Election 2012

[Adak]

Originally Posted by Spexxvet

I heard a story from a credible source yesterday, a frame salesman. It's the flip-side of the welfare queen story.

An ophthalmologist in South Jersey makes over a million dollars a year. He owns a rental property, which has 4 units, at $2,000 per month. Three years ago, he refinanced, taking out a significant portion of the equity. Two years ago, he decided to stop paying his mortgage. He's going to pocket $8,000 a month during the foreclosure process, and then he'll walk away, screwing the bank, the taxpayers, the tenants, and who knows who else?

Asshole.

I'll tell you why he's doing it.

Three years ago, he refinanced, and was given a much higher interest rate than is currently available. Now, he wants to re-negotiate the interest rate (or refi), but the bank wants that higher interest, and won't budge. He can't refi, because now he doesn't have the equity in the property to do it.

So he's stuck, and he's VERY pissed at the bank - which has been given programs to help cases like this, but has chosen NOT to help him.

Yes, the bank will be screwed (but not terribly), the tenants will have no losses, and neither will the taxpayers. Property taxes must be caught up when the property reverts to the bank's ownership, or at least, not too far in arrears. Otherwise the property reverts to the local gov't which collects the property taxes.

[Cyber Wolf]

Originally Posted by Adak

... the tenants will have no losses...

They will lose their homes within 3 months if they're month-to-month renters or if the new owner (the bank, initially) wants to occupy or re-purpose the property. The new owner has to follow eviction procedures and the tenants will have to deal with that, but in no way to they come out completely unscathed because this guy, for whatever reason, failed to pay the mortgage. That is certainly a loss, a financial, emotional and possibly social loss too, if they have no back-up plan. There doesn't even appear to be any stipulation to provide notice to tenants of a rental property, warning them the property they rent is in foreclosure.

What Happens to Tenants When a Property is Foreclosed?

Tenants whose rented homes were the subject of a foreclosure almost always lost their leases before federal law, signed in 2009, changed the rules. Under current law, leases survive a foreclosure; the tenants can't be evicted unless the new owner intends to occupy the home -- in which case the lease can be terminated with 90 days' notice. Month-to-month tenants, who were always subject to termination upon proper notice, can now be terminated after a foreclosure with 90 days' notice.

Even if the lease or rental agreement can be terminated with the notice above, the new owner of the property must still follow state eviction procedures in order to remove a tenant from the rental unit. (To learn more about eviction procedures, read How Evictions Work: What Renters Need to Know.)

[BigV]

Originally Posted by Adak

I'll tell you why he's doing it.

Three years ago, he refinanced, and was given a much higher interest rate than is currently available. Now, he wants to re-negotiate the interest rate (or refi), but the bank wants that higher interest, and won't budge. He can't refi, because now he doesn't have the equity in the property to do it.

So he's stuck, and he's VERY pissed at the bank - which has been given programs to help cases like this, but has chosen NOT to help him.

Yes, the bank will be screwed (but not terribly), the tenants will have no losses, and neither will the taxpayers. Property taxes must be caught up when the property reverts to the bank's ownership, or at least, not too far in arrears. Otherwise the property reverts to the local gov't which collects the property taxes.

Do you know this guy? Have actual knowledge of the circumstances in this specific case? If you do, say so, produce some kind of evidence for this narrative.

If not, then I'll give you my version that is equally made up but better supported by historical facts.

Originally Posted by Spexxvet

I heard a story from a credible source yesterday, a frame salesman. It's the flip-side of the welfare queen story.

An ophthalmologist in South Jersey makes over a million dollars a year. He owns a rental property, which has 4 units, at $2,000 per month. Three years ago, he refinanced, taking out a significant portion of the equity. Two years ago, he decided to stop paying his mortgage. He's going to pocket $8,000 a month during the foreclosure process, and then he'll walk away, screwing the bank, the taxpayers, the tenants, and who knows who else?

Asshole.

Three years ago mortgage interest rates were substantially higher than they are now. http://mortgage-x.com

Even assuming he'd financed before three years ago for a rate lower than the rate listed at Sep 08 (approx 6.25), the lowest rate would have been about 5.25%, one percent lower, maximum. So, your point about him getting a much higher rate three years ago is baloney.

As for refinancing now, he had his equity back in 08, right? Where did that equity go? Now, he had it in cash, which hasn't depreciated that much since inflation over the interim has been mild, and his property is likely worth LESS, making his cash in hand a greater percentage of the value of the property. Maybe he doesn't have that money anymore you say? Ok, fine, but he had his value, and he did with it whatever he wanted. He could put it into the property, or not.

Most likely what's happened is that he's making a strategic default. The building was the security for the mortgage, like practically all mortgages. But since he doesn't live there, he isn't as attached to the property as I am or as most other resident owners. *I* want to keep living in my house, but he doesn't have that motivation. Imagine if the value of the property declines, say he gets "upside down". Whose problem is that? Why shouldn't he walk away from the mortgage? You want the property for the price we agreed? Fine, take it.

I think it's a legal smart move.

Now, who pays for the money that wound up in his pocket? Who pays when any exchange takes place for money? I buy a house, I spend money, the money's gone. But look! I have a house. The seller, they get money, but they don't have the property. In this case, the bank has a house instead of their money. Just like they agreed.

What the former property owner did is no different than Bain Capital's modus operandii. Find a property, spend some money, make some changes, get yourself and your money out. The rest is not his problem. Now the tenants likely do have a problem. The bank has a problem, they don't want to be a property owner, but they made a contract and now they're paying the consequences. The costs they incur will be paid by the bank customers, you and me. Well, you actually, I fired banks long ago. The city will likely have trouble collecting the property taxes, ('cause who's gonna pay that?) and that impacts many people. But all these costs, they're spread out somewhat. The net value of what those costs cost wound up in the guy's pocket. He bet right. I still think he's a jerk though.