Repercussions of Foreclosure

[Flasch186]

I was wondering if anyone had insight into the wide variety of repercussions that can occur if someone goes into foreclosure. I am hearing a wide variety of info regarding this lately, for example:

No longer is a short on sale by the bank considered taxable income toward you
The bank can go after different assets of yours to make up the difference
After 2 years or so, with some down payment, a bank may not weigh a new mortgage as heavily as a bankruptcy
etc.

Story is my parents are upside down on their retirement home and continue to live in their previous home that they cannot sell. What exacerbates the problem is that the retirement neighborhood they bought in has gone under and the home are depreciating fast due to the developers inability to follow through on what the neighborhood's appearance was supposed to be so the values wont return to what might even be average for some time.

I have been getting some advice to advise them to let it go into foreclosure, save the money that would be going into the loan that is upside down and that in 2-3 years they will have repaired their credit such that they should be fine or above average.....Does anyone have any insight into this sort of thing?

[Anthony]

uhhhhh...i hardly think your credit can rebound after only "2 or 3 years" of foreclosing on your home, let alone leave you in "above average" shape.

why can't they just sell it at a huge discount, take the loss and just buy a small condo for cash with the proceeds?

[Flasch186]

uhhhhh...i hardly think your credit can rebound after only "2 or 3 years" of foreclosing on your home, let alone leave you in "above average" shape.

why can't they just sell it at a huge discount, take the loss and just buy a small condo for cash with the proceeds?

unfamiliar with the Florida Market? :)

It's pretty crazy whats happening in some communities down here. In some communities like theirs, many many homes are for sale (in this one its not just due to investing but the fact that the community will not end up being what it was intended to be) and when theyre for sale theyre 50K-75K less than what they owe so if they just simply chose to sell they would owe 50K - 75K to the bank. So that huge discount it would have to be sold at wouldnt solve the problem but may actually accelerate it.

from what I gather, the foreclosure would mean the bank has to sell it and then choose to come after them for a deficiency judgment. I dont know how often they choose that route or not.

The question regarding credit is what Im truly asking because my companies lender said that, literally, with all other credit payments on time and no other delinquencies that they could get a loan (with a down payment) within 2-3 years. Im not sure though and the deficiency judgment would be hanging out there if I'm reading things correctly.

[cody8200]

unfamiliar with the Florida Market? :)

It's pretty crazy whats happening in some communities down here. In some communities like theirs, many many homes are for sale (in this one its not just due to investing but the fact that the community will not end up being what it was intended to be) and when theyre for sale theyre 50K-75K less than what they owe so if they just simply chose to sell they would owe 50K - 75K to the bank. So that huge discount it would have to be sold at wouldnt solve the problem but may actually accelerate it.

from what I gather, the foreclosure would mean the bank has to sell it and then choose to come after them for a deficiency judgment. I dont know how often they choose that route or not.

The question regarding credit is what Im truly asking because my companies lender said that, literally, with all other credit payments on time and no other delinquencies that they could get a loan (with a down payment) within 2-3 years. Im not sure though and the deficiency judgment would be hanging out there if I'm reading things correctly.



I read an article the other day in, I believe the WSJ, that was about people that are in the same boat as your parent's. They said in the article that you could get a new home in probably 3-4 years if you had good credit otherwise.


A few articles:

http://blogs.wsj.com/developments/2008/02/29/new-attitude-its-ok-to-walkaway-from-a-mortgage/

http://money.cnn.com/2008/02/06/real_estate/walking_away/

[JPhillips]

I'd check with some of the new walk away companies. I'm sure you need to be careful with some of them, but I'd imagine there are some where you could get good info.

[Swaggs]

I would imagine that even 3-4 years would be a push, unless your parents have/had excellent (750+ credit) AND also had a very high debt/income ratio.

[Fidatelo]

I guess I would lean towards the moral side of this coin, which is that they made an agreement to pay back some money they borrowed, and they should be doing whatever they can to make good on that obligation, not simply weighing out what solution will leave them better off.

If they are in danger of starving or living under a bridge huffing Ragu, then by all means foreclose. But I didn't get that impression from your post, because it probably wouldn't even be a question if it reached that point.

[CU Tiger]

I wouldnt worry much about the next home. They are retired, sounds like if they sell their home they will have enough $$$ to pay for a new home. Just do the details right next time, contingency sale/offer, and they shouldn't have problems.

You can just about count on the bank coming after them for the balance. Worse the foreclosure sale will probably only be 80-90% of value and will then have foreclosure fees, and sale fees applied. It is not uncommon to see their net value be about 50% of value.

The by far cheapest out will be for them to sell the home and try and negotiate the short down with cash in hand. Once they allow foreclosure they lose all leverage. It is amazing what you can accomplish with a lender when you say, look I know I owe 300K, I have a buyer willing to pay 250k tomorrow, Im willing to feel some pain, lets split the 50, and you finance me unsecured on the balance for 10 years. Or Im gonna let you foreclose on it, auction it for 200k and then spend 20-30 trying to collect the other 100 from me, then Ill declare bankruptcy and you will net 170....

[Lathum]

They may get a loan in 2-4 years but what would the interest rate look like?

[cartman]

That's one of the secrets the mortgage industry is scared of. A house repossession is a much lighter hit to your credit score than bankruptcy is. It is true that most people, if they keep their other credit accounts current, can get back to their previous credit score level in about two to three years. Lenders are afraid more and more people will go this route as the number of people who are in negative equity are looking for ways out.

[vtbub]

Can't they do a reverse mortgage?

[Flasch186]

AFAIK, a reverse mortgage is when you slowly pull equity out of your home, as if it's paying you. This is the opposite situation that they are in.

I guess the #1 concern is that of the bank coming after them for the difference although they couldnt come after their homestead. So it would have to be assets (401K, IRA, etc.) or wage garnishments.
The #2 concern is them trying to hold onto cash instead of flushing it when things are looking crappy for them over the next few years.
The #3 concern is the credit hit but not much.

[CU Tiger]

Flasch, check their state laws about #.
Each state varies, but I know SC for instanc, while they can't "take your home" they can take any positive equity position in excess of 5% of the value. In other words if they own the home out right a judgement can force them to either sell it or mortgage 95% of it.

[Flasch186]

OJ moved here for a reason

[Vinatieri for Prez]

Any chance they can work out a different temporary payment arrangement acceptable to the bank to ease the payment burden and stay out of foreclosure? Call the bank. It's worth a try. I have no idea however whether that is a pointless effort. Depends on the relationship with the bank and the fact that nowadays I am thinking the last thing a bank wants is another foreclosure on its books. Or maybe I have no clue how that works.

[Flasch186]

Im looking at it as more of an investment decision. There is an end though as they get tapped out at some point this year. Do they continue to pay off interest (a little bit of principle) on something they cant live in and cant ever get the return out of. Or do they save their money and take the credit hit so that at some point they can restart trying to get into retirement. Right now with the prospect of retirement on the horizon they are working to try and pay this loan off which doesnt seem like they'll ever see an end to so I'm just trying to weigh their positives and negatives. One of the reasons they keep dumping the money in is the fear of what happens if it goes into foreclosure so I'm trying to smoke out those repercussions so they can make a fully educated decision.

[JPhillips]

Another thought is spend a little money to consult with a reputable bancrupty attorney.

[Flasch186]

Another thought is spend a little money to consult with a reputable bancrupty attorney.

Theyre not close to bankruptcy yet it's just that theyre bleeding on this and at some point in time it makes for a bad investment to keep sinking money into it and I wonder if that money going towards that mortgage wouldnt be better invested in a savings account or elsewhere so as to counter the hit to their credit score while giving up on the idea of living in this retirement community that they had intended.

[Mizzou B-ball fan]

Theyre not close to bankruptcy yet it's just that theyre bleeding on this and at some point in time it makes for a bad investment to keep sinking money into it and I wonder if that money going towards that mortgage wouldnt be better invested in a savings account or elsewhere so as to counter the hit to their credit score.

I find all of this property value issues on the east and west coasts to be extremely interesting. I lived in Baltimore for a year and got to see some of the inflated property values in person. It's one of the main reasons we moved back to the Midwest. In 2007, property values actually went up 2.4% on average in Missouri. I'm just floored to see the double digit losses in property value in some situations. I know that the ARM and interest-only mortgages were part of the problem, but it seems like the ridiculous prices on some homes in coastal states are just as big of a problem.

[Flasch186]

I find all of this property value issues on the east and west coasts to be extremely interesting. I lived in Baltimore for a year and got to see some of the inflated property values in person. It's one of the main reasons we moved back to the Midwest. In 2007, property values actually went up 2.4% on average in Missouri. I'm just floored to see the double digit losses in property value in some situations. I know that the ARM and interest-only mortgages were part of the problem, but it seems like the ridiculous prices on some homes in coastal states are just as big of a problem.

Had the neighborhood carried on in the direction in which it was started Im not sure I would be telling them to look into foreclosure but the developer/builder filed Chapter 11 leaving liens on many houses incomplete or close to completion. the enormous, beautiful amenities center supposedly was able to be financed supposedly so that they could finish it but I have my doubts as to their intentions for completion or its quality. The entire area is depressed and I just think that their quality of life there is not worth the constant money dump and being upside down by 50-70K just doesnt make sense to me.

[Mizzou B-ball fan]

Had the neighborhood carried on in the direction in which it was started Im not sure I would be telling them to look into foreclosure but the developer/builder filed Chapter 11 leaving liens on many houses incomplete or close to completion. the enormous, beautiful amenities center supposedly was able to be financed supposedly so that they could finish it but I have my doubts as to their intentions for completion or its quality. The entire area is depressed and I just think that their quality of life there is not worth the constant money dump and being upside down by 50-70K just doesnt make sense to me.

Doesn't this seem like a lawsuit in the making? The developer's failure to deliver would seem to be a major snafu. Does the bankruptcy create a protection level to keep him from being sued?

[Flasch186]

Well, I just spoke to mom and they reduced the price 20K but at the new price theyre just isnt any wiggle room and unfortunately, I can tell ya, very few people have the thought of paying list price; everyone wants to make an offer. So theyre at least being proactive so we'll see what happens in another month. They'll have to sell both homes and then regroup, perhaps buy a condo or something.

Mizzou - Builder's and developer's contracts are sickly favored to themselves and leave all kinds of outs. Then the lawyers they have will string along buyer's and brokers as long as possible to make it not worthwhile. the list of creditors is endless ina situation like this but the individual homeowners and their deposits go at the end of the list and they rarely see anything in return. It's a shame...That's why when Im talking to homebuyers out shopping us, and it goes down the avenue of solvency, I tell them all of the pitfalls of buying from a smaller builder with the risk of going under on the horizon (like my competitor in this neighborhood is): No warranty, Quality issues, contact problems, etc. vs. my company whose balance sheets look great comparably.

[Desnudo]

Had the neighborhood carried on in the direction in which it was started Im not sure I would be telling them to look into foreclosure but the developer/builder filed Chapter 11 leaving liens on many houses incomplete or close to completion. the enormous, beautiful amenities center supposedly was able to be financed supposedly so that they could finish it but I have my doubts as to their intentions for completion or its quality. The entire area is depressed and I just think that their quality of life there is not worth the constant money dump and being upside down by 50-70K just doesnt make sense to me.

Are you positive that another developer won't step in and finish the job? I'm no real estate expert, but this seems like a clear case of hitting the panic button and selling low. What happens if you wait a year or two?

[Fidatelo]

Am I the only one who finds it wrong to consider foreclosure in these circumstances? What happened to personal responsibility?

[Flasch186]

Are you positive that another developer won't step in and finish the job? I'm no real estate expert, but this seems like a clear case of hitting the panic button and selling low. What happens if you wait a year or two?

Right now Wachovia is talking about getting involved but the entire situation is, like you said, dire.

Fid, they would be taking the personal responsibility and personal decision to stop paying for it as a logical decision to try and protect themselves financially. I think those that fall on the side of people taking personal responsibility for their own finances would applaud their actions to protect themselves instead of relying on the government to help, right? ;)

[Anthony]

i would sooner sell at a loss then foreclose on my house. at least if i sell at a loss then my credit is intact and i can quickly buy something cheaper with the proceeds. co-ops are very cheap alternatives to houses. i'm keep trying to get my mom to sell her house and just buy a cheap co-op for cash. she isn't struggling to make payments or anything, but she goes without a lot of stuff to live. she's very thickheaded. i was trying to get her to sell 3 years ago when the market was still reasonably pro-seller. now? it'd be kinda hard. fortunately she's in NYC so our market is always healthier than in other markets across the country.

your parents can't have their cake and eat it too. seems like they were still holding out on trying to make a profit and only just now are willing to break even. they should be selling at a loss and take the money and run.

[Flasch186]

your parents can't have their cake and eat it too. seems like they were still holding out on trying to make a profit and only just now are willing to break even. they should be selling at a loss and take the money and run.

Completely off target.

They wanted to spend their days at the amenities center playing cards and doing activities. That is gone from the radar now. They certainly wanted to be financially stable in their retired days. That is gone from the radar so now it is about stablizing the ship. They would like to sell but theyre getting close to the point of owing the bank after the sale, that means that the decision must be made to apply a price to credit points. If the price is too high you should bank your money to offset the risk the score will provide to future lenders. thats just smart business to look at all ramifications HOWEVER I still am not sure about the things unseen, like delinquincy judgments, etc.

[wade moore]

Am I the only one who finds it wrong to consider foreclosure in these circumstances? What happened to personal responsibility?

flasch would just assume let the fed government bail them out.

*shurg*

[Flasch186]

Not sure how you get that from the above. What is the bailout theyre asking for? They would be giving back the home to the bank as the collateral promised.

[Fidatelo]

Fid, they would be taking the personal responsibility and personal decision to stop paying for it as a logical decision to try and protect themselves financially.

That isn't responsible at all, that is pushing their problem (or at least a portion of it) onto someone else. It is a selfish decision and speaks greatly of one's character.

[Flasch186]

That isn't responsible at all, that is pushing their problem (or at least a portion of it) onto someone else. It is a selfish decision and speaks greatly of one's character.

what? The home is the collateral for the loan. If the bank thought it was a good idea to make the loan why wouldnt they be able to bear taking the collateral as agreed in the contract (+/-) fees and stuff?

Perhaps I just dont understand the "someone else"? Are you saying the bank is the someone else? or is there a tax implication that youre saying ends up on the "people"?

Who should they put their fiscal decisions on? Why wouldnt anyone try to look out for their own financial well being (with +/- for charity, family, etc.)

[Mizzou B-ball fan]

what?

Perhaps I just dont understand the "someone else"? Are you saying the bank is the someone else?

Who should they put their fiscal decisions on? Why wouldnt anyone try to look out for their own financial well being?

I suppose from a moral standpoint, I'd agree with Fidatelo. However, real life doesn't work that way. The bank signed the same contract as the person who bought the house. In the contract, they put in a clause concerning what would happen on a foreclosure. The bank wouldn't be complaining if the house value had gone up. Just like the buyer, the bank has to play by the rules they agreed to in the contract. Sucks for them, but that's the way things are.

[Flasch186]

I suppose from a moral standpoint, I'd agree with Fidatelo.

please explain this part though because I agree with the second half of your statement. I dont necessarily disagree with the above because I dont understand it. If you have the time, please explain the morality standpoint. Perhaps youre right and Im just not seeing it as anything but a financial, contractual thing. Is it more than that because I dont see any loyalty to the bank outside of that. If it hit the taxpayer's then I could see it but perhaps I havn't seen that as a possibility, is it?

[Fidatelo]

what?

Perhaps I just dont understand the "someone else"? Are you saying the bank is the someone else? or is there a tax implication that youre saying ends up on the "people"?

Who should they put their fiscal decisions on? Why wouldnt anyone try to look out for their own financial well being (with plusses and minuses for charity, family, etc.)

The "someone else" is the lender, which in this case is the bank and its shareholders.

Your parents asked for money, and received it under the obligation to pay it back (plus interest). By foreclosing they are not fulfilling their obligation, this is why their credit rating takes a hit. And in my mind, their is a large difference between being unable to fulfill an obligation and unwilling to fulfill one. From everything I've heard your parents would be falling under the latter category.

[Fidatelo]

I suppose from a moral standpoint, I'd agree with Fidatelo. However, real life doesn't work that way. The bank signed the same contract as the person who bought the house. In the contract, they put in a clause concerning what would happen on a foreclosure. The bank wouldn't be complaining if the house value had gone up. Just like the buyer, the bank has to play by the rules they agreed to in the contract. Sucks for them, but that's the way things are.

If lenders were ok with foreclosure, they wouldn't enforce massive credit hits to those that do it. When you borrow money, you are expected to pay it back. Not doing so, by choice, because it works out better for you, is not what I would consider a positive moral action.

[Flasch186]

hmmm, then why have collateral at all and only hold the credit score as collateral? Isn't a loan for something in lieu of the collateral and it's intrinsic value?

The ability to pay it back, in some cases, is judged along different timelines. For example, financial advisers would tell you to look 10 years out when investing. So just because they make the payment today doesnt mean that it is a wise long term decision, IMO.

[JPhillips]

I sort of understand the moral argument, but in our system it is foolish not to walk away. Banks and businesses walk away from bad investments all the time and nobody thinks anyhting of it. When an individual does it, however, people lay the wood to them. The people made a bad investment and are looking at using legal avenues to limit their liability. If that's acceptable for businesses, why is it unacceptable for individuals?

[Mizzou B-ball fan]

hmmm, then why have collateral at all and only hold the credit score as collateral? Isn't a loan for something in lieu of the collateral and it's intrinsic value?

The ability to pay it back, in some cases, is judged along different timelines. For example, financial advisers would tell you to look 10 years out when investing. So just because they make the payment today doesnt mean that it is a wise long term decision, IMO.

I agree with you. The moral hangup comes from the thought that your parents agreed to pay the loan. If it was your best friend offering you a $1,000 loan, you certainly wouldn't walk away without paying, though your friend might agree to give you a bit more time. It seems a bit off to walk away from a loan just because the property value has dropped off. With that said, it is within your parents' rights to do exactly that. And I can guaranted that the bank wouldn't try to work out anything at all if the property value was high and your parents couldn't afford to make payments. It goes both ways.

[JonInMiddleGA]

Am I the only one who finds it wrong to consider foreclosure in these circumstances?

No, but I figure we're a distinct minority.

What happened to personal responsibility?

Where the hell have you been for the past 40 years or so?

[Flasch186]

I sort of understand the moral argument, but in our system it is foolish not to walk away. Banks and businesses walk away from bad investments all the time and nobody thinks anything of it. When an individual does it, however, people lay the wood to them. The people made a bad investment and are looking at using legal avenues to limit their liability. If that's acceptable for businesses, why is it unacceptable for individuals?

I think that this is the avenue Im thinking. If it hits taxpayer's than there is another layer that must be taken into consideration but I havnt heard that that's a possibility. I dont see the moral argument or judgment on this...
theyre not asking for a bailout.

[Flasch186]

I agree with you. The moral hangup comes from the thought that your parents agreed to pay the loan. If it was your best friend offering you a $1,000 loan, you certainly wouldn't walk away without paying, though your friend might agree to give you a bit more time. It seems a bit off to walk away from a loan just because the property value has dropped off. With that said, it is within your parents' rights to do exactly that. And I can guaranted that the bank wouldn't try to work out anything at all if the property value was high and your parents couldn't afford to make payments. It goes both ways.

the only problem I have above is drawing the the correlation between the bank and a friend. The friend would loan the money without interest (i'd hope) and probably not draw up papers for collateral. The bank is not your friend. I think we agree but my parents are somewhat stuck on the stigma stuff. You are 100% correct that the bank's are only helping those when they think it makes financial sense to do so for them and no one else.

[Fidatelo]

I don't believe it should be acceptable for businesses either.

[Fidatelo]

Where the hell have you been for the past 40 years or so?

Canada? :D

[JonInMiddleGA]

Just in the interest of me being (slightly) less lost: Is this their only home we're talking about? As I (mis?)understood things, this is a second home, right?

If it is indeed a second home (intended for retirement or whatever) then I have a tough time imagining they don't number amongst their friends some people who are bank shareholders.

And since the whole reason this has come up is that the property is worth less than the amount owed, this sure does look like a case of screwing your friends (albeit by proxy/with some distance).

[Flasch186]

LOL, man Jon that's a reach.

You're a capitalist righty, you should be applauding their financial smarts in this case or is that only reserved for businesses? The banks just wrote off billions, individuals cant? How unfair and incongruent with your other stances regarding personal responsibility. They are taking it upon their own shoulders to solve their issue without leaning on the government or you or me in spite of being on the end of people's noses and the stigma attached. They would be following the contract the bank signed with them and giving up the collateral without a fight. Whats good for the goose should be good for the gander, IMO. Better IMO to foreclose now and deal with that stigma than deal with the worse stigma of having to declare bankruptcy a year from now, and still come out of it with most of the same debt that forced them into bankruptcy in the first place.

At least Fid, said he thought it not right for banks either although they just foreclosed on BILLIONS of debt and their stock price went down (which could be viewed as their credit score)....sounds even handed to me.

[Flasch186]

BTW Mizzou the friend scenario would completely be about morals and i would be standing lock armed with Fid and Jon but not when it's a bank on the other side of table, interest is attached, collateral put up, and had the die rolls been different they would gladly act in their best interest with no feelings towards morality in their treatment of you.

[JonInMiddleGA]

LOL, man Jon that's a reach.

Not much of a reach in my world. I would take a dim view of someone who screwed my investment & trust in their word in order to improve their own finances. I would take it personally actually, and so would many of the people I know (I've seen it happen). And if they're in the position of owning a second home, I have to figure their world isn't completely dissimilar to the one I live in. A significant difference in the perception & fallout could easily be found though, if they're dealing with a mega-bank instead of the smaller ones that I always try to work with. I mean, I personally know every board member of at least three different banks I've done business with, and key figures at several others. That's a different deal (in terms of being aware of a situation) than being one of the millions of anonymous shareholders in Citibank.

They are taking it upon their own shoulders to solve their issue without leaning on the government or you or me

That's the thing, they aren't doing it without taking advantage of someone -- namely the bank shareholders.

That's not to say it isn't the best choice for their own finances. But that doesn't make it any less distasteful. The two things (ethical behavior & maximizing fiscal gain) don't always go hand in hand. The money I've left on the table over the past decade in business makes me very conscious of that separation.

editing to add for clarity -- The distinction I intended to draw between the smaller banks & the jumbo ones has nothing to do with the ethics of the situation. I was simply talking about the difference it can make in the amount of fallout from it.

[wade moore]

Not sure how you get that from the above. What is the bailout theyre asking for? They would be giving back the home to the bank as the collateral promised.I'm just referring back to other threads on the general subject.

[Flasch186]

if it we're your money, an individual's, that lent to them I would feel completely different but this is Countrywide (who on a sidenote is under investigation for knowingly lying about the value of their assets). I dont feel that anything more than the hit on credit, interest carry, and the collateral is all that should be considered in their agreement. The moral compass would only be one way there, no?

If we're talking about lending amongst friends I am in agreement wholeheartedly with you. If we're talking about a contract as stated with a bank, than I just dont. The bank underwrote the loan and looked at all of the risk involved and charged a premium on interest in accordance to that.

[JonInMiddleGA]

if it we're your money, an individual's, that lent to them I would feel completely different but this is Countrywide (who on a sidenote is under investigation for knowingly lying about the value of their assets). I dont feel that anything more than the interest carry, and the collateral is all that should be considered in their agreement. The moral compass would only be one way there, no?

Hell, Countrywide might indeed be a whole different kettle of fish ... depending upon whether the loan in question was one of those that (allegedly I guess, not sure what's been proven/admitted vs what is still up in the air) had a lot of monkey business pulled by the lender. Just this weekend there was an article about that in the Atlanta paper.

If we're talking about lending amongst friends I am in agreement wholeheartedly with you. If we're talking about a contract as stated with a bank, than I just dont.

That's probably the difference. I don't see banks/companies as entirely monolithic entities existing without the shareholders behind them. Apparently you do (which isn't uncommon). Most of my friends are investors in one corporate entity or another, to highly varying degrees, so the connection is pretty easy for me to make.

[Flasch186]

understood.

youre approaching 15K posts. wow

[Subby]

Not paying one's debts seems dishonorable to me. That was my initial reaction when reading your first post (haven't read the rest of the thread yet so maybe I am missing something.)

Just my opinion completely independent of who is involved in the situation. *shurg*

[Flasch186]

BTW I spoke to my mom and where theyre priced now they would be selling it and losing all of their down payment and it would be even up for the bank. so theyre doing the best they can and giving up their investment in it (20% DP) but the umbrella is that theyre bleeding monthly and cannot do it forever. so it isnt like they were flipping houses with 0 down....theyre just stuck and trying to save themselves from crahsing and burning and "no" the banks wont work with them at all because they havnt missed payments thus far. That is the hidden gem of the banks "working with people" right now is that they dont work with you until youre close les pendins.

[digamma]

If they aren't upside down, then it seems like an easy decision.

Another easy decision would be to spend a few hundred (or thousand) on a sound financial planner, rather than a day arguing over several dozen message board posts.

[Vinatieri for Prez]

Am I the only one who finds it wrong to consider foreclosure in these circumstances? What happened to personal responsibility?

I think it's ok. As part of the deal they signed up for, they are legally entitled to stop paying and get foreclosed on. The contract says what will happen if they don't pay. As long as they are willing to live with the consequences, I have no problem with them choosing this option, especially when the party on the other end is a bank.

[Flasch186]

If they aren't upside down, then it seems like an easy decision.

Another easy decision would be to spend a few hundred (or thousand) on a sound financial planner, rather than a day arguing over several dozen message board posts.

Just because your not upside down (due to your 20% DP) doesnt mean a home will sell. Welcome to Florida Real Estate.

[Flasch186]

I think it's ok. As part of the deal they signed up for, they are legally entitled to stop paying and get foreclosed on. The contract says what will happen if they don't pay. As long as they are willing to live with the consequences, I have no problem with them choosing this option, especially when the party on the other end is a bank.

that's how I feel too. It'd be different if they we're borrowing from you though to support their crack habit.

[digamma]

Just because your not upside down (due to your 20% DP) doesnt mean a home will sell. Welcome to Florida Real Estate.

A home will always sell. It is just the price you are haggling over. I'm plenty familiar with the current state of the markets and their illiquidity (both on the micro and macro level).

I should have said that it would be an easy decision for me. But I don't know your parents situation and whether they could withstand a loss on a pure financial basis. I don't know how much they value their credit rating and the work they would have to do to improve it. I also don't know how much value they place on other things like the stigma of going through a foreclosure, any moral obligation in honoring their debt or macro concerns they may have about contributing in some small way to the real estate and credit crunch.

In other words, take it with a grain of salt...

[Flasch186]

A home will always sell. It is just the price you are haggling over. I'm plenty familiar with the current state of the markets and their illiquidity (both on the micro and macro level).

I should have said that it would be an easy decision for me. But I don't know your parents situation and whether they could withstand a loss on a pure financial basis. I don't know how much they value their credit rating and the work they would have to do to improve it. I also don't know how much value they place on other things like the stigma of going through a foreclosure, any moral obligation in honoring their debt or macro concerns they may have about contributing in some small way to the real estate and credit crunch.

In other words, take it with a grain of salt...

however, in the resale market most banks, aside from what they advertise are not working out short sales with many of their borrowers, therefore after the sale you are left with a fat amount owed to the bank that they want paid off immediately. Like many people they cant afford to do that so they are "stuck". This is why the new construction market in some areas is fairing better than the resale market.

I'd say in general, all of us Americans and in some ways foreigners need to be more concerned about liquidity right now than our Fico scores. That will likely reverse in a few years but right now, cash is king. (well gold is really)

[Fidatelo]

I'd say in general, all of us Americans and in some ways foreigners need to be more concerned about liquidity right now than our Fico scores. That will likely reverse in a few years but right now, cash is king. (well gold is really)

I'd say that if more people lived with less debt to begin with the U.S. wouldn't be in this mess in the first place.

[Flasch186]

here here

[digamma]

however, in the resale market most banks, aside from what they advertise are not working out short sales with many of their borrowers, therefore after the sale you are left with a fat amount owed to the bank that they want paid off immediately. Like many people they cant afford to do that so they are "stuck". This is why the new construction market in some areas is fairing better than the resale market.

I was going off of your statement above where you said this would not be the case. I can only deal with the facts and statements given.

I'd say in general, all of us Americans and in some ways foreigners need to be more concerned about liquidity right now than our Fico scores. That will likely reverse in a few years but right now, cash is king. (well gold is really)

You pretty much completely missed my point here, which is fine.

It seems like you had your mind made up here from the beginning and there was no repercussion that could be presented to you (other than maybe being sent off to debtor's prison in the Outback) that would have changed your mind. That's fine too.

[Flasch186]

They spoke with an attorney today to look into this avenue.

Di - Had someone said that getting foreclosed on had some sort of judgments or something that could be had after, or a crushing credit score for 10 years then I wouldve obviously been swayed. If it wouldve been directly insured by taxpayers or the debit could be held against them until paid for 25 years, that wouldve also brought to different reactions. I was referring more to Fid in talking about cash vs. debt.

[Vinatieri for Prez]

They spoke with an attorney today to look into this avenue.

Di - Had someone said that getting foreclosed on had some sort of judgments or something that could be had after, or a crushing credit score for 10 years then I wouldve obviously been swayed. If it wouldve been directly insured by taxpayers or the debit could be held against them until paid for 25 years, that wouldve also brought to different reactions. I was referring more to Fid in talking about cash vs. debt.

Not sure what the laws are like there in Florida, but banks usually can seek a deficiency judgment against the debtor if they go the judicial foreclosure route.

[Flasch186]

something that is on their radar when talking to the attorney. They are going to try slashing their price first figuring the value of credit score vs. cost. At some point though the scale turns over.

[CU Tiger]

To me credit score does not enter into the equation.
I've said it here numerous times, but when I was in an industry that lived and died on credit scores as a pre-req. of our customers, our credit manager had a huge sign on his office wall that said
"A credit score is a measure of integrity, or THE WILLINGNESS OF AN INDIVIDUAL TO NOT PAY THEIR DEBTS. It is not a measure of their ability to pay one."

If you look at it from that perspective you may see my thoughts.

Regardless of the financial implications, morally it is the wrong decision to foreclose, regardless of the implications. If you have any means necessary to settle a debt, you owe it (at least I do) to do so, even if it means wasting your life savings and causing untold financial hardship. The fact that the terms are pre-arranged as to what happens IF you foreclose does not grant you permission to foreclose, simply because it is the more attractive financial option.


I can only judge from a position of what I would do, and I can go back to what I did when our first business folded. My first electrical company
I was young and dumb and eventually seated all my eggs in one customer's basket. I soon found myself in a situation where I had $450,000 outstanding in receivables, and $210,000 outstanding in payables. When my AR numbers reached 160 days, every suply house in town cut me off, I couldnt make payroll, I was forced to declare bankruptcy to avoid legal troubles. I sold my house, mine and my wife's cars, we lost EVERYTHING. 5 months later I found myself paid and holding quite a ssum of cash. Legally my attorney told me I could pocket it and ride away. I did not. I settled every debt, every supplier and every former employee. Even the 20k that I was told was written off, I went to the company's headquarters to have the write off reversed. Three years later I need character witnesses and a state board appeal to be re licensed as a contractor, due to my previous bankruptcy. I had 31 people show up to give sworn statements on my actions.


Call it karma, fate, call it morality but if I make a pledge to pay you a sum I hold it as a duty to fulfill that regardless. I agree your parents are 100% within their legal right to allow it to be forceclosed upon, I disagree that they should.

[Fidatelo]

CU Tiger is good in my books. That is a great story to tell your kids as they grow up.

[Flasch186]

CU Tiger is good in my books. That is a great story to tell your kids as they grow up.

for the record you had a problem with the banks writing off their debts...I have my parents checking into that option too :)

I agree CU Tiger made good and I would hope anyone would pay off their employees that they owed money to. That falls under the same borrowed money from of a friend scenario Jon and I talked about. Regardless, that doesnt minimize CU's decency. I also see the top part regarding the "willingness" argument is skewed a bit by the current state of the mortgage industry, the flaws that have been exposed, the fraud, the misdeeds in underwriting, and greed. They were probably being somewhat greedy but they had a dream of dying in this home in this retirement 55 and over community where they could play Bingo on Wednesday nights. They were'nt flippers per se.

In my dad's defense he owned a car stereo / window tinting place for about 15 years and he was the greatest boss in the world to those guys. Those installers were a struggling group for the most part but my dad was there for them all the time bailing some of them out, helping some through rehab, lending them more money than you can count and constantly giving stuff away (which my mom says is why they went out of business but I argue it had more to do with the big box Sound Advice coming to town and on a smaller scale Best Buy/Circuit City) he even forgave a guy who broke in and stole from him by rehiring him, but this isn't a contest of who has better morals.

For me, this is fiscal and it is between him and the bank and unfortunately he doesnt have the option mentioned at first, write it off. He'll instead give them the collateral and the appraisal they paid for suffering the credit hit much like CFC's share price dropped when they wrote off debt.

Morals, IMO has nothing to do with it. Stigma may be there, embarassment perhaps, but like vin, I dont believe it is immoral to follow what is laid out in the contract. Friend's wouldnt draw up a contract IMO.

[Fidatelo]

Why do morals and obligations disappear when a contract or business becomes involved?

Anyways, clearly I have a different 'moral code' than you and no amount of arguing will change anyone's mind on that sort of thing. I'm just glad that I never have to be involved in any kind of business transaction with you, as I'm sure I would come out in an unfavorable, yet likely very much 'contractually fulfilled', position.

[Flasch186]

Why do morals and obligations disappear when a contract or business becomes involved?

Anyways, clearly I have a different 'moral code' than you and no amount of arguing will change anyone's mind on that sort of thing. I'm just glad that I never have to be involved in any kind of business transaction with you, as I'm sure I would come out in an unfavorable, yet likely very much 'contractually fulfilled', position.

They dont BUT youre only applying the morals and obligations to one of the parties involved you have to apply them equally to both sides, IMO youre not.

If the bank reached out to them in ANY WAY or was responsive to my parents inquiries I would suggest that they continue to reach out to the bank for help. This has been unsuccessful but apparently theyre not alone.

In my line of work I use contracts ALL the time however I do things all the time that are outside of the contract but I also expect people on the other side to act in the same manner. Many times a buyer will not miss one day of work or a lunch to meet with the superintendent for an important meeting yet if I dont come in on my day off to meet with them, Im the asshole so I go every single time (like tonight) thusly my "surveys" are the highest in the company nationally. I think this "intent" outside of "contract" comes from years of waiting tables and always going the extra mile for people.

BTW I dont view this as arguing but having a fun debate that you dont really get in person with people since their attention spans are generally much shorter than that which we're able to talk about on here.

[digamma]

For me, this is fiscal and it is between him and the bank and unfortunately he doesnt have the option mentioned at first, write it off. He'll instead give them the collateral and the appraisal they paid for suffering the credit hit much like CFC's share price dropped when they wrote off debt.

Morals, IMO has nothing to do with it. Stigma may be there, embarassment perhaps, but like vin, I dont believe it is immoral to follow what is laid out in the contract. Friend's wouldnt draw up a contract IMO.

I can't remember...was one of your tips to increase your neighborhood's home values paying mortgages so there are not a bunch of foreclosure sales that add to the neighborhood's falling home prices?

That may be a bit snarky, but the point is, while you see this as a simple two party situation, there's actually a nice little ripple effect on a micro and macro level.

So, your parents stop paying their mortgage. They go on the bank's remittance report. The remittance report goes up a tick and the market reacts negatively sending stocks down. Also, it turns out that your bank packaged your parent's mortgage into an asset backed security. People running loss prediction models on that security add another to the loss column. That security is held by some structured investment vehicles, which rightly or wrongly, were rated AAA by the ratings agencies, and is held in a number of money market funds. The money market fund essentially guarantees a dollar NAV, but is hit with losses in these AAA securities, because the underlying ABS isn't paying, and now we're back to the bank sponsoring the money fund. They can top up the fund to make sure Joe American who invested some of his short term savings in it doesn't take a loss, but in doing so, they take a write down and their stock goes down hurting their own shareholders. And, oh yeah, the home values in your parent's neighborhood take a hit.

BTW, as a technical matter, by not paying, you are breaching the contract, not "following what is laid out" in the contract. The bank is then exercising the contractual remedies set forth in it.

[Vinatieri for Prez]

Regardless of the financial implications, morally it is the wrong decision to foreclose, regardless of the implications. If you have any means necessary to settle a debt, you owe it (at least I do) to do so, even if it means wasting your life savings and causing untold financial hardship. The fact that the terms are pre-arranged as to what happens IF you foreclose does not grant you permission to foreclose, simply because it is the more attractive financial option.


Couldn't disagree more with this statement in the context of a business relationship with a bank in which foreclosure is an explicitly legal option in the contract.

I could get into a discussion about how there are times when society and the marketplace are actually benefited by people who break contracts (perfect example is where the cost to compensate the wronged party is dwarfed by the ability of the contract breaker to put his resources to highest and best use) and which is the philosophical underpinning for why courts do not award non-pecuniary damages such as pain and suffering in a contract breach situation, but I won't because it's clear we live under a different set of beliefs in this one particular regard.

[BYU 14]

Couldn't disagree more with this statement in the context of a business relationship with a bank in which foreclosure is an explicitly legal option in the contract.

I could get into a discussion about how there are times when society and the marketplace are actually benefited by people who break contracts (perfect example is where the cost to compensate the wronged party is dwarfed by the ability of the contract breaker to put his resources to highest and best use) and which is the philosophical underpinning for why courts do not award non-pecuniary damages such as pain and suffering in a contract breach situation, but I won't because it's clear we live under a different set of beliefs in this one particular regard.

First off, like CU in that I would do everything possible to avoid a foreclosure if that was ever a possibility, just out of principal. But at the same time Vinatieri makes solid points, plus in regards to the "moral" card I don't feel bad for a lot the banks who knowingly cavorted with shady Mortgage brokers during the housing boom, for some of them karma is a bitch. I also know there are a lot of solid Mortgage brokers out there as well as solid lenders that do not deserve to be grouped with the others. Unfortunately, it was some of the shadier types along with overzealous investors that started, then encouraged the stampede here in Phoenix.

[Flasch186]

I can't remember...was one of your tips to increase your neighborhood's home values paying mortgages so there are not a bunch of foreclosure sales that add to the neighborhood's falling home prices?

no it wasnt. If someone cant afford to pay their mortgage or see themselves digging themselves a hole they cant get out of I would be recommending that they look into ALL options to save themselves and their family including giving the bank back the collateral. However mowing your lawn was. It's important for them to take their financial future into their own hands now and not wait until bankruptcy to figure out something went wrong.

...and like pointed out earlier the bank uses every aspect of said contract if it's in their advantage so Im not sure why the double standard.

[digamma]

Only making two simple points.

1. There may be other factors to consider besides the simple bottom line on numbers. I even pointed out a while back that these may be of little value in your decision. Some have moral implications, some don't. For CUTiger, the moral implications mattered. For others less so. No double standard--the point about your memo was simply a way to point out that there may be other effects to not paying your mortgage, just like there are other effects to not cutting your lawn besides having an ugly lawn.

2. Yes, breaching a contract us usually a way to get out of the contract. As VfP points out, there may be times when a breach is advisable--I've certainly talked with clients in detail about what the consequences of the breach of a particular agreement are to let them make a business decision. Certainly, before you enter into a contract, you want to consider termination provisions or the ramifications of a breach. However, I think the point others are making is that even though you are not challenging the other parties use of contractual remedies (and in some sense then, following the contract), there is some value in honoring your contract or using specified termination provisions rather than breaching and walking away. Again your mileage may vary on what that value is.

[Flasch186]

Only making two simple points.

1. There may be other factors to consider besides the simple bottom line on numbers. I even pointed out a while back that these may be of little value in your decision. Some have moral implications, some don't. For CUTiger, the moral implications mattered. For others less so. No double standard--the point about your memo was simply a way to point out that there may be other effects to not paying your mortgage, just like there are other effects to not cutting your lawn besides having an ugly lawn.

2. Yes, breaching a contract us usually a way to get out of the contract. As VfP points out, there may be times when a breach is advisable--I've certainly talked with clients in detail about what the consequences of the breach of a particular agreement are to let them make a business decision. Certainly, before you enter into a contract, you want to consider termination provisions or the ramifications of a breach. However, I think the point others are making is that even though you are not challenging the other parties use of contractual remedies (and in some sense then, following the contract), there is some value in honoring your contract or using specified termination provisions rather than breaching and walking away. Again your mileage may vary on what that value is.

the bank will not discuss these.

Good points, I fall in the business agreement camp in this situation, others fall into the morality camp in this situation. Im not sure either one is right or wrong, it is what it is.

[Toddiec]

I figured I would chime in here as a spawn of Hades banker. :)

Just on the business side, if they walk away then more often than not the bank will sue and go after their assets for the outstanding balance after the banks sells the property. I can guarantee you that whatever possible amount your parents can sell the house for will be more than the bank can. When a buyer sees a bank as the seller, you can bet they will knock 10% at least off their offer because they know banks needs to sell it as soon as possible. Bad selling position to be in for the banks so the buyer will take advantage.

Now, the bank will take a look at the financials provided at the time of application along with pulling a credit bureau, etc. to try to discern what kind of shape the borrower is in. I have no idea what your parents are like financially, but if they have some savings, IRA's, a primary dwelling (which they do apparently) that is not the collateral on this note, then the bank will most likely see assets they can grab.

Then it comes down to how much is left over after the sale proceeds are applied to the outstanding balance. They look at the borrowers situation, potential legal costs, outstanding balance, and then decide how to proceed. More often than not, especially if they see liquid or semi-liquid assets (IRA's, savings, etc.) then they will do it. One bad factor that I see from above posts is that the bank is not talking (and I mean they may be talking, just not bargaining with them, so to speak) to the borrower, that usually leads me to believe (my opinion only) that they think if the property is walked away from the bank is in good position to come out acceptably to them. Now, as to if this is because they think the property will sell for enough, if they see assets they could sue for, or if they think the borrower is bluffing, there is no way to tell.

Now, the credit hit will be bad, make no illusions, but they will still be able to borrow money. Anyone can get a loan no matter what their credit score if they can find the right place, but be prepared to have to hunt for it and then be prepared to pay for it in fees, higher than average interest rate, or both to offset the risk. Now, just speaking from my bank's standpoint we wouldn't touch the borrower for any loans due to the precedent they had set (defaulting on the loan for whatever reason), but we are not the only banker out there. I would also be worried about the bank going after them for the difference. Just to hit the main point I want to make again, I guarantee that the bank won't get the same selling price that the owners could get on the owners worst day.

Just some thoughts on the business side. I am staying out of the moral discussion. :)

[Flasch186]

Burn hades banker offspring!!! A WITCH! ;)

BTW, everyone who goes in threads and says "you should post that on a different forum, blah blah blah." I would point to the post above and say that this FOFC is the pinnacle of potpouri when it comes to knowledge and there is no better place to post a question looking for opinion, education, and insight.

[Flasch186]

210pm - NJ Gov. Corzine on CNBC pretty much said exactly what Ive been saying, that unless there is some ability for individuals who need to alleviate some of this pressure on them to be able to write off some of this debt or renegotiate with the lenders in a meaningful way that he expects people to walk away from their homes. He said that "not enough has been done" thus far and that the Laissez Faire attitude in the credit markets is what caused this and his expectation is that buyer's will walk away. He actually talked about the banks ability to write off debt while the "consumer" hasnt been able to.

FWIW:

http://biz.yahoo.com/ap/080313/foreclosure_rates.html

AP
US Foreclosure Activity Rose in February
Thursday March 13, 7:41 am ET
By Alex Veiga, AP Business Writer
Number of US Homes Facing Foreclosure Jumps Nearly 60 Percent in February

LOS ANGELES (AP) -- Nearly 60 percent more U.S. homes faced foreclosure in February than in the same month last year, with Nevada, California and Florida showing the highest foreclosure rates, a research firm said.

ADVERTISEMENT
A total of 223,651 homes across the nation received at least one notice from lenders last month related to overdue payments, up 59.8 percent from 139,922 a year earlier, according to Irvine, Calif.-based RealtyTrac Inc.

Nearly half of the homes on the most recent list had slipped into default for the first time.

Nevada had the nation's highest foreclosure rate, with one in every 165 households receiving at least one foreclosure-related notice. It had 6,167 properties facing foreclosure, a 68 percent increase from a year earlier and up 1 percent from January, RealtyTrac said Wednesday.

Most of the troubled properties were located in California, Florida, Texas, Michigan and Ohio -- states where home prices have plunged as the housing boom went bust.

The overall U.S. foreclosure rate last month was one filing for every 557 homes.

February's total represents a 4 percent dip from January, but the decline was just a seasonal blip, said Rick Sharga, RealtyTrac's vice president of marketing.

"We seem to be settling in at a new plateau in terms of monthly activity, but it's a much higher plateau than we were at a year ago," he said.

February marked the 26th consecutive month with a national year-over-year increase in foreclosure-related filings.

Meanwhile, the number of foreclosed properties that didn't sell at auction and ended up going back to lenders soared more than 110 percent last month versus February 2007, RealtyTrac said.

Last month, some 46,508 properties were repossessed by lenders, up from 22,114 a year earlier.

In some areas such as Riverside County, east of Los Angeles, the trend was stark.

The county has seen home values plummet since the end of the speculator-driven demand that triggered a boom in home construction, sales and prices.

In February 2007, it had only 65 homes go unsold at auction and returned to a lender. Last month, the total was 1,346.

"You look at that kind of growth and it's just mind-numbing," Sharga said.

Los Angeles County saw a similar rate of growth. Some 215 homes went back to the banks in February 2007, compared with 1,670 last month, RealtyTrac said.

The company follows default notices, auction sale notices and bank repossessions. Lenders typically consider borrowers delinquent after they fall three months behind on mortgage payments.

In the 12-month period ended in February, 45 states saw an increase in the number of homes that had received at least one filing.

The latest data suggest many homeowners across the nation continue to struggle with mortgage payments, despite highly publicized efforts by government, financial institutions and consumer advocacy groups to modify loan terms or work out long-term repayment plans for troubled borrowers.

The number of homes facing foreclosure is still a small percentage of all U.S. homes. But the increases are further exacerbating a protracted housing downturn that some economists warn could tip the nation into a recession.

California had the second-highest foreclosure rate, with one in every 242 households receiving a foreclosure-related notice. The state had 53,629 properties on the foreclosure track, the most of any state. The total increased 131 percent from a year earlier but declined 6 percent from the previous month.

In Florida, 32,447 homes reporting at least one filing, up more than 69 percent from February last year and up more than 7 percent from January.

Rounding out the top 10 states with the highest foreclosure rates were Arizona, Colorado, Michigan, Ohio, Georgia, Indiana and Tennessee.

RealtyTrac Inc.: http://www.realtytrac.com

[CU Tiger]

Re-reading my post, I want to make sure I dont come off as too abrasive, nor unclear.

I am not a bank empathizer in ANY way. As an industry whole they have made their own grave and many will sleep in it. However that has no bearing on my feelings of obligation. To borrow from the friend analogy, if I borrowed money from my brother in law and then found out he was cheating on my sister I would consider him scum, but it would not relieve me of my duty to pay him back.


I think your view of credit also plays in to this discussion. Is credit a right to you? To me it is a curse, and not a priviledge. I choose to live my life debt free now becuase of my history. The reason that is releveent is simple, to me your parents have gained already. They have "owned" or at a minimum had access to a house they could not afford. This was afforded them by the trust extended to them by a bank. Its not as if they have no gain from this and have simply dutifully performed a required task. They CHOSE to borrow money and PROMISED to re pay it. If they now change their promise they lack integrity in my book. Actually it would be a friendship ending act if they were personal friends, that is howserious I view it.

I liken the decision to theft, however I recognize that I am on one extreme of the situation and you are on the other. I will never make you realize my perspective and I will never appreciate yours.

A payday loan office placed directly across from a military base is perfectly legal, and their charging agreed upon interest of 300% APR is within their contractual right, it does not make the act moral. Yet I see no difference between this and your parents walking away from their obligation. They may have the legal right, they do not have the moral authority.

Finall, in my above recant, you singled in on the issue of past employees, do not discount the former creditors. These were major corporations who I could have easily dismissed, hell if they had not upheld their interest on late payment terms I could have probably avoided the pain and turmoil all together, yet I still had an obligation.

[Fidatelo]

CU Tiger is extremely adept at expressing many of my feelings in a much better manner.

[Wolfy]

Burn hades banker offspring!!! A WITCH! ;)

BTW, everyone who goes in threads and says "you should post that on a different forum, blah blah blah." I would point to the post above and say that this FOFC is the pinnacle of potpouri when it comes to knowledge and there is no better place to post a question looking for opinion, education, and insight.

Which part of Jacktown?

Also, can I borrow $100 bucks? I promise to pay it back !

[Flasch186]

Re-reading my post, I want to make sure I dont come off as too abrasive, nor unclear.

I am not a bank empathizer in ANY way. As an industry whole they have made their own grave and many will sleep in it. However that has no bearing on my feelings of obligation. To borrow from the friend analogy, if I borrowed money from my brother in law and then found out he was cheating on my sister I would consider him scum, but it would not relieve me of my duty to pay him back.


I think your view of credit also plays in to this discussion. Is credit a right to you? To me it is a curse, and not a priviledge. I choose to live my life debt free now becuase of my history. The reason that is releveent is simple, to me your parents have gained already. They have "owned" or at a minimum had access to a house they could not afford. This was afforded them by the trust extended to them by a bank. Its not as if they have no gain from this and have simply dutifully performed a required task. They CHOSE to borrow money and PROMISED to re pay it. If they now change their promise they lack integrity in my book. Actually it would be a friendship ending act if they were personal friends, that is howserious I view it.

I liken the decision to theft, however I recognize that I am on one extreme of the situation and you are on the other. I will never make you realize my perspective and I will never appreciate yours.

A payday loan office placed directly across from a military base is perfectly legal, and their charging agreed upon interest of 300% APR is within their contractual right, it does not make the act moral. Yet I see no difference between this and your parents walking away from their obligation. They may have the legal right, they do not have the moral authority.

Finall, in my above recant, you singled in on the issue of past employees, do not discount the former creditors. These were major corporations who I could have easily dismissed, hell if they had not upheld their interest on late payment terms I could have probably avoided the pain and turmoil all together, yet I still had an obligation.

I have to go to bed but very quickly:

our view on credit differ greatly, their importance, their uses, their catalysts, their rewards, etc.

The bank did not give them the loan based on trust at all. It was simply a risk v. reward decision for them and one in which moral code or trust played absolutely not one part. 100% of it was a money making decision by the bank however one in which our great countries treasury secretary pointed out that they became greedy, lost sight of their own guidelines, and created their own mess.

Many of those Payday places we're found to be acting unethically (i chose this word instead of immorally on purpose) and have lost a few court cases and now legislation is passing to effect their business hence all of the PSA style commercials you see now. I find the apparent double standard between business and individual striking but perhaps Im misinterpreting the lines drawn by those who view this as a moral issue. However in the case above involving your sister and her husband I would wait to find out if he owes her any money (child support, etc.) and balance that against paying him back. I guess I would look at his pseudo-credit score when it comes to paying my sister the things he owes her before giving him his money back but that's not fair because I would probably get very irate and emotional and Im not sure my reactions would be vanilla or rational.

I didnt point out the suppliers because I dont believe I have enough information to discern how I feel about that specifically.