How to cheat the mortgage system! The new American dream!

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frank69m_IHB

New member
This is one reason why we are in this big mortgage mess.



I know two people who have done the following slightly differently:





Person 1: Owns two homes. Is under by around 200k on one Irvine home. Makes about 130k a year and doing ok in his job. Wife works too making around 80k is my guess. Doesn't feel like making payments on the one under 200k because it will take forever to recover. Going to ask bank to sell short when he can well afford to continue paying for that second home. but doesn't feel like paying for a lost cause. Drives a Mercedes. If this occurs, bank takes the dump and taxpayers flip the bill.





Person 2: Owns one home. Makes around 250k a year single guy with his own business. Bought during the peak. Is under shit by around 350k on his home. (got another loan to upgrade his house) Told me he is going to stop paying his mortgage and just let the bank take it. If it ruins his credit so what. He can rent and wait it out for many years. I know this guy is a cheapo and has a couple million in the bank. Basically, bank takes hit and taxpayers flip the bill.





Don't you guys just love the American dream where anyone even if you can afford it take advantage of the system. These two guys knew what they were getting into, its just they didn't feel like paying for a lost cause and they can afford it.



Too bad they can't garnish your wages or go after other bank accounts. Oh, well. welcome to the american dream
 
Unforunately, too many think the reality is the guy in this article. <a href="http://news.yahoo.com/s/ap/20090125/ap_on_go_co/bankruptcy_foreclosures_2">Fight over bankruptcy redoing mortgages.</a>



The cold reality is will be more Donald Trumps of the world leveraging BK to their advantage.
 
person 1 sounds like a clean walk, but I hope the bank goes to bat on person 2. If they HELOC'd, they are responsible for the whole thing, and if the bank learns that they have lots of assets, they just might figure it is worth going through the judicial foreclosure process.



At least I hope so.
 
[quote author="freedomCM" date=1232966400]person 1 sounds like a clean walk, but I hope the bank goes to bat on person 2. If they HELOC'd, they are responsible for the whole thing, and if the bank learns that they have lots of assets, they just might figure it is worth going through the judicial foreclosure process.



At least I hope so.</blockquote>


banks are too stupid to pick and choose who they go after, they just stick to their policies (which appears to be not to go after anyone), bill gates could foreclose and they probably would not go after him.
 
Person 1 cannot go through with a short sale unless he has miss several payments on his mortgage. Then he needs to show that he cannot afford the payments. With his income, he probably won't qualify so would end up being foreclosed upon. Person 2 would also be foreclosed upon.



Thus far, all they will lose are whatever down payment they have in their houses and their credit. And I guess losing your good credit is worth saving over 100K.



I guess that's the point, homeowners give up by letting the banks foreclose. The banks give up by stop lending altogether. That's why the federal bailouts are necessary - to keep the lending institutions working.
 
[quote author="freedomCM" date=1232966400]person 1 sounds like a clean walk, but I hope the bank goes to bat on person 2. If they HELOC'd, they are responsible for the whole thing, and if the bank learns that they have lots of assets, they just might figure it is worth going through the judicial foreclosure process.



At least I hope so.</blockquote>


Judicial foreclosure rarely makes sense. <a href="http://www.portfolio.com/views/blogs/market-movers/2007/12/28/the-economics-of-non-judicial-foreclosures">See Felix Salmon's take on it, with a nice long winded rant by Tanta</a>.



Person 2 would have to have refi'd the first mortgage to make it a recourse loan for to even have the lender go after them. Sure, the HELOC or 2nd lender could sue for deficiency, but the judge would rule in a heartbeat that the first gets first priority. The first then would have to do a judicial foreclosure, which they can't if they were the purchase money first, and the judge would rule priority for the first bagholder if it was a refi'd loan, then the second lien bagholder, if they could get anything at all. Most likely the first bagholder would choose to go with a trustee sale, and the second bagholder would be left with nothing, and even less if they sued for deficiency because of the attorney fees.



I could go on about why even if the first bagholder would end up with less through a judicial foreclosure with attorney fees and having a property that is worth 30% less than it was when they started the process two years before, but I think you get my point. You and I wish it were easy to go after them, and man I wish they could, but this is Kaliforneyah where you are protected from being stupid and irresponsible. It is your right as a citizen to be protected, even if you failed to understand economics that were taught in the 6th grade.
 
So you are telling me if I had 500,000 in the bank, but I bought a house at peak for 1,000,000, and now it's 600,000, the bank won't be able to touch my 500,000 in the bank if I default?

I can default on my mortgage even if I have tons of assets?
 
If it's a purchase-money mortgage on your primary residence, that is correct. The loan is non-recourse in CA, meaning the lender foots the bill. The law was designed to prevent so-called predatory lending.
 
zubs, the key phrase is "non-recourse". Typically any refinancing or HELOC products are recourse loans, so be careful.
 
[quote author="Oscar" date=1232993722]zubs, the key phrase is "non-recourse". Typically any refinancing or HELOC products are recourse loans, so be careful.</blockquote>


But if the first is non-recourse, the chances of the HELOC/2nd lien having a chance for recourse are about as likely as Arhnuld speaking English with a perfectly well understood British accent. First comes first, and second gets shafted. Even if they refi'd $2mil of cash out in fakequity, it is going to go through the trustee/non-judicial foreclosure. And... I will buy anyone lunch who can find me five OC residential properties, that in the last year went through the judicial foreclosure process. Attorneys and people who work for the court system are excluded.
 
[quote author="graphrix" date=1232996247][quote author="Oscar" date=1232993722]zubs, the key phrase is "non-recourse". Typically any refinancing or HELOC products are recourse loans, so be careful.</blockquote>


But if the first is non-recourse, the chances of the HELOC/2nd lien having a chance for recourse are about as likely as Arhnuld speaking English with a perfectly well understood British accent. First comes first, and second gets shafted. Even if they refi'd $2mil of cash out in fakequity, it is going to go through the trustee/non-judicial foreclosure. And... I will buy anyone lunch who can find me five OC residential properties, that in the last year went through the judicial foreclosure process. Attorneys and people who work for the court system are excluded.</blockquote>


I can find you one. Will that at least get me a Jamba Juice?
 
[quote author="awgee" date=1233008557]I can find you one. Will that at least get me a Jamba Juice?</blockquote>


Two will get you Jamba Juice, one gets you a diet Coke. It might work if there is a really cool story behind the foreclosure, and just for being in Coto doesn't count.
 
[quote author="graphrix" date=1232996247][quote author="Oscar" date=1232993722]zubs, the key phrase is "non-recourse". Typically any refinancing or HELOC products are recourse loans, so be careful.</blockquote>


But if the first is non-recourse, the chances of the HELOC/2nd lien having a chance for recourse are about as likely as Arhnuld speaking English with a perfectly well understood British accent. First comes first, and second gets shafted. Even if they refi'd $2mil of cash out in fakequity, it is going to go through the trustee/non-judicial foreclosure. And... I will buy anyone lunch who can find me five OC residential properties, that in the last year went through the judicial foreclosure process. Attorneys and people who work for the court system are excluded.</blockquote>




Does anyone in the biz know a rough percentage of people who did/did not refi the first among those who modified their mortgage in some way?



my (uninformed) impression is that it was nearly universal amongst those who caught the HELOC bug to refi the first.
 
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