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Don't Sell! Walk Away!

2 Big 2 Fail
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A special message to those who have less than 6% equity in their houses:

DON'T SELL. WALK AWAY!

If you are facing an ARM reset next year or can no longer afford your house, don't try to fight an uphill battle. Bailout yourself! If you sell, you will have to bring a big check to closing to cover the difference in what you sell for and the balance of your mortgagae. Don't do a shortsale! Take the easy way out. It is much better to ruin your credit than to lose a large sum of money.

I know I will be attacked by realtors for telling people with no equity to walk away from houses they do not actually own, but I want to help people.

Finally, do not forget to completely gut your house and sell everything on e-bay or craigslist before you walk.

September 14 2007 - US

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Marci Reinheimer
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Marci Reinheimer

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Anyone with half a brain would think that advice was ridiculous.

September 14 2007

2 Big 2 Fail
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Why is the advice ridiculous? Why should someone do a shortsale and sell for $50,000 less than what they owe and have to bring a check for $50,000 to closing when they can just walk away and not owe anything?

September 14 2007

sas912
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Alpine,

I'm pretty certain the advice "do not forget to completely gut your house and sell everything on e-bay or craigslist before you walk" would be viewed pretty dimly when those folks are in BKR court, being forced there by lenders with deficiency judgments. It borders on criminal conduct in my mind.

September 14 2007

Chad
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Terrible advice

September 14 2007

2 Big 2 Fail
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It is not illegal to gut your own house. You can just say that you started to renovate your house, but ran out of money in the process. You don't have to go overboard... just remove things that are worth something.... like copper pipes. Nobody is going to buy a used toilet (at least I hope nbobody would be sick enough to do so)

September 14 2007

Marci Reinheimer
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Yeah, especially if the trustee decides to do a judicial foreclosure and you have a deficience judgment against you for 100k or so. No big deal.

September 14 2007

Marci Reinheimer
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*deficiency*

September 14 2007

Chad
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Totally unethical

September 14 2007

sas912
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Seriously Alpine, I think a homeowner could potentially be looking at criminal charges for intentionally gutting the property knowing that they were going to turn it over to the bank. Very BAD IDEA. Please, "peoples", don't do this.

September 14 2007

sas912
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And Alpine, I think Mitt is going to want his likeness back.

September 14 2007

Alan May
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<---not a RE attorney, but I've sat next to many of them at closings

Alpine, I believe if you read your loan documents carefully, there is a clause that makes it illegal to do anything to cause your home to be reduced in value (which would include "gutting" it.) They could hold you liable and prosecute, should they be able to prove intent... (and I would think the use of a chainsaw on all the front risers would indicate intent!)

September 14 2007

2 Big 2 Fail
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Lots of people are already walking away from their houses:

"We're seeing an over-extension of our consumerism and we're using our homes' equity, or perceived equity, as a way to finance it," Corman said. "... A lot of people tend to walk away rather than face the debt."

Why? Because it's easy to walk away, those in the business say.

"You just stop making your payments, and of course go through foreclosure, and they can stay in there up to six months," said Bill English, president of the Greeley Area Realtors Association and a longtime real estate agent in Greeley. "Even after a foreclosure, if you keep credit clean, you can buy another house in two years."

http://www.greeleytrib.com/apps/pbcs.dll/article?AID=2005110090060

"Households that are in trouble with no equity, there is no way to work them out," Barnes said. "There is no way to refinance them. The deep trouble out there is that there is no equity in homes. There is no legislative solution to this."

Jim Cramer, the Mad Money host on CNBC, recently advised homeowners in this situation to let their homes go into foreclosure. He compared it to the tech-meltdown, where he said investors were better cutting their losses than putting good money after bad. Cramer mentioned Denver as one of the cities where people should be walking away from their homes.

Barnes said the industry term for that is "jingle mail," because of the sound the house keys make in the envelope."

http://www.rockymountainnews.com/drmn/real_estate/article/0,1299,DRMN_414_5687245,00.html

September 14 2007

2 Big 2 Fail
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You can also protect yourself from any judgments after foreclosure by filing for bankruptcy.

September 14 2007

Carrie R
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So first walk away from a house "you dont own" but before doing that "It is not illegal to gut your own house".

Which is it? You are contradicting yourself.

Horrible advice which is completely illogical. Why would you say this?

September 14 2007

sas912
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Alpine,

debts arising out of dishonesty or fraud are not dischargable in BKR and gutting your house, selling them and pocketing the money before you throw the keys to the lender smacks of dishonesty and fraud - the stated purpose for BKR is to "given an honest debtor a fresh start"; HONEST debtor. Anyone who does this does not qualify.

September 14 2007

Marci Reinheimer
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Oh HELL yes! That's the answer - totally defraud the bank then file for BK. Damn, why didn't I think of that. When they are sitting in prison for 7-10, they'll have time for the BK to get off of their credit report.

September 14 2007

sas912
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LOL Marci

September 14 2007

2 Big 2 Fail
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Fine... take my advice, but disregard the gutting part. It's still good advice for those with no equity. Pack up your stuff, put the house keys in an envelope addressed to the bank, and drop the jingle mail off at the post office. DONE!

September 14 2007

klarek the realist
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Actually Jim Cramer is recommending the same thing. The net effect is not good for the industry, but it might be the right choice for some people.

Consider this. You owe $500k on a house that is now worth $400k (yes, there are LOTS of people where I live that are in that situation). You didn't put any money down and you're paying $3500 a month. That payment is being made on a home that depreciates in value. Let's consider a few situations:
-you need to move
-the ARM will reset
-you have a hard time affording life with that payment

Do you start saving up piles of cash til you reach the difference between what it is worth and what you owe (plus agent fees)? Or do you walk away, allow your credit to recover, and buy in a few years when the prices are reasonable and you have saved a down payment? Just walk away. Take your cars and belongings, and go rent for cheap while you re-build that credit.

September 14 2007

klarek the realist
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klarek the realist

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What's the point of paying that monthly mortgage? Investing in something that will continue to depreciate doesn't make fiscal sense.

September 14 2007

rockinblu
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I'll have what he's not having.

September 14 2007

Marci Reinheimer
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Ok, I'm not an attorney, but sas is, so hopefully she'll back me up. ;) I can imagine these people going to BK court after they get the def. judgment and the judge asking for all loan documentation. Most likely, it was no doc, stated income. Your tax returns and your stated income don't match up. Do you think the judge is gonna be nice and just forgive all your sins? I doubt it very seriously.

September 14 2007

2 Big 2 Fail
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You probabaly won't get that much money from gutting your house, so I will withdraw that recommendation. If you own a house with a dated interior, nobody will take anything from your hosue if you gave it to them for free.

September 14 2007

sas912
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Klarek,

A lot of the banks are trying to figure out ways to rework the loans. I say that's worth a try before going do the path to financial destruction and it sends a message to future creditors that you got into trouble, but you toughed it out, soldiered on and ultimately paid back everything you owed. Is it just me who thinks that's a worthy ambition?

September 14 2007

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I personally think it makes little sense to do a shortsale. Drop off your jingle mail at the post office and put any money you have in some Swiss accounts. This way, if we enter a recession, you will be protected.

September 14 2007

sas912
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Alpine, they ask about foreign accounts on the Petition for BKR. If you fail to disclose, its BKR fraud and the DOJ is on you; if you do disclose, the court orders the money turned over to the BKR T. So explain to me the wisdom of that plan?

September 14 2007

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sas,

What if someone puts the money in another person's name? I know someone who did this in order to beat the IRS and I think he succeeded.

September 14 2007

sas912
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See

http://www.filing-bankruptcy-form.com/forms/b7.pdf

September 14 2007

sas912
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Its FRAUD; there is no nice way to say it. Do people commit crimes and sometimes get away with it? Sure. Does that mean that we should be recommending to disgruntled husbands that they slash their wives throats and stab her friends to death because someone else got away with it? Uh, don't think so.

September 14 2007

sas912
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By the way Alpine, the IRS has a program that if you turn in a tax cheater and they recover money as a result, you get a "finder's fee". I think its 10% of what they collect......

September 14 2007

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