Strategic Default

Kyouto42 · Jul 28, 2011

Kevotaco said: ↑

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.”
Click to expand...

Well said!

97yota4wd · Jul 28, 2011

Kevotaco said: ↑

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.”
Click to expand...

wow that was a very good response, i never thought about it like that!

Kevotaco · Jul 28, 2011

97yota4wd said: ↑

wow that was a very good response, i never thought about it like that!
Click to expand...

Thanks, I just got tired of the endless cycle of someone trashing him for asking the question, then him slightly modifying his circumstances hoping they would change their opion, only for more people to trash him.

It's not a moral decision, it's business. Anyone who says otherwise can't seem to offer anything more than a slogan... "america will pick up the tab" or "I still disagree with it on principle." Simply put, I don't want this to cloud his decision with emotion.

Seabass · Jul 28, 2011

Kevotaco said: ↑

Thanks, I just got tired of the endless cycle of someone trashing him for asking the question, then him slightly modifying his circumstances hoping they would change their opion, only for more people to trash him.

It's not a moral decision, it's business. Anyone who says otherwise can't seem to offer anything more than a slogan... "america will pick up the tab" or "I still disagree with it on principle." Simply put, I don't want this to cloud his decision with emotion.
Click to expand...

I wasn't modifying my circumstances, just adding to the detail so others would hopefully understand but not necessarily agree. Luckily my credit is fully intact because this was my g/f's purchase, not mine. She'll recover in 3 years and I'm already good to go.

All I can say to the OP is that I'm happy with our decision and so is my g/f. She had stellar credit before this and cried a little about having to rebuild it, but she's over that now and ready to move forward. We love where we're at and this will make our situation 300% better now and in the long run.

tegdog · Jul 29, 2011

Seabass said: ↑

That was 13 years ago, not 3 years ago. She could afford the house, but we outgrew it. Read the rest of the posts.

She qualified for $290k and bought for $180k. She afforded it just fine on her own, with plenty of spending money to boot, and even better when I moved in. For the 15th fucking time it's not about affording it, it's about the long-term loss, the long-ass wasteful commute, and the lack of size for 4 people.
Click to expand...

You are right I will never understand signing my name on the line giving my word to repay a debt & then just deciding it would be better for me to break that promise.

If you can afford the house shut your mouth & pay your bill & wait it out like everybody else, somebody is going to have to pay. For the people who lost their jobs or who's rates went up so high they cant make the payment & are getting forclosed on I do feel for them. But the people who can make the payment & just want an easy way out I have no respect for that!

Seabass · Jul 29, 2011

Is there an echo in here?

97yota4wd · Jul 29, 2011

Seabass said: ↑

Is there an echo in here?
Click to expand...

Is there an echo in here...... here............here...................here.......................here........................

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