Should I Default on my Mortgage?
Posted on January 28, 2012 by Neil Garfield
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Should I Default on my Mortgage?
Posted on January 25th, 2012 by Mark Stopa
I get all sorts of comments on this blog, not to mention inquiries from prospective clients via email. This one, which I’ll paraphrase, really caught my attention, as it presents a situation I suspect a lot of Florida homeowners are facing. Here’s the question, and my response:
Question: My wife and I have always paid our mortgage, but with the economy as it is we’ve struggled to do so recently. Our house is about $150,000 underwater, and for the past year or so, we’ve borrowed money from my parents to make the mortgage payments. Unfortunately, my parents can no longer afford to lend us any more money, so we’re trying to decide what to do.
I’ve been asking the bank for a loan modification for many months. They keep telling me “we’ll get back to you,” but then I never hear anything. Most recently, the bank began insisting that my wife disclose her financial information as well. I argued with them about this, since my wife wasn’t a borrower and did not sign the Note, but they insisted that the only way I would be considered for a loan modification was if my wife submitted her financial information as well.
What should I do? My wife doesn’t want to disclose anything, but if she doesn’t, and we don’t get a modification, then we can’t continue to keep making our mortgage payments for much longer.
Answer: First off, this might sound backwards to you, but I’m glad your parents are no longer giving/lending you money for your monthly mortgage payments. I can understand the logic behind their doing so, don’t get me wrong, and I’m certainly not trying to criticize you or them. However, as I’ve explained on many occasions, including here and here, depleting a 401(k), IRA, or savings account to make monthly mortgage payments on a house you just can’t afford is almost never a good idea.
Please read this post, which I wrote in July, 2010. As I explained there in detail, it’s almost never a good idea to deplete your savings to make monthly mortgage payments, as all that will happen is you’ll run out of savings and then still be facing foreclosure anyway. If you realize you can’t afford to continue making monthly mortgage payments indefinitely into the future, isn’t it better to stop making those payments now, keep whatever money you have in your own pocket, and brace yourself for the impending foreclosure lawsuit, rather than spend all of your savings, then face foreclosure with no money left in your pocket?
The fact that your parents were lending to you, as opposed to you depleting your own savings, doesn’t change my view. In fact, it might make it worse. Your parents are obviously older than you, so they’ll have fewer years in the work force (if any) to recover, and I suspect from your email that you’ve depleted your own savings, too. Nonetheless, you’re still in the same situation you would have been in had you and your parents kept those monies in your own pockets – facing foreclosure.
It’s critical for you, your parents, and all homeowners to realize that any money in your 401(k) or IRA can never be taken by the bank (i.e. to collect on a deficiency judgment) – the only way you’ll ever lose that money is if you take it out voluntarily. Even if you get foreclosed, you’ll still get to keep your 401(k) and IRA monies. Even if you have to file bankruptcy, you’ll still get to keep your 401(k) and IRA monies. Hence, I can hardly imagine a circumstance where it makes sense to dip into these accounts to make mortgage payments. I suppose a temporary reduction in income could justify doing so for a short period of time, but that’s the catch – lots of people think/hope their reduction in income is temporary, but before they know it, they’ve made a year of mortgage payments from their IRA or 401(k) with no end in sight.
More at http://www.stayinmyhome.com/blog/2012/01/should-i-default-on-my-mortgage/
Mark Stopa Esq.
http://www.stayinmyhome.com/
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Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud Tagged: | bankruptcy, borrower, countrywide, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, LOAN MODIFICATION, modification, quiet title, rescission, RESPA, securitization, TILA audit, trustee, WEISBAND
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By Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. You can reach him at stoller@gmail.com or follow him on Twitter at @matthewstoller.
Eric Holder has come out with details on the task force. But first, let’s look at a smoke signal. At this press conference announcing the task force, Holder had to apologize for Lanny Breuer, Assistant Attorney General for the Criminal Division, one of the key leaders of the investigative unit. Breuer, you see, couldn’t make it to the press conference because he was traveling. That’s how important this task force is to Breuer, so important that his travel schedule couldn’t brook interference. Such a bureaucratic snub has been no doubt noticed by the various underlings at the DOJ and the US Attorney offices.
Ok, let’s go to the substance.
I am pleased to report that this Working Group has considerable Department resources behind it as it builds on activities that have been underway through the broader Task Force. Currently, 15 attorneys, investigators, and analysts – here at Main Justice and throughout our U.S. Attorneys’ Offices – are supporting the investigative efforts that this Working Group will be focusing on going forward. And the FBI has assigned 10 agents and analysts to work with the group immediately. In the coming weeks, another 30 attorneys, investigators, and support staff from U.S. Attorneys’ Offices will join the Group’s work.
So that’s a total of 55 people, 10 of whom are FBI agents. Let’s do a few comparisons. During the Savings and Loan crisis, Bill Black reminds us that there were about a thousand FBI agents working on the various cases. That’s one hundred times the number of people working on a scandal that is about forty times larger and far more complex.
To put it another way, let’s say that this scandal cost the American public $5-7 trillion in lost home equity. That’s about $100 billion of lost home equity per person assigned to this task force. If someone stole $100 billion a corporation, like say, if somehow Apple’s entire cash hoard which is roughly that amount, suddenly disappeared, I’m guessing that the FBI would assign more than one person to the case.
Another comparison might be Enron, which had 100 FBI agents assigned to the case. Or the stress tests. Remember this?
For the last eight weeks, nearly 200 federal examiners have labored inside some of the nation’s biggest banks to determine how those institutions would hold up if the recession deepened.
Yup, roughly four times as many people were assigned to conduct sham stress tests as are assigned to investigate the causes of the financial crisis and prosecute the people responsible. So we see that this is a not a serious deployment of government resources to unmask a complex economy-shaking financial scheme. It just isn’t. And as if to emphasize this, Breuer didn’t even show up to the press conference announcing it.
And finally, the fissures I warned about are already beginning to appear. Here’s more of what Holder said.
On Tuesday night, the President referenced this initiative, asking us to, “hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans.”
That is precisely what we intend to do. And the good news is that we aren’t starting from scratch.
Over the past three years, we have been aggressively investigating the causes of the financial crisis. And we have learned that much of the conduct that led to the crisis was – as the President has said – unethical, and, in many instances, extremely reckless. We also have learned that behavior that is unethical or reckless may not necessarily be criminal. When we find evidence of criminal wrongdoing, we bring criminal prosecutions. When we don’t, we endeavor to use other tools available to us – such as civil sanctions – to seek justice. My number one to commitment to the American people is that we will continue to devote significant resources to combating financial fraud and be as aggressive and creative as we can be in holding accountable those who, in violating the law, contributed to the financial crisis.
For example, in just the last six months, the Department has achieved prison sentences of 60, 45, 30, and 20 years in a variety of financial fraud cases charging securities fraud, bank fraud, and investment fraud. And, just last month, I announced the largest fair lending settlement in history, resolving allegations that Countrywide Financial Corporation and its subsidiaries engaged in a widespread pattern or practice of discrimination against minority borrowers from 2004 through 2008.
I keep coming back to this point – the administration and its cabinet members truly believes they have worked hard to get to the bottom of the financial crisis, and has done so as best as anyone possibly could. To them, “mortgage fraud is a top priority”, and has been for years. They might think they have mishandled the politics, but as Holder makes clear, they have brought criminal cases where they felt they could, and they settled where they thought they needed to. Even the anecdote about Countrywide is weak – note he says they resolved “allegations”, because Countrywide didn’t even have to admit wrongdoing!
There are reasons Schneiderman wants to have Federal resources to bear on this problem, but this is a drop in the bucket compared to what is needed, and the leadership with whom Schneiderman needs to work simply doesn’t believe they have done anything wrong. To them, this is business as usual.
Now on to the other news of the week, which is a $25 billion settlement for foreclosure fraud, which is supposedly done along the lines of a narrow release just for robosigning. I haven’t seen the language, and until I do, I wouldn’t be comfortable describing it as a narrow release. But if it is, then it isn’t a real shift in the landscape. The banks simply don’t want to pay that much for so little, and they’ll probably end up gaming the financing so that they claim to have paid $25 billion by engaging in loan modifications and principal write-downs they would have engaged in already. And if it’s a broader release, it seems unlikely to be something the recalcitrant state AGs would agree to.
The real anchor in our financial system is the heavy burden of unpayable mortgage debt, as well as rampant servicer conflicts that render modifying this burden impossible. We need to find a way to cut that debt through a negotiated workout, which can’t happen without a real investigation of the people who are grabbing as much as they can. There are ways Schneiderman and the state AGs can force movement even without a big commitment of Federal resources by better leveraging the people on the ground who are fighting foreclosure fraud on a regular basis. And depending on how it’s organized, this task force gives state AGs more jurisdiction, access to the investigative resources and documents done by the Feds so far, and a few FBI agents and lawyers. Still, that’s not nearly enough. The administration saw this as a way of co-opting the issue for the reelection and stopping the bitter undercurrent from the Democratic base (similar to floating the rumor that Geithner won’t come back in term two). Will it work? I’d expect a few semi-significant actions in the months ahead, complaints or indictments perhaps. We’ve already seen some subpoenas. But without a major figure investigated and prosecuted (like if Vikram Pandit were really prosecuted for Sarbox violations), the administration’s policy of preserving the existing banking structure is the dominant policy framework.
- Time to send another e-mail and help someone in trouble again.
http://mandelman.ml-implode.com/2012/01/doer-alert-wells-fargo-this-is-unnecessary-unreasonable-and-unthinkable/
Every little bit counts…
- Good, solid and sound advice. I wish I had thought about that before liquidating my own 401K
I spent over 6 figures from savings, sold all of my treasured personal belongings, (some where given to me from family) and put the property on the market for 1 1/2 years, while watching the values plummet. As I have said in previous emails, my mortgage payment was under $700, with 75k of upgrades, out-of-pocket .
The bank forced me to wait 4-6 months and intentionally get behind to say they would help at that point. I called repeatedly and sent paperwork, which they say they lost. (no way, Fed Exe’d it) At my wits end I had accumulated $5200 in arrears (included fees, interest and attorneys charges) I offered to pay $2600/$2600 in consecutive months…they stated no, emphatically. Instead they offered me a forbearance of $1570 per month for 18 months ($28,260.00) and only then would they CONSIDER a modification.
This is part of the reason I am suing them. And for the record the property is over 100k less in value, but I am still willing to try and retain it. I spent my lives work and savings, with the same outcome. Had I kept the money in my pocket and walked I could have bought another home for cash.
My advice: do not trust them. They have no authority and no money in the game. That is why they are lying to you. The foreclosure will yield them money they have not loaned so it is a win-win for them, they have already cheated the investors and have no pony in the race!
Here is a guy in prison (maybe next to Maddof?) and his real crime seems to be that he wasn’t too big to fail.
I’d like to find his case and see exactly what he was charged with that we might compare it to well, you know. Joann? You’re good at sleuthing. Which reminds me, what happened to nancy drewe? Has tnharry had it? I miss him!
I know! And it is maddening to keep reading that “reckless behavior, yes! Illegal activities? No”.
I really believe that neither democrats nor republicans want to take the responsibility of letting banks collapse. We’re looking at two parties that are so afraid of the unknown that they would rather keep on throwing money at the problem in the hope that, when things do unravel completely, it will be the other party’s hot potato.
Pathetic!
I have no or at least little doubt those agencies had a grasp of the
racket. So what assumptions can we take from that? They decided to play it ‘It’s not a racket’? “It is a racket, but golly what if we call it what it is? Have an awful big mess on our hands, wouldn’t we?” There’s no way a real look could arrive in a conclusion it isn’t a racket, so that wasn’t a real option. Without hysterics, why did they enter into a consent order which said MERS should get its racket-act together and basically fix a few little leaks? Were those people just cowards? What was the cost or perceived cost of doing otherwise, and will that same perception of cost or even real cost derail this alleged task force?
I think it’s very important to look at why MERS then stopped allowing foreclosures in its name. Of what is this a tacit admission? WHAT?
MERS is not the beneficiary, MERS is not an agent, MERS can’t foreclose? MERS is no one? What? Imo it passes folly and goes right into madness to ignore this What and Why, especially in view of the fact that millions and millions of foreclosures had been done in its name. That is a big change, which cannot be chalked up to an insignificant policy change. WHAT does this change admit?
I didn’t write it. I took it right out of Naked Capitalism. I found the perspective interesting and, to be honest, I didn’t particularly feel impressed by Obama’s announcement on Tuesday. That confirms me in what I believe: Obama wants to (again) “appease” every side of the problem.
Troubles me a great deal.
I think you meant ” That’s one hundred times the number of people working on a scandal back then versus one now that is about forty times larger and far more complex.
Around a year and a half ago I recall someone else on another website complaining because the bank did not accept their monthly condo fee as being a legitimate expense. I recall the condo was charging an association fee of somewhere between 800 dollars to 1,200 a month for each owner!
If I were the bank, I would have rejected that figure as well as it seems ridiculously high.