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RobSinger
RobSinger
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March 19th, 2011 at 9:26:14 PM permalink
I don't usually do this but because the topic is such a hot-button issue for these 2 states and because I'm far from a knowledgeable real estate guy, I'm going to throw this out and see what the general feeling is.

My son, who has a wife & 2 small children and lives in Tucson, is an Army lifer and has served 2 tours--one each in Afg. & Iraq. In 2005 he bought a home with our downpayment help (just to keep the payments lower since as a military man he didn't need one). It cost $380k and we contributed $80k. About 2 years ago his home, like many in LV, Phx. & Tucson, plummeted in value, and today it's worth $170k at best. (My $80k wasn't an investment and it wasn't something expected to be paid back).

You know the issue: Keep paying into an underwater situation hoping the value will eventually go back up (which will take years according to reports)....or foreclose and start over again in another home or apt. The problem with that is who's gonna give them a mortgage with that on their record. But, they do not want to leave as they absolutely love their home. So I stepped in, and I felt perfectly fine doing so because of his service to this country.

Here's what we did under my tutilage (and it just finished up today): He stopped paying the mortgage 8 months ago. They got booted out by the bank last month, and they got an apt. and storage place for all their stuff. I closely followed the whole event, I got to know the financial players, and the moment the home was listed as a foreclosure sale @ $165k I walked in with the cash, made an offer of $155k that was accepted, and scooped it up. I then put the house in their names as a gift, I set up a 15 yr. note for my son & his wife to repay me, they have about half the payment they used to, and they finished moving back in today.

Like I said I'm no real estate guru so it was all new to me. Did I do anything that can be considered wrong, or could I have done it any better?
AZDuffman
AZDuffman
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March 19th, 2011 at 9:31:29 PM permalink
Quote: RobSinger


Like I said I'm no real estate guru so it was all new to me. Did I do anything that can be considered wrong, or could I have done it any better?



Yes, you encouraged them to walk out on their obligation and have probably ruined their credit for years. Sorry to sound harsh, but you are not supposed to get a new mortgage at a lower principal amount just because values went down. Buying anything entails risk.
All animals are equal, but some are more equal than others
avargov
avargov
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March 19th, 2011 at 9:38:08 PM permalink
I don't know if it was necessarily wrong, but it does have a slight smell of deceit. I have no reason to take the bank's side on any issue, but it seems that they are the ones that will be out $100K. That being said, in the same position, I would probably do the same thing. Of course, there is also the issue of your son buying a house that he obviously couldn't afford, which is what got us into this recession anyway. I think his integrity is tarnished by this, but if he can sleep at night, more power to him.
Before you diagnose yourself with depression or low self-esteem, first make sure that you are not, in fact, just surrounded by assholes." ~ William Gibson
RobSinger
RobSinger
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March 19th, 2011 at 9:52:34 PM permalink
Quote: avargov

I don't know if it was necessarily wrong, but it does have a slight smell of deceit. I have no reason to take the bank's side on any issue, but it seems that they are the ones that will be out $100K. That being said, in the same position, I would probably do the same thing. Of course, there is also the issue of your son buying a house that he obviously couldn't afford, which is what got us into this recession anyway. I think his integrity is tarnished by this, but if he can sleep at night, more power to him.



First AZDuffman: I & they understand the credit rating issue and we discussed it prior. One thing I forgot to mention is their mortgage payment went (big surprise, right?) up after the first 2 years and then up again. My son hasn't been an angel over the years but he finally has a stable life and nice family, plus I just didn't feel right watching them struggle/suffer with a high payment when he had sacrificed several years of his life at war.

avargov, everything you wrote I agree with. I shouldn't have helped them get that loan by making that downpayment, and I know that's the type of nonsense that caused the US financial problems. I blame myself, but I also gave up $80k. But it all comes down to my melting like butter because of what he did. OTOH, I do feel kind of good for successfully double-dealing the bank on the house. As far as I'm concerned, banks can bite me.
Wizard
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Wizard
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March 19th, 2011 at 10:36:18 PM permalink
I can't fault you or your son. The system incentives failure, so why not take advantage? Personally, I've lost half a million dollars in Las Vegas real estate, and see my taxpayer dollars ultimately cover what the bank lost on your son's house.

However, if I were in your shoes, or your son's, I think I would have done the same thing. Actually, I applaud you for your success, I might not have played it so well. So I wouldn't feel guilty about it. My anger is directed at the banks for making bad loans in the first place, and the regulators for turning a blind eye to it.
It's not whether you win or lose; it's whether or not you had a good bet.
EvenBob
EvenBob
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March 19th, 2011 at 11:12:10 PM permalink
Quote: RobSinger

, and the moment the home was listed as a foreclosure sale @ $165k I walked in with the cash, made an offer of $155k that was accepted, and scooped it up. I then put the house in their names as a gift,



Its the fantasy that all home owners in that position can only dream of, and here we have somebody that actually pulled it off. Were you wearing a super hero cape in this dream, could you fly too? I'm sorry Jerry/Rob, or whoever you are, but I don't believe a word of it.
"It's not enough to succeed, your friends must fail." Gore Vidal
Wavy70
Wavy70
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March 19th, 2011 at 11:13:31 PM permalink
What you did is not dissimilar to during the depression when farmers would band together and allow only one bidder for a nominal amount of a few dollars and return the land to the previous owner. The rules they set up are flawed and you took advantage of them. No need to feel bad.
I have a bewitched egg that I use to play VP with and I have net over 900k with it.
Paradigm
Paradigm
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March 19th, 2011 at 11:18:59 PM permalink
I think the same is true of the bank as well......lending on anything entails risk of default. They made the loan, the borrower defaulted and their security went down in value so they got stuck. This is a business deal, not a morality lesson.

The cost of foreclosure is the credit rating issue the borrower will deal with in the future. They make a business decision as to whether that cost is worth the benefit of getting out from underneath the obligation. To me there is no right decision that fits everyone, there is a right decision based on the economic costs and benefits for the individual that is making the decision.

To blame the financial crisis solely on the borrowers is incorrect. If their was loan fraud in the application process, then I may have a different answer. Individuals that commit loan fraud in the application process should be criminally prosecuted.....I believe it is a felony!
EvenBob
EvenBob
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March 19th, 2011 at 11:26:32 PM permalink
Quote: Wavy70

What you did is not dissimilar to during the depression when farmers would band together and allow only one bidder for a nominal amount of a few dollars and return the land to the previous owner. .



That didn't work for long. Soon the banks put minimum bids on properties so the farmers could no longer steal the property from the bank. Its amazing how banks are heroes when they loan somebody money and evil incarnate when they want the money back.
"It's not enough to succeed, your friends must fail." Gore Vidal
Wavy70
Wavy70
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March 19th, 2011 at 11:54:29 PM permalink
Quote: EvenBob

That didn't work for long. Soon the banks put minimum bids on properties so the farmers could no longer steal the property from the bank. Its amazing how banks are heroes when they loan somebody money and evil incarnate when they want the money back.



Correct, however as I said the banks set the rules and someone found a hole in the rules so to not take advantage would be foolish.

I never said the banks were Evil and looking back I missed where anyone else did. But in many cases the banks knew that the loans they were making were shaky at best. My SIL's brother worked for a now infamous former lender. He told me close to a decade ago about all he needed to know was they could make a few payments and then they sell the mortgage. I asked what he thought would happen in the long run and all he could tell me about was his new S class in the driveway. Same blinders were on buyers. Last year this house was 200k now it's 250k. That must mean next year it will be 300k.

Many lenders took advantage of a situation foolishly as many lendees did. In reality they both lost.
I have a bewitched egg that I use to play VP with and I have net over 900k with it.

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