Strategic Default

Look, the world sure isn't looking out for my best interests so I take care of my own.

That's the reason I have "trust no one" tattooed on my back. The world sure didn't do me any favors, so I gotta look out for #1.

Instead of just bashing on people who chose not to do what you do, how about offering some positives about keeping your home even if you're upside down? Let's be productive here, people.

 

From the other side of the argument, what we're saying is it IS their fault. I wouldn't say it's totally the borrow's fault because, as pointed out earlier, there are lots of factors and plenty of blame to go around but in no circumstances would I agree that it's not at least partially the borrowers fault. A mortgage is a binding contract and a person who made a poor decision should not just walk away because it suddenly becomes inconvenient. That's my opinion anyways.

As for me, I just purchased my first house and I'm almost 30 years old. I waited long enough until I could swing 20% down and am paying for all renovations out of pocket. I'm doing everything I can to prevent myself from ever being upside down and if I ever am, I'm already out over 20% of the sale price.

 

You gotta do what you gotta do to survive.

 

Looking at a house as a business proposition only, I couldn't agree more with your mentality. If it no longer makes financial sense to keep an asset, dump it. However, it's a house and there's a reason the mortgage terms are 30 years. It's supposed to be a long term commitment and during the course of that commitment there is likely going to be a time when you are upside down. As you mentioned earlier, you wouldn't be right side up for 10 years, thats only 1/3 of the loan payback period. My opinion is, you purchased a house, if you can afford to maintain the payments you are obligated to do so since you signed a contract stating you would. Everyone's situation is different and this thread has brought up some interesting points and while I am starting to understand the other side of the argument, I still disagree with it on principle.

 

LOL I do own a house and have been paying on it for the past 4 years. Short sale is exactly what you would do. Again it was a bad GAMBLE as you would say now pay your TAB.

 

If you short sale in AZ you can be smacked by the IRS. The difference between the houses value and what the bank sells it for will be considered as gifted income, which you'll have to pay taxes on. It could be anywhere from $0 to hundreds of thousands of dollars.

The only thing that can happen if you foreclose here (as I found out talking to real estate attorneys) is that the banks can hit your credit. Per the attorneys, they can't go after your other assets if the house you foreclose on is your primary residence and they can't take your means of transportation.

 

Also, you can't "cut your losses" and sell it without coming up with the difference in the loan amount to pay it off. If that were the case, people would be selling their homes at a loss and rolling the difference into a new mortgage.

 

Another thing to remember is that this was posted in the Arizona section for a reason. Each states foreclose/real estate laws are different. I believe the OP was looking for advice from Arizonans that are familiar with it.

 

No wonder all the immigrants want to migrate to Arizona. There are plenty of empty vacant houses that everyone just up and left..

Seriously though you should just rent it out and try to recoup what you can. After you default on this mortgage how do you expect to get approved for another in a new location?

 

That's cool. He didn't really specify that this was region specific but I see your point.

 

No the immigrants are coming here because it's right next to the border and the lady that looks like a guy that in charge of DHS is a joke. But there certainly are a lot of empty houses.

But a lot of people are coming here from out of state because of how bad the housing market is due to all the foreclosures in Arizona. I think Arizona is like the second highest state for foreclosures.

 

Um, read up what a short sale is. A short sale is something the bank agrees to to sell the house for less than owed. Thus, foreclosed or not, they are still making out the same. The difference is a smaller hit on the original buyer (aka myself) in credit ding. That's it. The bank either transfers ownership and bites then, or holds on to the house as an asset until it sells for.... guess what, probably the exact same or a bit less. Your argument is void.

I have been paying my mortgage since the day I've bought it in 2007, never missed a single payment. I also bought a house I can "easily" afford. That doesn't mean it makes financial sense to keep it.

Also not that it's your business but I pay all my bills on time, every time. I've paid in full all credit card debt and have absolutely none now. The only two things I owe on is the truck, and house. I also have reserve cash in the bank. So, it's not like I can't hold my own... it's simply business. If you own a Quiznos that is always running under operating costs and not making a profit... even though you can afford to keep it open from other income... you'll close it up. Same difference.

 

Ive looked into renting it out- since the community college is right down the street. I have found my neighbors houses (those that havent walked away) on Craigslist for $800 a month. Not including utilities or HOA I pay $1200- and I am not going to pay the difference so someone else can live in my house.

If I *did default, I would rent a house. Newer, bigger, nicer houses are sadly being offered for a little under what i pay for my old, small Peoria house. Not to mention, be away from my Nazi HOA bastards. I swear its like they are trying to chase the rest of us out of the complex.

 

YOU ARE CORRECT SIR! It seems that Arizona always has a seperate area on the websites I have been researching, so why not ask the people who trol..I mean frequent this area?

 

Yup, AZ is different. Also the laws will be shortly changing, so I've heard... I guess next year you won't be able to walk away without being penalized. So, basically it's now or never... so it's a perfectly valid question to ask. I'll try to look around this weekend for more info on that law that they were trying or already did pass.

 

Ok, let me add my two cents.when you buy a house you enter into a contract...AND SO DOES THE BANK... I think people forget this! The terms of the contract are agreed upon and spelled out before you buy the house. You agree to pay monthly, and the bank agrees to lend you money to buy the house one the condition that you pay principal interest. If you stop making the payments then the bank takes possession of the house, and you're on the street. Now, considering that arrangement anyone with financial sense would advise you to walk away... in other words it is YOUR option to PUT the home in the banks possession. They signed the mortgage just like you did, it's that simple.

If you were not underwater on the home, I.e. the home was worth more than you owed on it, and you couldn't afford to pay the mortgage the bank would move to foreclose immediately ... don't kid yourselves this is not about doing "what's right" its about doing what's in your best interest!

 

exactly. if you have any questions about my experience just PM me.

yup. keep in mind that even if you walk away now, or live in it for free for the next six months, its when the bank actually forecloses on it. so they may even wait it out just so you do get penalized.

well said.

 

If you want a place to live, you buy a house. If you want an investment property, you buy an investment property.

 

I don't want to make this a personal attack, so I will avoid highlighting the economic illiteracy of some on this thread.

You came here for advice, so the first thing I would advise you to do is stop quasi-apologizing to anyone who says you should stay in the house or “walking away is the wrong thing to do.” They have their various reasons for saying that (these are the same people who are likely to go all-in on a pair of threes). Remove emotion from the decision, who cares what people on this forum think?

Honestly, this is purely a business/financial decision. From that perspective you have two options. 1) keep the asset 2) dump the asset.

1) If you keep the asset and rent it out, there is opportunity here depending on the structure of your mortgage to make out nicely in the long run (not to mention you keep it for tax purposes). Don’t think of it as “[Paying] the difference so someone else can live in my house” think of it as someone subsidizing your procurement of an asset. Another way to think about it, if you are paying $400/month that comes out to ~$144,000 (of course this is not adjusted for inflation). Depending on your loan (i.e. if it’s fixed rate) you could make a killing because rental prices do trend upward with inflation … while your monthly mortgage payment stays the same… so in 15 years you would be making income on the home. If you keep the home and rent it out you also preserve your (and your girlfriend’s) credit score, which will make your long run cost of borrowing lower. If you go this route, you might pay a little up-front but it will definitely payoff in the long run.


2) Dumping the asset is your right (as spelled out in the contract). The bank entered a mutual agreement with you, that if you should fail to pay they get possession of the house. It is fully in your power to exercise that portion of the contract! The mortgage doesn’t bind only you… keep this in mind (and maybe some on the forum will read this and keep it in mind too, rather than spouting off how many years they have paid their mortgage … and how it’s the “right” thing to do etc…). If you feel more comfortable with going through the legal process of foreclosing, than the potential headaches from renting the home out maybe you should dump the asset? Your credit will rebound in a decade or so (this is what I don’t understand… if it’s your girl’s home why would your credit take a hit? Are you a co-signer/owner?)

One person mentioned on here that “America will pick-up the tab” … I can’t really wrap my head around how flawed this concept is. What tab will America pick-up? (please, seriously, try to answer so I can destroy your argument) I know you were just trying to be witty, and maybe make this guy feel bad about his impending decision… this isn’t really the place for that.

Finally, if it were my decision I would keep the asset and rent it out based on several factors. 1) the rental market is going to be hot for a while (now banks are starting to tighten their standards… and people aren’t really willing to jump back into homeownership) 2) it’s next to a school? That’s a steady demand stream 3) you can afford to do both comfortably (it will pay dividends in the long run!).

I will leave the group by quoting the wisdom of someone else on this forum (with a slight modification) “If you want a place to live, you buy a house. If you want an investment property, you buy an investment property… but most people look for two-in-one… and that’s not a crime.”