were.
    Now, through no fault of their own, if they "own" a piece of worthless paper on an upside down loan and decide to walk, they are asked,
    "Are you SURE that's morally acceptable? Hmmm?"

    Give me a break!

  17. Monkey has summed up the problem. "the complex manipulation tactics of the corporate gangland that bullies the American little people." We had massive deregulation that allowed mega corps to raid citizens and small businesses by tapping into their misguided effort to better themselves.

    The fact that "have" groups bet on whether it would all collapse (and made billions from our misery), says a lot about their character. I hope these people rot in hell.

    For now, we will keep paying on our underwater house and not using charge cards. Because we put 30% down and didn't take out a 2nd to buy cars, boats, vacations, etc, we should break even in about six years. Our house might be worth about what it is today, if we're lucky.

  18. A very simple solution would fix this housing crisis. They're called A-B notes. Say you purchased your house for $300,000. The Bank runs an appraisal on your property and it comes back at $175,000. A new note (A) is issued for $175,000. A second note (B) is issued for $125M. The second note is only due if the property is sold for greater than $175,000 (the A note). The homeowner still gets to receive the tax benefit of making interest payments and remain in their home. Too bad everyone "smarter" than I am can't see the solution.

  19. "Look at your new neighbors, this voice purrs, they're getting the same amount of house for half what you paid."

    Such is life & your father was correct! I commend you for sticking it out & living up to what you signed on the dotted line for.

  20. TODAYS N.Y. TIMES: "Policy Makers Looking For Ways For States To File Bankruptcy"

    Europe: Bails out Greece, Ireland and more to come....

    U.S.: Citi, B of A, GM, Merrill Lynch, Chrysler, AIG bailout with loans and no interest cash so they could make record profits

    Las Vegas: Stations bankruptcy worth billions, Inspirada, Cosmo, Fontainebleau, Terribles, Mountain Edge, and many of your neighbors

    Here's some advice from my father: STOP PLAYING THE FOOL!!!

  21. The best thing for real estate values in the Las Vegas valley is to stop all new home construction by not having any new water connections for residential buildings. Sure, some more short-term pain but longer-term the re-sale housing market will rebound faster. I expect 2011 to be the bottom for housing and for prices to start to go back up (slowly) in 2012 and beyond. If you can, stick with your underwater mortgage.

    Most of these underwater houses are selling way below replacement cost.

  22. The banks, mortgage companies (Countrywide, et al), Wall Street investment houses (Goldmine Sachs, AIG) and ratings agencies (Moody's, S&P) had no moral dilemma when they were complicit in granting mortgage loans, pooling them into mortgage backed securities and selling them worldwide without performing the proper due diligence in evaluating credit risk. I say walk, if that is possible and depending how underwater you are. To blame this situation exclusively on irresposible borrowers is not justified in my opinion. Look to the private sector and emulate what big business does. I give an example, when Tishman Speyer and Blackrock Realty in New York could not make the mortgage payments on Peter Cooper Village, comprising 110 buildings and 11000 apartments, that they paid 5.4 billion for and was then worth 1.8 billion, they handed the keys back to the bank. Then, you announce that it was, "the only viable alternative to bankruptcy" and call it a strategic restructuring of your finances. Nary a peep out of the financial press concerning the moral hazard of the executives of Tishman Speyer/Blackrock concerned. According to yesterday's New York Times, some Republicans are advocating a change in the Bankruptcy laws to allow states to file Bankruptcy (only cities can do so now) so as to abrogate pension obligations to state workers. Where's the moral hazard there??

  23. Dickensheets: great article, very timely!

  24. Scott, I'm in the same boat as you, and hanging on. Those times you question it remember you're not alone. This article made me feel better knowing we share the same struggle. Hang in there - and who knows, we may get lucky someday. Anything can happen.

  25. I suspect that most of the distressed homes coming on the market are from people who have lost a job, are moving or for some other reason can no longer make their mortgage payment.

    Doing a strategic default only makes sense if you can buy a second house before you stop paying for your first one.

    Jerry Wayne had a good plan on letting the current owner re-structure their debt while staying in their house. For folks who can afford the mortgage payments being underwater is mostly a psychological issue.

  26. "... I'm reminded of the choice we've made, my wife and I, not to bail on this house. Not to walk away ..... She explains that even people who don't have financial hardships can wrangle a short sale for a house they no longer want to pay for, if the investor -- not necessarily the bank, but the investor who ultimately holds the note -- agrees."

    Dickensheets -- the only part of your opinion here with a hint of merit is hidden in what that realtor said about "the investor who ultimately holds the note." Otherwise ignorance continues to abound here.

    Like a broken record I keep saying you will find the absolute bottom line in all this on your copy of your Note -- ""1. BORROWER'S PROMISE TO PAY ..... I understand that Lender may transfer this Note. Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note is called the "Note Holder." This is the standard clause on nearly all, if not all, Notes out there.

    "...the only solution to this extraordinary issue is to reduce the principal amount of the loan. Mortgage modifications, the few that have been granted, are "iffy" at best and do little to recognize the fallen value of the asset."

    murrayburns -- you're one of the few even beginning to touch on the threshold points of this crisis, but you still don't get it. The "LOANMODLOANMODLOANMODLOANMOD" mantra of the last 2-3 years is just a cruel joke. It's just the Big Finance boys maintaining control and mostly to replace lost Notes they're still collecting on fraudulently with fresh, new Notes duping homeowners into new commitments.

    The truth is most Notes were lost -- Gretchen Morgenson covered that so well in her "Guess What Got Lost in the Loan Pool?" @ http://www.nytimes.com/2009/03/01/busine...

    To quote from that article "...bankruptcy judges are finding that institutions claiming to hold the notes that back specific mortgages often cannot prove it." And this is a very widespread problem, and local as well, was actually touched on here @ http://www.lasvegassun.com/news/2009/oct...

    Too bad the Sun deleted the comments. There was quite a lively discussion that included a couple of attorneys masquerading as concerned citizens.

    "...I was surprised when I talked to an attorney for advice on letting the house go with tenants in it, that she recommended bankruptcy for everything, even if the bank doesn't come after me for the balance owed."

    lvnative7 -- see the above reply to murrayburns, especially that Sun link.

    "A very simple solution would fix this housing crisis. They're called A-B notes."

    JerryWayne -- you're almost there, but not quite.

    "If you're going to take my house away from me, you better own the note." -- Joe Lents (who hasn't made a payment on his $1.5 million mortgage since 2002) in Bloomberg's 2/22/08 "Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish"

  27. Why are we continually being told that we've lost something due to home devaluation? If one considers a home as investment then the only day that value counts is the day you sell the investment. If we sell don't we buy another one and isn't that one less?
    All concentrate on the value of homes and all assets are subject to changes in valuation. Want to feel good about your home? Check out your mortgage, look up what your payments would be if your rate were 8%, 11%, would you believe 17% as in the early 80's and consider yourself blessed. You can't lose enough on depreciation to overcome benefit from a mortgage locked into todays rates. Might history repeat itself? Doesn't it always? A sneak at what those rates will do to ones payments will make ones eyeballs look the size of saucers.
    Then one can reconsider true risk of a walkaway.
    Yes we like to eat cake and still have the cake but all in all todays homeowners are still blessed with record low rates and benefit of mortgage tax deduction.

  28. I guess a handshake agreement with a friend, relative, associate means nothing to KillerB. If you can't show it to him in writing there was never an agreement..lol

    Good way to conduct life..aye.

  29. While staying put many of your former neighbors are paying rent--with NO RETURN ON INVESTMENT. Sure more can walk away but they may never get into a house again. Now if we could get the builders to understand that we don't want to be in an apartment or so close to the neighbor's windows we know their life.... As a senior, we all might keep in mind that there are ups and downs but we don't sell our stock the minute there's a pullback. Stick with it for the long haul and there is more chance of recovery. Even today. Especially today. The bottom of many markets have come and gone. It's uphill from here.

  30. My financial advisor (I should say EX-advisor) got me into tech stocks just before they crashed. How do I get the rest of the country to pay for that mistake? Isn't your home an investment? You took a risk, you lost. Why should anyone but you pay for that? Don't take risks you can afford to lose. You bought the house, you can afford the payment. Just because it isn't worth what you agreed to pay for it, is no reason to forgo your responsibility.

    However, I would be all for a class action suit against the sub prime businesses that caused the bubble and the crash with their greed. Make them pay you back with their immoral profits.

  31. Come on people...Dickensheets father never went through a recession at this grand scale. Never before has the consumer been forced out of their homes due to new loan products and deregulation. Moral?...who judges that? Dickensheet's father?..hardly.
    The banks made this bubble and were giving MULTIPLE loans to unqualified people with the new "stated income" products and created a feeding frenzy for new homes resulting in a rapid "appreciation".
    Morallity as described by the author = continue to be stupid.

    I would recommend that people be smart and not be swayed by the thoughts of no-named comments on the Sun.

    Good luck out there...be smart and look out for yourselves...not the banks as they don't give a Sh_T about you.

  32. For your education:

    The banks take a loss on an investment they get a write off on their taxes.

    You take a loss on the sale of your house you PAY TAX on the difference between the sale price and your mortgage amount as income.

    Go figure.

  33. Easy.. Just stop paying the mortgage like most others do. The odds of the bank actually coming to foreclose is 50-50... The odds of the bank actually HAVING THE MORTGAGE and OWING THE MORTGAGE that they are trying to foreclose on is almost ZERO...

    Keep the utilities on - screw the bank - they're trying to screw you !

  34. Great column. Just because part of the reason for this mess is due to others who didn't have the same morals as you do, whether as individuals or corporations, does not dismiss your personal responsibility. My wife and I discussed if we had to move prior to our home regaining it's value whether we could justify a short sale when we know we have enough in our retirement to cover the difference. Personally I can't pass my responsibility on to someone else, individual or corporation, when I made a choice and I have the ability to live up to it. Anyone who hides behind escape clauses and faceless corporation behavior as their excuse to default on their agreement when they can afford to do otherwise is making a statement about their character, whether they admit it or not.

  35. Moral Dilemma? More like a Business Decision.

  36. "I guess a handshake agreement with a friend, relative, associate means nothing to KillerB."

    TomD -- exactly where did you get your slander from? Not from my post, so how are you at all relevant here?

    Winski -- you're catching on. But the foreclosers will ignore your notices, UCC 3-501 demands to see the Note and their authority to enforce it, and put you on the street unless you use an extraordinary defense. Bankruptcy being the best.

    "If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience, and ability." -Henry Ford

  37. Strategic Default

  38. It's a hard choice to make. I would have stayed in my house forever, but when I got laid off a few years ago I tried calling my mortgage company to try and work something out and they told me that they couldn't even talk to me about it until I had missed at least 2 payments. I told them that I didn't want to miss payments, I wanted to be responsible, but they didn't care. My parents helped me keep up my mortgage payments for a year while I tried to get a modification, but they still wouldn't grant it. I stopped paying in hopes that that might help push them into a modification, but instead they were more than eager (and it seemed ready) to foreclose. I ended up short selling my house, but I felt like the worst part of that whole experience was that all I wanted to do was get my interest rate modified so that I could keep being responsible and paying my mortgage, but it felt like the bank only wanted to punish me for being responsible. I loved my house and it was hard to come to the decision to sell it, but sometimes the banks don't leave you any choice. I don't know what the difference is to a bank if they short sell the home and someone buys it for the current rate than if they just redid the existing mortgage for the current value of the home, then nobody would miss payments or lose their houses and everyone would be happy. Too bad that will never happen.

  39. Ooh! Ooh! I made a bad investment. May I please have a do-over? What a mope! If you sign a marker and then crap out does the casino let you walk away unscathed? Grow up and take your lumps.

  40. It is one thing to consider "walk, don't walk" as a moral dilemma when at least one income earner in a family is still employed. However, especially in Las Vegas, many families have been faced with double layoffs. Then the entire issue goes from "moral dilemma" to survival.

    Does the family stay in an area with record high unemployment statistics with little chance for earning an income? Or does the family move to a location that will give them an opportunity to recover from this dismal situation? These folks can't afford the 20 years it probably will take for their housing investment to recover. A short sale, even with its personal credit score ding, could help them move on.

    They should be allowed to do so without judgment from the more fortunate.

  41. You want to live in a great community? Check out what the neighbors are doing in Coventry Homes...

    www.coventryneighborhoodwatch.com

  42. @JerryWayne - I see your point on the A-B Note thingy.... I also thought a better way to handle the bail-out money (that was SUPPOSED to be used by the Banks to help stop people from losing their home)...would be to very simply re-adjust the loan amount to the current 'real' value of the home... so if you owed 500,000 and the home is only worth 300,000 the bank rewrites your mortgage ... and THEN they go to the BAIL-OUT money and withdraw the other 200,000 to wipe the slate clean. Now THAT'S how to help people stay in their home. But instead the bank takes the house and sells it to a total stranger for the new value.... hmmmm - wonder why they just don't help the guy who already has the home (as long as he can show he CAN make the new lower payment).

  43. The Real Problem!

    For 75%(maybe higher)the property is used as a bank over the years of ownership.

    Ask any appraiser and they will shed the truth to all(of course this doesnt apply at this time)

    When normal,hardworking,current mortgage paying customers can no longer tap into the equity for any unforeseen money issues,they go deeper into debt with credit cards,loans,etc...

    The average homeowner no longer has a backup fund for emergencies or any of the other little surprises life may throw at you,and it does!

    Most homeowners can afford the mortgage,but the extras,and the unexpected costs are the end all,and they no longer can turn to a low interest equity loan to bail themselves out until situation improves.

    Unfortunately our society revolves around 3 digits,and that has been dropping exponentially over the last 3-5 years

    Banks will no longer do business with anyone with that score below 700 unless youre going to pay high interest and 20% down payment.

    Nowhere in the country do you have a more divided line of people than in las vegas

    You either HAVE,or you DONT

    Real Simple

    Not many states out there where over 50% of employed people make less than 50,000 yearly

    of course there are people making more,but majority of vegans are considered living on the line

    Every mortgage holder has a different situation,and end goal in mind,BUT for alot if youre struggling daily,and dont see any end to the madness,then abandoning the mortgage,and facing the repercussions for the next 5 years might just be a better option

    Personally I have no intention of vacating property,and will wait the storm out,but we all have different stories,hell even values/ethics when it comes to this environment

    peace out

  44. Just wait till the next wave of ARM's reset.

  45. To walk or not to walk? Seems pretty clear in this market: it's time to walk away.

    Recognize that it was a bad investment and start over. The banks would do the same without thinking twice - don't let them tell you any different.

    It's just a shame that our elected officials (on both sides of the aisle) give the banks more breaks when starting over compared to the average tax-paying citizen. Such is life in the U.S. today though...

  46. Hi Gioco, You mentioned here that as per contract there is no moral problem in walking away from home but law is not always moral otherwise taking away all property of americans with japnese origin in second world war or stripping Jews of everything by using law would have been moral. I am paying my 325000 loan and did all right like paying my 10 years saving as down payment and paying during layoff working 2 jobs and now I owe 150000 the same value as price for my home while my neighbour is not paying mortgage lived rentfree for year and got another home on spouse's name with $8000 tax credit (used for alaska trip), Is this moral? I know many lawyers who in bed with local bankers bought many homes made lot of money and when things turn ugly are blaming all on banks. Rather than going after CEOs these snall crooks should be individually persecuted under some law such as giving fraudulent loans, price gouging.
    Someone suggested breaking notes and paying additional price just in case there is profit but then this is signalling out only guys who already paid why should not they get money back if others can?
    Best solution will beto give double tax exemption to all the people on difference between price they paid and evaluation price they live in home for 15 years.This is to punish Government for failing to secure property rights for guys like me who did everything right.

  47. A home is a place to live, A place to raise a family. Shelter. Security. A long term responsibility. And a place to retire to for many.

    It is not and never has been a short term investment, a substitute for a credit card, a vehicle to a particular life style.

    Most of all it is a personnel responsibility that tells the world what kind of person you are. Honorable or not. Honest or not. Reliable or not. Trustworthy or not.

    We have two choices: Honor the contract and pay as agreed or walk away in one fashion or another.

    We either can afford to pay or we can't afford to. And that doesn't mean afford to and live that desired life style. It means pay even if it means cut backs, sacrifices and multiple jobs when possible.

    For those whose fortunes have left them unable to pay despite their best efforts. Thanks for trying. Sorry you have to suffer the consequences of tough times.

    For those who choose to walk away because the homes retail value is less than when they purchased it but don't half to... you're thieves. A citizen pays his bills.

    The market or loan value doesn't change a thing if you still have the resources to pay the mortgage. The home still provides shelter, a place to raise a family, a future. If you could afford it before and your circumstances haven't changed dramatically, you can still afford it.

    We either pay or we don't. And that's all there is to it. There are citizens and then there are others. And that's all there is to that.

  48. "He was big on personal responsibility; we like to believe that's an American virtue. That's a mark of your character, I can hear him say, and that if you default on your responsibilities just because it's easier, it says something about you that you don't want said."

    Are you kidding? Defaulting on your responsibilities is how we built this great country! Give the American Indians some land, sign a treaty, discover the land is very valuable, break the treaty. That's how we grew from 13 colonies, son. Do what you gotta do, enlightened self-interest... that's the way to go.

  49. Even after being laid off (Dec. 2008), I still kept up my payments. I took some out of 401k to keep the payments up (Gov. loves me for that 10% penalty money). We have cut way back on spending, gotten work when available, No Vegas trips last year, No A/C in summer, Just sold our newest vehicle, etc. etc. We WILL make it without stiffing the bank. I admit, we bought before the price runup, but it's back down near that level. We make our payments, and what thanks do we get? A letter stating "Your credit card interest is going up because of the DEADBEATS not paying". (well, they say "excessive losses", but I know what they mean). We pay on time (more than the minimum) and get ZERO thanks.
    I think anyone who walks away should be banned from another mortgage for LIFE, or until they repay it. Same for bankruptcy on credit cards, car loans, etc.
    I have no problem with those who call the bank / lender and negotiate lower interest, extended terms, etc., but have no sympathy for those who run out on their debts.
    Those of us who live up to our obligations (Yes I signed the mortgage, I used the credit cards). It's MY obligations). Of course, we bought a small, affordable house in a not too fancy neighborhood and drive inexpensive vehicles and keep them for a long time. I see the light at the end of the tunnel, and will make it without stiffing the lenders, even while unemployed, we found a way. I found I can live on the reduced work hours. When the bills are paid, (we've paid most already) we'll be living very well. Work is still slow, but I take whatever I get and havent taken one penny of unemployment.
    I understand some situations (medical bills, unemployment with no jobs out there, etc.) are unavoidable, but too many people just want to blame everyone but themselves. Hopefully the rewards will come to those of us who still meet our obligations.
    Last time I wrote a similar comment, I got a nasty response from a guy calling himself "teamster" who told me to "work union" and all my employment worries will be gone. Don't even bother, I know many people, union and non union who are equally unemployed right now, all in the same boat. (taking on water). If you're happy with your union, good for you, I'm happy it's working well, but you saw all the uproar when they floated a pay cut for teachers last week, 5% and suddenly it's the end of the world.

  50. Scott,
    Nice article but not very prescient.
    You simply signed a contract.
    You are renting money from a bank to purchase real estate which has a lien on your real estate as collateral. If you break the contract, the bank reposesses the collateral. That's what the contract says. That is the recourse for the bank.

    Don't know if you noticed, but we are now living in a very different world than the one your father lived in. Morality is only of concern in a contract if the other party is expected to reciprocate that morality.

    To explain: If you were dying of cancer and had 4 months to live, the bank would still foreclose on you and put you out of the house. Is that what you would call moral reciprocation for making all of your payments on time for an underwater house?

    Morality argument is baseless in a mortgage note.
    Doesn't the Bible say that Usury is a sin?
    Nevertheless, the bank doesn't care about you, nor should you care about the bank. End of story.

    So why are you still writing checks every month?

    http://www.youwalkaway.com

  51. @nilima: I agree that when nation states use the law to do terrible things to minorities it is immoral but in this case the lender and the borrower entered into a contract that was almost certainly written with all substantial terms dictated by the lender. The lender was presumably aware of the risks involved and factored that risk into the interest rate. When the lender dictates terms that allow a borrow to walk away (non-recourse language) the lender can hardly complain when the borrower takes advantage of that language. It must be assumed that the borrower paid a higher interest rate for having that language in the note; having paid for the right to walk away it is not immoral to use it.

  52. Our home is severely underwater. It is worth 50% less than we purchased it. We can afford to make the monthly payments and while friends occasionally suggest we "strategically default" on the loan, we have never seriously considered doing that. We made a mistake by purchasing it at the wrong time. How is that the bank or mortgage broker's fault? It's not. It's our fault and we have to live with the consequences. What kind of example would we be to our children if we did that?

    Good for you. Stay with it. What goes around, comes around. You'll be better off in the future Scott, trust me.

  53. In response to Sinatra711's comment....
    (What kind of example would we be to our children if we did that?).
    Your children of the internet generation will be smarter than you when you were their age. They also watch the news. They see the banks getting bailed out by the Fed and the investors made whole and nobody takes a loss. They see the impartiality and if they don't, they will soon learn it.
    So what kind of example....
    I'd say, if you strategically default, they will think you're smart. If you don't, they'll think you're dumb and old-fashioned.
    Just a hunch.

  54. Great article AND comments readers!!!! I work in the real estate business, and have said for a few years now.... "You knew your mortgage payments were going to be 3k 3 years ago, why does it matter that they are 3k now?" I'm sorry to those that didn't see it, a sales release of a phase CANT continue to go up 10K every 10 houses started in a 150 house subdivision forever... I actually blame the investors. Remember when that whole thing started back in 2002 I think it was? FHA will not fund a loan if there are 20% or more (I believe that was the figure) investors in a community? Why did everyone think that was? Because that is how the rich stayed rich, and the poor, barely able to qualify got taken. They bought low, and sold a year later, paid their measly short term capitol tax, and still walked away with over 100k in cash. OHHH how I wish I could do that...again :)

  55. Never ever ever allow moral questions to enter into financial decisions. Do the math and do what is right for you financially. Money and morality do not go together. Like Gordon Gekko says "never get emotional about business".

  56. I am the agent who is quoted in the story above. I firmly believe that morality is who we are at our central core, whether it is in business or our personal lives. You cannot separate the two, and to use the excuse that someone else does something (whether a corporation or an individual) to condone our own behavior is specious. If everyone else in the world committed a murder, does that make it right?

    And who do you want to do business with in the future: the person who honors their commitments or the one who thinks nothing of walking out on them when they become inconvenient?

    We need to take responsibility for our own actions and not lay the blame on everyone else. I too have properties in which I am upside down, but I will continue to make the payments because that is what is right. I committed to the obligation. If I had made a ton of money on these properties I would have the right to take the profit. I also have the duty to take the loss. I understand that there are many people who have lost the ability to make their payments. But as long as they acknowledge their responsibility and do as much as they can, when they can, until the debt is fulfilled, they are also doing the right thing, and they can hold their heads up high.

    In the end, we each have to look ourselves in the mirror each day. What do you want to see in your mirror?

  57. Chunky says:

    Nice work Mr. Dickensheets! One of your most thought provoking pieces.

    Chunky is a man of his word so a deal is a deal and he'll suck up the loss the same as he would have sucked up the profit if he had of sold $400,000 ago when Chunkyville was at it's peak.

    The thought of bailing has crossed his mind though; how could it not.

    Have a wonderful weekend!

    That's what Chunky thinks!

  58. Diann- I couldn't agree with you more!

    If I let greed drive my decisions, yes I'd be richer but I'd be a complete jerk and wouldn't feel good about myself. If you were to put a value on doing the right thing, I'm richer today because of it than if I would have "strategically defaulted". I don't lose sleep at night over my loss of equity. As ihaveanidea pointed out.....I was willing to make the mortgage payment 3 yrs ago, why should that change today?

  59. You should shortsale and reestablish in a cheaper property where you are not underwater. No moral dilemma at all. The business of America is business. If you can make a deal that leaves more money in your pocket, DO IT!

    That's capitalism. You're working within the legal framework of our society.

    As I said in another article related to real estate, we're all in the process of getting the market reset through unwinding. Everything YOU can do to help the market reset, you should do.

  60. Diann is 100% right. People use the bank bailout as an excuse to walk out on their own obligation. Walking out on your debt shows your true character. Good luck getting another loan. Defaulting will follow you until you die. If someone wants to find out if you defaulted...they will find out.

    Personally, I'd have a hard time with my conscience knowing I walked out on a financial obligation.

  61. Not Good:

    Sorry, son, about not being able to go to the university. But Grampa (and some ridiculously sanctimonious real estate lady I once knew) would have wanted us to spend every last penny we have on the stucco shack...

    Way better:

    Seriously, son, study hard at college but have some fun too. Of course, I know you will. And always remember this, son: Never EVER under any circumstances take advice (moral or otherwise) from a Las Vegas real estate person. It almost ruined us!

  62. What happens to the idiots that paid way too much than they can afford? They should be liable for walking away if I continue to pay for my much lower priced condo! Do not live beyond your means you nuts!

  63. The Realtor mentioned said:
    "They're rewarding people who walk away from their responsibilities," she said sternly. Meanwhile, "the person who lives up to his responsibility feels like a sucker." This doesn't sit well with her. "People should be forced to live up to their obligations, or go to debtors' prison, like they do in England," she says. I chuckle. "I'm serious," she adds.

    How sanctimonious.

    How many real estate agents, brokers, etc. openly lied to clients during the bubble in 2005-2007?
    How many encouraged their clients to buy now, because prices were going up?

    Maybe she should consider herself and her associates for candidates for the debtors prison?

    And, she has the gall to post this rubbish here.

  64. Um, yes, you can use the bailouts as an excuse. All of those fat cats who just walked away with the largest bonuses in history are also the ones who cost me (and plenty of others) tens of thousands of dollars in my pension. And I've not seen one person make an effort to make them give it back. I was paying my bills and my house in a responsible manner. Never missed a payment; never late with a payment. But the moment they threw a monkey wrench into my retirement plans, the house was suddenly not a workable part of my financial future. I had to re-strategize a lot of things. I did a Chapter 7, which I consider to be the legally and morally appropriate approach to the matter because I do face financial consequences for it and because I faced people in a court of law instead of running and hiding. But if you think my conscience feels bad after watching other people happily pocket my retirement, think again.

  65. Diann: Your "duty" in capitalist Amerika is to work your way into a position where you keep the money win or lose. Banks and Lenders thought they were in that position. But you know what? They were wrong! They thought things could never get this bad. But they did!

    I say, "Screw the capitalist pigs. Let them step in front of a train, or fall off a ledge. Good riddance."

  66. Moral Dilemma? I don't think so. Go out there and work the best deal you can. People like Diann may not be able to afford their hairdresser appointments and BOTOX injections, and they may have to downgrade to a sedan instead of a 4WD SUV, and they may suffer serious self-esteem issues because their bank accounts aren't as large as they think they should be at their age. God knows they're not getting any younger!

    But listen to me! It's dog eat dog. The market rules. Ethics and morality change between Twitter postings!

    Either you can handle it or you can't. Your choice.

  67. Why stop at just debtor prisons? Shouldn't the offspring of the debtor be liable like they were in the good ol' days? Perhaps we could bring back the workhouses so the children can rectify the immoral situation. We could have real estate professionals "appraise" the moral value of each violation to determine the time of servitude. Because everyone knows how filled to brim with the highest form of morals real estate people are.

  68. These articles on the real estate crisis are one-sided and redundant. Should I walk away or shouldn't I? Morality vs good business?

    Just once I would love to see an article that exposes the other side. What happens when someone DOES walk away? Is their credit ruined for life? Were they able to buy a bargain home without a huge down payment and a stiff mortgage rate?

    You can discuss moral dilemmas all you want, but a more balanced piece of journalism would expose the true financial implications of walking away.

  69. If we continue to force the American taxpayers to bail out the commercial and investment banks who have been deemed too big to fail by both the Bush and the Obama administrations, while at the same time holding these same taxpayers to an entirely different set of ethics and morals there will be bloodshed. Businesses now use bankruptcy as simply another tool to restructure their debt and in effect, "walk away" from their responsibilities. Granted, some individuals make use of this strategy as well, but not nearly as extensively and systematically as do corporations. Frankly, I am surprised that some of the real crooks who are responsible for the meltdown of the economy have not been dragged forth from their corner offices into the street and beaten with tire irons.

  70. I have no idea to whom your comments are addressed, Tom, but since it immediately followed my own, I shall assume it is I. My wife and I are current on our mortgage, which the only debt we have. Excuses? Reasons? Call it s**t in your hat for all I care. I'm attempting do deal with the reality that exists, not engage in some tag-team morality lecture and tell people what they "should" do.

    Actions have consequences. If you walk away from a mortgage your mortgagee is going to at least attempt to obtain a judgment for the deficiency. At a minimum, they will report the deficiency to you and to the federal mafia on a 1099 as a forgiven debt. By the same token, if corporations in the banking and financial services arena are allowed to continue receiving a pass and being shielded from the consequences of the terrible decisions [B of A buying Countrywide and Merrill Lynch] they made because they've been deemed too big to fail, we are eventually headed for a revolt. Put a sufficient number of people out of work and take their homes, be it beacause of their own stupidity or not and give them no hope for the future and people are going to die. Think it cannot happen here? Take a look at 1917 Russia and 1932 Germany and tell me that the harsh conditions of those times had nothing to do with the rise of Nazism and the Russian Revolution. All it takes is a sufficient number of people who believe that they will be better off by changing the status quo than they will be by preserving it and a charismatic leader who can convince this great beast that he or she is the only one who can show them the way out of their troubles.

  71. Got to go with the person who said it's a "business decision". The only "morality" coming into play is doing what's right for your family.

  72. Do you have any scuba gear Scott?

    http://www.phoenixnewtimes.com/2009-08-2...

    The question remains, "Who is Scott Dickensheets and why should we care?" (that's a joke by the way)