Foreclosure in 95110>Question Details

Jovana, Both Buyer and Seller in San Jose, CA

why it makes sense for me to strategically foreclose?

Asked by Jovana, San Jose, CA Sun Jun 6, 2010

I bought a condo in 2005 for 500K. Due to HOA litigation and overall market conditions the condo is now worth 300K. I have plenty of cash. Give me one good reason I shouldn't do a sttategic foreclosure? There is no good reason. So I am now in a process of buying a sweet home in Los Gatos for 800K. As soon as that is done, I am foreclosign on this piece of crap condo. And please, no ethical crap. The banks made a mess. They gave credit to everyone. Why would hardworking people like me, with great credit suffer? The only hit I will take is 200 points for 4-5 years. No biggie.

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Robert Lei’s answer
As with anything, you have pros and cons, risk vs. reward.

Do you work in a profession where potential employers MIGHT look at your credit report to judge whether you are the type of person they want to employ?

If you were the HR person, what would you think of a person who is relatively well off, wealthy enough to buy a $800k home in Los Gatos, but left it for the taxpayers to bear the brunt of a condo she didn't want to pay for anymore?
0 votes Thank Flag Link Mon Nov 1, 2010
California foreclosure laws offer a HUGE incentive to just walk away--provided this is your original purchase money mortgage. You seem competent enough to know your legal position but if not, it may be worth a few hundred dollars in attorney advice. I'm not an attorney so don't take my word for it...

In Florida a buyer can't just walk away because here the underlying lender(s) can get a deficiency judgement and go after the entire loss including attorney fees and late fees, etc. A foreclosed seller (even in a short sale) could see their wages get attached and any other assets (except for the primary residence/homestead) be seized and sold to recoup the lender(s) losses.

It's surprising more owners in California have not already taken advantage of your laws that will allow you to walk away.

1 vote Thank Flag Link Mon Jun 7, 2010
It would be interesting if the neighbors in your new neighborhood, who bought in 2005 also choose to make the same decision. What will happen if you move into your new neighborhood and the existing folks there all walk away as well, causing your new purchase to drop in value? Wouldn't that be ironic?
4 votes Thank Flag Link Wed Jun 9, 2010
Ethically it does not matter. You are right. So go ahead, cheat on your spouse, steal from your employer, beat up the annoying neighbor and let this house go into foreclosure.

Ethics do not matter at all right???

p.s. I hope the banks file suit against you and make you pay for their losses and damages plus legal costs.
3 votes Thank Flag Link Mon Jun 7, 2010
Of course, if our poster had paid all cash, with their very own money, they'd be in the hole for a couple of hundred thousand dollars of their own money.

And the irony - those bad bad banks, but I'm going to one to finance my new $800K purchase!
2 votes Thank Flag Link Wed Jun 9, 2010
Not an ethical issue, please.

I hope if you walk away from this home you are unable to buy another for a LONG time.
2 votes Thank Flag Link Mon Jun 7, 2010
- But if I put down 60K on a condo, work my ass off for years in order to save money, still able to keep two jobs, then I should be ashamed????? Please.

Whether you are ashamed or not is up to you.

Personally, I would be ashamed to wear the scarlet letter of the Deadbeat.
2 votes Thank Flag Link Mon Jun 7, 2010
Dave Ramsey has the right approach, pay CASH for everything, owe nothing to anyone then if situations like this arise in an "investment" you will suffer very little.

If we want to assess blame here for the Real Estate debacle we're all in, let's look to the guys at AIG's Financial Products Group along with their "highly paid" rating agencies and the SEC and State Securities and Insurance Regulators who failed to monitor what was going on! Those guys at AIG's Financial Products Group collected HUMONGOUS bonus checks in the millions of dollars and laughed all the way to the bank. They ALL need to be thrown in jail--at a minimum...

I remember loans where a McDonald's employee could buy a $500k property. Any eighth grade graduate could figure out these mortgage were 90% likely to fail. The "investors" bought insurance (Credit Default Swaps) from AIG for well below the true risk premium. Those "Financial Product Group" guys went ahead and wrote as many "insurance" policies on these absurd mortages and really didn't care because the more money they collected, the larger their bonus! ABSURDITY! These guys need to go to jail! Sooner the better!
1 vote Thank Flag Link Wed Jun 9, 2010
Jovana, and other "strategic foreclosers," you might be able to claim the moral and ethical high ground if you owed a lot less than your property was worth, but you were stiffing the lenders to prove a point.

Since your real reason for doing this isn't "strategic," at all, but "opportunistic," and it may even be a smart thing to do, but it is not in any way honorable.
1 vote Thank Flag Link Tue Jun 8, 2010
Ok, Dan and D-man. Your replies make sense, actually.

I also broke a contract with Verizon and switched to ATT in order to have an iPhone 2 years ago. I paid a fee to exit the contract. I will pay a fee now, too (via lower credit score). I will also have lost over 60K I had put down on my condo. So I am losing, yes. I am merely choosing to lose less rather than more.

The last man standing model doesn't work. The entire streets are getting empty because people like myself are moving to better places we can now afford. People we don't want to live next door to are moving in our old hoods.

True, I may now become one of those people that Los Gaots doesn't want to see. My 130K personal income is too low perhaps, true. But in the end, this is all about my kids and my ability to be able to afford a better school district now.

And I am not a practicing lawyer. I have a law degree, true, but I chose to run a restaurant franchise instead.
1 vote Thank Flag Link Tue Jun 8, 2010
Jovana, it was NOT ok for the banks to get bailed out. It was not ok a lot of the things that went on. However, you can not justify one bad behavior by pointing to another bad behavior.

Remember one thing. An investor who dumps bad stock already paid for it. They bet, lost money and walk away with less than they started with. They hurt no one.

You bought a good place. It did everything you wanted it to do. You complain because it lost value? Guess what... EVERYTHING I own has lost value since I bought it. That is life. Will you turn in your car because it has lost value since you bought it? Tell the dealer to take it back? Of course not. What is the difference between a house and a car losing value? NONE!

You can try to justify this. But in fact you are ripping the bank off by not making the payments you agreed to when you bought it. Had you lost a job and been broke I would say life happens. You run out of options people understand. But you have options. You just want to not live up to your word and obligations because it would be inconvenient to do so. (IT ALWAYS IS)
1 vote Thank Flag Link Tue Jun 8, 2010
Ya know, Jovana, I'm not really sure what you're trying to accomplish by posting this question here. As an attorney, you shouldn't have any difficulty interpreting the terms of your mortgage promissory note and the consequences of default. Don't you have any friends/colleagues in real estate law that can advise you?

Sure, your mortgage agreement was simply a contract, but this fact does not preclude the fact that you are harming your neighbors' property values and and hurting your lender, which did not hold a gun to your head in 2005 and force you to take out this mortgage and buy this condo that turned out to be a poor investment on your part. Honestly, if I were in your shoes, I'd probably do the same thing, but I wouldn't have a "please, no ethical crap" attitude, which only serves to alienate people here and bolster the negative stereotype that people already have for your profession.

It sounds to me that like you know exactly what you're doing, and you've already made up your mind irrespective of people's replies. Perhaps you also might be interested in how others perceive your plan to strategically default while you simultaneously purchase your "dream home" in Los Gatos (or perhaps not). The responses you have evoked are just a taste of what people really think. While society feels sorry for people who lose their houses because of layoffs, economy, etc., society despises the people who do what you're planning to do and have no qualms about it. I think deep down inside you know this. Or maybe you don't. But you gotta do what you gotta do.
1 vote Thank Flag Link Mon Jun 7, 2010…

This says it all. Fianance professionals and professors recommend people walk away.
1 vote Thank Flag Link Mon Jun 7, 2010
@Dan Chase
Let me understand. it was okay for banks to give credit to EVERYONE who asked. It was okay for the government to bail out these banks whose CEOs still make billions. It was okay for people to put 0% down. If they were unlucky to lose their jobs, it's ok to let em get away with modifications.real foreclosures.

But if I put down 60K on a condo, work my ass off for years in order to save money, still able to keep two jobs, then I should be ashamed????? Please.

Banks make financial decisions to forego contracts that don't work in their best interest ALL THE TIME. Why should we be suckers and help them make more money? Plus, the government will keep bailing them out (which is our tax money, by the way, in case you forgot).

So if Bofa wanted to work wioth me on mof=difying the loan, that'd be wonderful, but they won't. They want me to continue paying 5.7% on a 400k loan for a condo that is worth 280K and will never agin be worth close to how much I owe.

Excuse me for being honest, but I'd be a sucker if I didn't foreclose.

Stacy, since you are in GA, I assume you don't understand much about Norther California market. My condo will never come close to recovering and in general, if you are a smart investor, you will dump your bad stock, not hold onto it. Same with your real estate.
1 vote Thank Flag Link Mon Jun 7, 2010
Hi Jovana,
There are many people who share your anger and frustration with the current housing market. The fact that you have the financial resources to manage your way out makes you one of the lucky ones. The strategic foreclosure decision is a personal one and can only be made by yourself. I would just make sure you have all the facts before deciding how best to proceed. The impact MAY be more than the 200 points you mention. First, you need to make sure the loan(s) are non recourse. If not, you could be liable for the short fall. Second, the foreclosure will result in two income tax events. There will be a gain or loss on the property and there will be the taxes due on the amount of the forgiven debt. There are exemptions from these taxes for certain circumstances. I would make sure you understand these impacts. Your foreclosure may not happen for a long time (based on current bank behavior) and you may be in a new primary residence. These facts may impact the taxes due. Finally, you mentioned you have plenty of cash. Your are going to need it in order to qualify for the new property. The lenders will require 30-35% down, and the income to support both loans.
Good luck,
1 vote Thank Flag Link Mon Jun 7, 2010
Ever hear of John Prine? Grammy-award winning singer/songwriter?

He once wrote a line, "A question ain't really a question, if you know the answer too."

It's far, far from me.
1 vote Thank Flag Link Sun Jun 6, 2010
go ahead and foreclose you can thank realtors for lobbying for the new debt forgiveness law
that encourages this type of behavior.
0 votes Thank Flag Link Mon Nov 1, 2010
This is a moral hazard area, I hate it, ruins markets and greedy wealthly people trying to cover their paper loses with other people's money, OPM. It is a paper loss until you sell it, so really it is the opportunity to tradeup to los Gattos now, (that 800k house bet was 1.2M three years ago) rather than you have to sell condo to due to legit hardship. If this was a stock bought on margin call, no one would be willing to think it was OK to not pay it back.
0 votes Thank Flag Link Sun Oct 17, 2010
"Your foreclosure may not happen for a long time (based on current bank behavior) and you may be in a new primary residence."

She WILL be in a new primary residence. She already stated she is buying a sweet home in Los Gatos for $800k first, and then turning around and walking away from the b
0 votes Thank Flag Link Tue Sep 28, 2010
Keith, with all due respect, that makes no sense as there is no fraud occuring at all. Trust me, as I hired a real estate lawyer who certified that in state of California, this is completely legal.

Maybe in WI where you seem to live, but not here.

You know how corporations default on launs and contracts that make no sense to them ALL THE TIME? Well, this is the same thing.
0 votes Thank Flag Link Sun Jun 13, 2010
It sounds like you mind is made up. But there is one thing you should consider after you buy the 800,000 property with a new loan and let your other property go to forclosure. You basically may be commiting fraud against both banks (the short sale bank and the new home bank) and may be having someone knocking on your door! The FBI is starting to go after strategic defaluts. How does jail time sound in addition to 200 point hit on your credit?

Keith Manson
First Weber Group
Certified Distressed Property Expert
Metro Milwaukee
0 votes Thank Flag Link Sun Jun 13, 2010
With all that in mind, Alma, about how badly the banks behaved, does that give us moral justification for looting BP stations?
0 votes Thank Flag Link Wed Jun 9, 2010
I refrained from buying an overpriced condo in 2005. I've been renting and living within my means for years waiting for bubble prices to correct. I didn't take out any loans I couldn't afford and I haven't walked away from any obligations I made. Whatever decision you make, you are not "suffering." You're either walking away from your contract and gloating about it online or you're meeting the obligation that you agreed to when you made a bad purchase. Having said that, I'm all for you walking away. Everybody walk away and stop using my tax money to try to keep prices propped up and reward people who made bad decisions. The faster prices drop, the faster I can finally buy a nice place at a reasonable price.
0 votes Thank Flag Link Tue Jun 8, 2010
As many have said: the impact may be greater than a low credit score. I highly recommend you have a Real Estate Attorney back up you and follow your progress through the situation in case the bank takes other actions.
0 votes Thank Flag Link Mon Jun 7, 2010
I'd read that note a lot more carefully, because most residential notes have, above your signature, the statement, "I promise to pay." That's a lot different from, "I'll pay under these circumstances, otherwise, take your property the heck back and trash my credit, while you're at it!"
0 votes Thank Flag Link Mon Jun 7, 2010
There are no ethical issues involved with simply following the terms of a contract. Do what's best for you and your family as allowed by the contracts you agreed to. The whole run up was a giant Ponzi scheme with you left on the bottom... but the tiers above forgot you (hopefully) have a state-granted non-recourse clause that let's you jump ship.

In my opinion the only ethical issue involved with walk-aways are those who lawyer up to force the banks to provide paper trails on notes and other red tape in an attempt to merely delay foreclosure proceedings, and thereby live rent-free.
0 votes Thank Flag Link Mon Jun 7, 2010
Unfortunately, your attitude about foreclosure is contributing to the problem. As you said, you have plenty of money therefore the fact that the bank gave you credit is not the issue.

You paid $500K for the condo, but what do you owe on it? And just like with stocks, you don't lose money unless you have to sell it. Most people would hang on to the stock (or condo in your case) until the market recovers.

Foreclosures should be viewed as a last resort. There are real hardship stories where peoplpe have lost jobs, can't make their mortgage payments, and that losing their home is devasting, financially and emotionally. Your "no biggie" attitude and complete disregard for the burden you'll be placing on the bank and the housing industry is truly insulting.

Stacy Carter
0 votes Thank Flag Link Mon Jun 7, 2010

Just heard word that "strategic foreclosures" will soon impose an 8 year ban from buying in the future with normal rates so make sure you want to live in the Los Gatos house for 8 years.

Good luck,
0 votes Thank Flag Link Mon Jun 7, 2010
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