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2 Pages12>
To pay or not to pay?
John Smith Offline
#1 Posted : Monday, January 23, 2012 12:36:14 AM(UTC)
John Smith


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Thanks for creating this new forum!

I'm sure my topic will be extremely interesting for many of us. Here is a typical situation. You bought your house, say, 4-5-6 years ago, got a loan, paid $200-300-400 and started living in this house happy of what you've done. A few months later the price went up, you became even happier. But then the price went down so low, that now the market price of your house permanently moved below 40-45% of the original price that you paid. That means that even if you want to sell your house you will still need to pay the bank a very serious amount for actually nothing, just because you got this huge loan and now the price of the house is extremely low, so your real estate investment became your pain.

So what's the next step that you should make in this case? To simply leave the house returning the key of your house to your bank? Foreclosure? Quick Sale? Is there any other way? The loan servicing companies are very stubborn and do not want to change the conditions of your loan giving you a lot of reasons for that. And it looks like they don't worry if you simply leave your house with no payment at all. They don't have the money, never paid the money for your loan; they are simply getting some amount to work with you and to collect your debts. Yes, they will lose, but the strange fact is - nobody wants to correct anything in your contract finding a lot of reason to not do that. It's really very sad that you have already paid tons of money to cover the interest of the first years and now you realize that you're still need to pay twice as much to cover the rest and come closer to the current market price of the house.

So what's next? What are you going to do to save your money, to prevent losing your investments? Any ideas will be appreciated.
John S.
3 users thanked John Smith for this useful post.
Forum Admin on 1/23/2012(UTC), Dimi on 1/23/2012(UTC), Paula on 1/23/2012(UTC)
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Academy of Financial Literacy Offline
#2 Posted : Monday, January 23, 2012 9:09:41 AM(UTC)
Phillip Day


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Your comments are that of thousands of households. You state your house was an investment and you have concerns the financial institutions don't care about your situation; you're correct they don't care, but should they care. If you purchased your house as investment, investments all have risk, like a mutual fund or a stock, investing in real estate has risks. If you invest in a stock and the stock goes down, can you call that company and ask for a refund, or should they have an obligation to help you out in some financial way.

When you purchased your house, in the contract did it state you partnered with the financial institution who gave you the money? You see, a house is a place to live and hang your hat, it's where you raise your children and paint the rooms to your liking for personal enjoyment. If you purchased your house as an investment.....all investments have risks. I own many stocks, some are up and some are down, but my house is where I sleep and raise my children and relax. My perspective is, my house value is not relevant until I plan to sell, at that time I will evaluate the financial decisions that must be made.


If you want to invest in real estate, stay away from brick and mortar single family dwellings, they are (usually) horable investments. They are not liquid, they are a money pit, and you could lose everything in a law suit if not set up properly. Real estate is a great investment, real estate ETF's, and the home builder stocks are at good value right now, they are liquid and some pay dividends.....but stay away from brick and mortar, the headaches aren't worth the returns when compared to the ETF's and home builder stocks which will out perform brick and mortar X 20.


For your own situation, walking away from your home may be a good choice, if the bank won't agree to a short-sale but right now most will allow a short-sale, so this would be a good option to consider. But, your money as an investment is lost, lesson learned, move on and do things different next time. A house is a place to live, not a place to invest your money...And, if you have a second mortgage the banks may, or may not have recourse to recover this money, depending on your loan and State you're in...
3 users thanked Academy of Financial Literacy for this useful post.
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John Smith Offline
#3 Posted : Monday, January 23, 2012 7:22:48 PM(UTC)
John Smith


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Hi and thank you for your very detailed answer!

Originally Posted by: Academy of Financial Literacy Go to Quoted Post
Your comments are that of thousands of households.


That's true, at least many of the people that I know are in a similar situation. That's actually why In described this typical picture.

Originally Posted by: Academy of Financial Literacy Go to Quoted Post
You state your house was an investment and you have concerns the financial institutions don't care about your situation; you're correct they don't care, but should they care.


It's not only an investment. The topic is much more complicated than just that. Many people want to get their own roof upon retirement. But they also want a house to be living in right now. And they want to be able to pay acceptable money for the house. If they see that a much better house is much cheaper than they got a few years ago, then something's wrong. Let's do a math. One bought a house 5-6 years ago for $250,000. He got two loans as 80/20. By now he is still above the real market price so he cannot refinance or do anything to improve his situation. The market price of this house became around 112,000-120,000. Which is more than two times lower than he paid 5-6 years ago. Even if this person sales his house for $120,000 he will need to cover the bank a difference and this difference exceeds $100,000. I think basically my calculations are right. The next point is that this person has already paid over $100,000 as the loan interest. And he keeps paying, say, $1600-$1800 every month seeing that if he bought a much better house, but now, he'd probably be paying 3-4 times lower. Yes, I realize, that he'd pay a comparable amount if he spent al these years in a 3b apartments. But he would be a free person without a $100,000 debt to the bank. Is it a correct picture? I guess a lot of people feel this pain now days.

Originally Posted by: Academy of Financial Literacy Go to Quoted Post
If you purchased your house as investment, investments all have risk, like a mutual fund or a stock, investing in real estate has risks. If you invest in a stock and the stock goes down, can you call that company and ask for a refund, or should they have an obligation to help you out in some financial way.


If it was a second house, then yes. But it's also a place to live, not 100% investment, Although it can be considered this way for sure.

Originally Posted by: Academy of Financial Literacy Go to Quoted Post
When you purchased your house, in the contract did it state you partnered with the financial institution who gave you the money? You see, a house is a place to live and hang your hat, it's where you raise your children and paint the rooms to your liking for personal enjoyment. If you purchased your house as an investment.....all investments have risks. I own many stocks, some are up and some are down, but my house is where I sleep and raise my children and relax. My perspective is, my house value is not relevant until I plan to sell, at that time I will evaluate the financial decisions that must be made.


I would disagree here with you. The house value IS relevant since you're paying to the bank to live in this house, which is not yours until you pay it off. If you make any mistake the house will be grabbed by your bank with no doubt at all, regardless of the amount that you have already paid. And this amount is huge. For high interest loans one actually pays 2.5 times higher than he borrowed. And, instead of keep paying this terrible amount on a regular basis you could use the same amount and completely pay off for another house, having lower price and lower interest, in just a few years, not in 25 that you're still facing.

Originally Posted by: Academy of Financial Literacy Go to Quoted Post
If you want to invest in real estate, stay away from brick and mortar single family dwellings, they are (usually) horable investments.


Like you said, we all need a place to hook our hat every evening. But the real truth is that we are still paying for someone's dirty tricks and that's extremely painful to realize that.

Originally Posted by: Academy of Financial Literacy Go to Quoted Post
They are not liquid, they are a money pit, and you could lose everything in a law suit if not set up properly. Real estate is a great investment, real estate ETF's, and the home builder stocks are at good value right now, they are liquid and some pay dividends.....but stay away from brick and mortar, the headaches aren't worth the returns when compared to the ETF's and home builder stocks which will out perform brick and mortar X 20.


I know a couple of families invested into second and third house 6 years ago. It is much more painful for them for sure.

Originally Posted by: Academy of Financial Literacy Go to Quoted Post
For your own situation, walking away from your home may be a good choice, if the bank won't agree to a short-sale but right now most will allow a short-sale,


We need a place to live anyway. But honestly I don't completely understand the position of my bank. They are at a serious risk to lose me and my payments, but they don't want to decrease a payment, to lower the interest, etc. And the only reason is - I'm still able to pay my monthly payment. If I got a problem they would definitely lower my rate, we have already discussed that. Also a new 125% law doesn't work for me, because in my case that should be a 200% law. To leave the house and move to another location... Maybe it's a good idea. I'd like to discuss that further. There are a few questions that are still unclear for me on this way.

Originally Posted by: Academy of Financial Literacy Go to Quoted Post
so this would be a good option to consider. But, your money as an investment is lost, lesson learned, move on and do things different next time. A house is a place to live, not a place to invest your money...


I'd still say - both, not only to live, but to keep something for retirement without being tricked, being having to keep paying until you can or completely lose this house after all these years. So isn't better to reconsider the current situation before it's not too late? Good question.

Originally Posted by: Academy of Financial Literacy Go to Quoted Post
And, if you have a second mortgage the banks may, or may not have recourse to recover this money, depending on your loan and State you're in...


The state laws are different, that's true. Maybe we could read another opinion here.
John S.
3 users thanked John Smith for this useful post.
Forum Admin on 1/23/2012(UTC), Dimi on 1/23/2012(UTC), Paula on 1/23/2012(UTC)
Dimi Offline
#4 Posted : Monday, January 23, 2012 8:10:46 PM(UTC)
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I'm not sure how it works in other states. I live in AZ for last 11 years. I talked to a Real Estate lawyer a few months ago when I started looking around. I got two loans like many of you - 80/20. And the market price of my house was cut in more than two times. It's a pretty typical situation now. So this lawyer told me that since I never refinanced my house he can go to the court and make this loan disappear for me. The reason is simple. AZ has a law letting us leave these houses and the bank cannot go for us, "not for a penny". This is exactly what I heard from this lawyer. But again, I don't know about other states. This time the fact that I have never refinanced my loans works for me. But I still didn't make a final decision. I also heard that according to AZ law anybody who left a house can buy a new one in 24 months. But I could imagine how high their interest rates should be. d'oh!

If anyone knows more details and could tell me if I'm right or not I would be happy to learn that.
Dimi
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Paula on 1/23/2012(UTC)
Paula Offline
#5 Posted : Monday, January 23, 2012 8:30:07 PM(UTC)
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I know one family. They bought the house several years ago. They both are still working and can afford the monthly payments. But they both will be retired before the entire loan is paid off. I'm pretty sure that the bank will send them out with no doubt and resell this house to somebody else if they stop their payments. But what else they could do? They wanted to sel this house once they are retured to buy something smaller and cheaper to spend many years in this house. They cannot do that now since the price went down and they still owe money. Can they initiate a foreclosure? I don't think so because they can pay, their income is above the monthly balance. Can they use a short sale? Probably they can. But they are not sure that the bank will follow them for the price difference. A good advice would be great, but I realize that it's hard to give a free and comprehensive advice for such a serious problem. I can understand these people. They can probably come one day to their house that doesn't belong to them anymore. And there is no such a thing as happy end in their situation. If they leave now they cannot buy their new house for a few more years. But their time is their money... and their house. This is not what they were dreaming about for sure.
Paula
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Dimi on 1/23/2012(UTC)
Dimi Offline
#6 Posted : Monday, January 23, 2012 10:19:14 PM(UTC)
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Originally Posted by: Paula Go to Quoted Post
I know one family. They bought the house several years ago. They both are still working and can afford the monthly payments. But they both will be retired before the entire loan is paid off. I'm pretty sure that the bank will send them out with no doubt and resell this house to somebody else if they stop their payments.


Pauls, that's really intersting. I'm not in the same exact situation, but close enough to think about it as well. I'm not sure that I will be able to afford the same high monthly payment for the next +/- 20 years. And unfortunately the economical situation is still not in its best shape to dream about it. So what's the best way to go for me and my family un til it's not too late and I don't work to the rest of my life just to make someone even happier than he is now? Can I simply "close" the current loan and drop this house? But I need a place to live. I'm just curious, if I want to by the second house now, is there any possibility that I will get this loan and get the house that I want? So I could safely close the first house deal? Or it's absolutely illegal? Any thoughts? Or even keep it as a rental house and cover the payments at least partially with the rental fees?
Dimi
Forum Admin Offline
#7 Posted : Tuesday, January 24, 2012 8:06:13 PM(UTC)
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Have you seen this gov web site: http://www.makinghomeaffordable.gov ?
Admin


Academy of Financial Literacy Offline
#8 Posted : Wednesday, January 25, 2012 6:23:16 PM(UTC)
Phillip Day


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Hello John,

I failed to also let you know about the new modificaion (Coming in March 2012)to the HARP program. If Freddie or Fannie own your loan you may qualify for a loan refinance. The details are still in the works but what I know right now is no appraisal and as long as you have made on-time payments and have income you may qualify for a much lower interest rate. There is no negative for your credit report or score, it's a simple loan refinance. You can check with a local professional who will give you more up to date details http://www.sunstatesavings.com/



My views on home ownership are well documented as I have counseled world wide and taught many home buying, and not to buy classes. I hold a different view on real estate, but it really is to each their own, as even if the numbers make sense it doesn't always mean it's a good decision for the family....money isn't everything but a happy home counts for a lot.

Sincerely,

John Smith Offline
#14 Posted : Wednesday, January 25, 2012 7:42:38 PM(UTC)
John Smith


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Hello,

Thank you for your very interesting answer and web site!

Originally Posted by: Academy of Financial Literacy Go to Quoted Post
Hello John,

I failed to also let you know about the new modificaion (Coming in March 2012)to the HARP program. If Freddie or Fannie own your loan you may qualify for a loan refinance. The details are still in the works but what I know right now is no appraisal and as long as you have made on-time payments and have income you may qualify for a much lower interest rate.


You just opened my eyes! Think

Originally Posted by: Academy of Financial Literacy Go to Quoted Post
There is no negative for your credit report or score, it's a simple loan refinance. You can check with a local professional who will give you more up to date details http://www.sunstatesavings.com/


Yes, this is exactly my case. Fanny May is my company and I can probably start negotiating with them in about a month. Great news for me!

Regards,
John S.
Paula Offline
#9 Posted : Thursday, January 26, 2012 7:30:31 PM(UTC)
Paula


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Originally Posted by: Academy of Financial Literacy Go to Quoted Post
the new modificaion (Coming in March 2012)to the HARP program. If Freddie or Fannie own your loan you may qualify for a loan refinance. The details are still in the works but what I know right now is no appraisal and as long as you have made on-time payments and have income you may qualify for a much lower interest rate. There is no negative for your credit report or score, it's a simple loan refinance. You can check with a local professional who will give you more up to date details http://www.sunstatesavings.com


Very interesting! Thank you for this information!
Paula
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