Strategic foreclosures and short-sells and the church's standing

[Guest]

If there are any people who will keep up their end of a contract to the very best of their ability, it should be us. And yet I see and have worked for LDS businessmen who find a way to justify worming out of obligations and what is just plain right, because it will benefit them to do so. Bang your head against the wall all you wish. I feel like I'm doing the same thing.

[yjacket]

In fact I'll give you another example.

Stockton, CA

Stockton, California To Declare Bankruptcy

Stockton strategically defaulted. Yes, they were backed into a corner, but they could have voted to raise taxes to pay their debts, they could have increased revenue to pay it off. Unlike an individual government entities always have additional sources of revenue from taxation. Is it unethical that Stockton defaulted? Should they have raised taxes to keep making payments? They could have continued to pay but decided not to.

I venture to say that most people who strategically default don't "like" doing it, but sometimes it is necessary. Just because one isn't destitute when one defaults doesn't mean it isn't painful. There are always consequences, those that strategically default have determined that the consequences of default are less than the consequences of being stuck with a pig for xyz # of years. How do ethics enter into that equation?

[Guest]

Every investor or homeowner who lets their home go into foreclosure because they made a bad gamble, or stupid choice in loans, or bought more home than they could afford, drives down the cost of my home. We could have bought more but we looked into what could possibly happen in the future- something more people should do- and realized that if housing prices went down or interest rates went up too high or we lost income for awhile, we'd be in over our heads. So we bought within our means, or actually under our means. Lots of people around us have lost our homes because they were greedy in the beginning, and took out risky loans, and then when interest comes due or things change in the market or their situation, they're in trouble. So my street is filled with foreclosed upon homes which has driven the price of my house down even more than it would have been. Yeah, the banks were in the wrong, but responsibility also lies with those who got into more than they could afford. People need to educate themselves on what they are signing and be sure they can stick to it. I know there will be circumstances where awful things happen and people just get into trouble, but many, many fewer would have been in this situation had they been more conservative to begin with. As for investors, well, when you let that go, who do you think pays for it? I do, in the long run, because you walk and my property value goes down. Down the line I'm sure I will, too, either in bank fees or taxes or whatever. That has to be covered somewhere.

Don't bother with any more links. We disagree. That's not going to change.

[Guest]

And as far as second mortgages that they were handing out like candy go, do you think most of those were to pay for housing or improvements? Our neighbors bought a van with theirs. My fellow ward members I referenced before bought a camper and paid off debt. Then they want to go to the bank and negotiate down, while they're enjoying the goods that they borrowed off of the house to pay for. That's ethical? That they end up paying a fraction of what they should for their purchase because they found a loophole to play the system?

[some]

This has everything to do with members of the church otherwise it would be posted in another board. What's painful to see is how much members are in fact keeping up with non members in such practices. Spinning documents so a creditor will give a loan to someone who is not making payments on other properties is not an area I expect to see members in good standing or high positions being.

Also it was asked if this is between them and God. Yes there is a day of judgement. But there is the cost the rest of us have to bear being the impact to the economy in housing price drops, government bailouts among others. The money which is not getting paid off by the borrower has to be covered somehow whether it's a loss to the lender or a tax on the people.

Debt jubilee is no longer in practice nor are the laws of Moses.

[yjacket]

If there are any people who will keep up their end of a contract to the very best of their ability, it should be us. And yet I see and have worked for LDS businessmen who find a way to justify worming out of obligations and what is just plain right, because it will benefit them to do so. Bang your head against the wall all you wish. I feel like I'm doing the same thing.

I completely agree. My point is that a contract generally has the following:

1) the 2 (or more parties) that enter into an agreement.

2) Specifications of the agreement

3) Ways to fulfill the agreement

3a) delivery of or execution of #2

3b) exit clause(s) of the agreement

i. penalties associated with the exit.

If the party exits the agreement without execution of #2 but has paid the penalties as specified in the exit clauses then the individual has completed the contract. It isn't unethical to use the exit clause of a contract. Bad form, bad taste, possibly bad for future business, sure, unethical no. It is unethical to use the exit clause without paying the penalties specified in the contract (as you have now violated the contract). Obviously the vast majority of the time it behooves the individuals to accomplish 3a. But sometimes situations change and it becomes necessary to exit the contract without execution of the agreement. I'm not arguing that it would be best to always execute the specifics of the agreement, just that sometimes the situation changes and one needs to exit the contract. That is why exit clauses exist. It is not unethical to use that exit clause.

Only the person who actually made the agreement can make the decision if exiting is correct or not. I bet in most situations you did not and do not have the full range of information about why someone exited a contract.

For example, I almost bought a huge house a couple of years ago, put in my contract and signed my name. I quickly realized it was not the right thing for me to do, I exited the contract as specified in the terms. I "could have" easily followed through with the contract, but decided it was not right. What I did was no more unethical than someone strategically defaulting on a mortgage.

[yjacket]

Every investor or homeowner who lets their home go into foreclosure because they made a bad gamble, or stupid choice in loans, or bought more home than they could afford, drives down the cost of my home. We could have bought more but we looked into what could possibly happen in the future- something more people should do- and realized that if housing prices went down or interest rates went up too high or we lost income for awhile, we'd be in over our heads. So we bought within our means, or actually under our means. Lots of people around us have lost our homes because they were greedy in the beginning, and took out risky loans, and then when interest comes due or things change in the market or their situation, they're in trouble. So my street is filled with foreclosed upon homes which has driven the price of my house down even more than it would have been. Yeah, the banks were in the wrong, but responsibility also lies with those who got into more than they could afford. People need to educate themselves on what they are signing and be sure they can stick to it. I know there will be circumstances where awful things happen and people just get into trouble, but many, many fewer would have been in this situation had they been more conservative to begin with. As for investors, well, when you let that go, who do you think pays for it? I do, in the long run, because you walk and my property value goes down. Down the line I'm sure I will, too, either in bank fees or taxes or whatever. That has to be covered somewhere.

Don't bother with any more links. We disagree. That's not going to change.

Ah . . . now we finally get to the crux of the issue. You believe strategically defaulting is wrong because it drives down the price of your home. This has nothing to do with them, it has everything to do with you.

You did everything "right", so now you are mad b/c they are getting off scott free and you are getting shafted.

[NeuroTypical]

I find nothing unethical or dishonest in foreclosures or short sales as long as the terms of the contract are being followed.

...

2) In return for the money, the individual promises to pay x in interest and principle.

3) In the case that the individual does not fulfill #2, bank takes house as collateral.

No where in the contract does it say the individual "must" make payments.

Huh. So:

"Hi there potential lender! I just wanted you to know that I don't believe any of this stuff I'm signing actually means I "must" make payments! That's not a problem for you, right?"

If you're as upfront with a potential lender as you're being with us, do you honestly believe anyone would enter into a contract/mortgage/loan with you? I mean, cell phone and cable companies are always happy to, because of the early cancellation fees. But a car or a house?

Edited August 6, 2012 by Loudmouth_Mormon

[Guest]

It's not all about me, it is partly about me. It's stating a reason that it affects other people, which makes it ethically wrong. You are free to disagree. You're even free to take personal shots at me, but it doesn't convince me any more that you're right.

[yjacket]

This has everything to do with members of the church otherwise it would be posted in another board. What's painful to see is how much members are in fact keeping up with non members in such practices. Spinning documents so a creditor will give a loan to someone who is not making payments on other properties is not an area I expect to see members in good standing or high positions being.

Also it was asked if this is between them and God. Yes there is a day of judgement. But there is the cost the rest of us have to bear being the impact to the economy in housing price drops, government bailouts among others. The money which is not getting paid off by the borrower has to be covered somehow whether it's a loss to the lender or a tax on the people.

Debt jubilee is no longer in practice nor are the laws of Moses.

Now, I never said anything about lying on documents being ethical . . . I was specifically addressing strategical defaulting. Lying on a document to get a loan is obviously dumb, unethical, and against the law.

Negativo on the money being covered somewhere. The money never existed in the first place!

2 facts about our monetary system:

1) All money is loaned into existence

2) In our society if we had no debt we would have no money.

Where do you think the banks got the money to loan in the 1st place? I'll give you a hint, they didn't have it in the 1st place. The through the magic of fractional reserve lending created it out of thin air. Sure it might be an entry in a ledger book, but it is just a book-keeping action. There are only 2 ways money gets destroyed.

1) Loans are paid back.

2) Currency is actually destroyed.

[yjacket]

Huh. So:

"Hi there potential lender! I just wanted you to know that I don't believe any of this stuff I'm signing actually means I "must" make payments! That's not a problem for you, right?"

If you're as upfront with a potential lender as you're being with us, do you honestly believe anyone would enter into a contract/mortgage/loan with you? I mean, cell phone and cable companies are always happy to, because of the early cancellation fees. But a car or a house?

Umm, actually yes lenders do calculate default rates into their spreadsheets. Default rates are put into interest rates, etc. And yes, lenders know that a lot of people won't make payments. Credit scores, etc. are there for lenders to assess how likely they are to get their money back. And without the Federal Reserve mucking with interest rates, rates would actually rise to reflect the amount of defaults in the system.

[yjacket]

It's not all about me, it is partly about me. It's stating a reason that it affects other people, which makes it ethically wrong. You are free to disagree. You're even free to take personal shots at me, but it doesn't convince me any more that you're right.

I'm not interested in taking personal shots at you, I'm interested in getting to the heart of the matter. I would say yes it does affect you . . . but so does just about everything anyone does. According to this logic anytime anyone does something that affects other people in a way that is possibly bad it is unethical?

For some people it affects them in a good way and in others a bad way? So it is unethical if it affects anyone in a bad way?

[Guest]

Not interested in dancing with you. Best wishes.

[yjacket]

It's not all about me, it is partly about me. It's stating a reason that it affects other people, which makes it ethically wrong. You are free to disagree. You're even free to take personal shots at me, but it doesn't convince me any more that you're right.

I'm just curious, but why do you personally care what $ value your home is worth? How is that something that should stress out your day-to-day life?

Why do you not care as much about say laptop prices going down? Someone bought a laptop this year much cheaper than I did last year, I don't care. I felt the price I bought my laptop at was a good price, so I bought it.

[annewandering]

How do you know members of the church are just as bad as every one else in this? Do you have stats to back up your theory? Maybe its time to break them out since you have slammed us all now.

[annewandering]

I'm just curious, but why do you personally care what $ value your home is worth? How is that something that should stress out your day-to-day life?

Why do you not care as much about say laptop prices going down? Someone bought a laptop this year much cheaper than I did last year, I don't care. I felt the price I bought my laptop at was a good price, so I bought it.

Seriously that is insane reasoning. Of course she is concerned about her house, It costs a whole lot more than a laptop does and it does not lose value over time just because it gets older. Hopefully it increases in value so if she wants a loan on it or wants to sell, it will serve her well.

[NeuroTypical]

Umm, actually yes lenders do calculate default rates into their spreadsheets. Default rates are put into interest rates, etc. And yes, lenders know that a lot of people won't make payments. Credit scores, etc. are there for lenders to assess how likely they are to get their money back. And without the Federal Reserve mucking with interest rates, rates would actually rise to reflect the amount of defaults in the system.

Could I ask you to answer the question I asked please?

I didn't ask if lenders calculated default rates into their spreadsheets. Or if they added default rates into their interest rates. Or if they knew if a percentage of borrowers wouldn't make payments. Or the purpose of credit scores. Or what impact the Fed Reserve has on interest rates.

I asked you a simple question: If you are as upfront with a potential lender as you are being with us, do you honestly believe anyone would enter into a contract/mortgage/loan with you?

"Hi there potential lender! I just wanted you to know that I don't believe any of this stuff I'm signing actually means I "must" make payments! That's not a problem for you, right?"

[some]

How do you know members of the church are just as bad as every one else in this? Do you have stats to back up your theory?

This isn't about raw stats, it's why members should be mixed up in the same or worse practices as their nonmember partners.

Stockton strategically defaulted. Yes, they were backed into a corner, but they could have voted to raise taxes to pay their debts

Please read the original post. The original question had nothing to do about being backed into a corner or being stressed financially, but instead dabbling with the system to buy better while dropping commitments of first or second mortgages which the members are in a perfect position financially to handle. Meanwhile remaining in good standing in their church and community.

This is a very real problem, I don't understand why it's getting written off in this thread.

[annewandering]

HOW so we know its a real problem if you have no stats to prove it?

[some]

HOW so we know its a real problem if you have no stats to prove it?

Sorry I don't understand what you are looking for. Are you arguing that the ratio of members doing something vs non-members will then justify the members? There are tools available to find out what's happening. Most of the transactions are public record on your county's website or other locations. It's not hard to follow the dots to find out what people are doing.

There are pockets and groups who participate more than others, as stated in a post earlier, particularly markets where there is large fluctuation of housing costs thus greater risk.

I had asked what the church's position was on the matter, and have gotten a wide variety of responses.

Edited August 6, 2012 by some

[annewandering]

I think that its not a huge problem. Honestly I think most people will have no clue what you are talking about other than broadly. Certainly not enough to actually do what you are talking about.

Unless they are into banking or real estate. Or con jobs.

You are going to find people who dont care who they hurt, anywhere and hopefully less in the church. I also would not call it a sin unless we are going to call business itself a sin in most cases. What business wants to lose money? What homeowner wants to lose money? I would imagine the ones who do this sort of thing feel like they are justified because its money not people. And people 'should watch out for themselves'.

Would I do it? No.

[yjacket]

Seriously that is insane reasoning. Of course she is concerned about her house, It costs a whole lot more than a laptop does and it does not lose value over time just because it gets older. Hopefully it increases in value so if she wants a loan on it or wants to sell, it will serve her well.

Actually it is not insane reasoning. What about car values? Who purchases a car expecting that the car will go up in value. Many cars now cost just as much or more than a home. No one complains when car values decrease . . . in fact everyone complains when they go up.

My point is that a house is the only thing that society purchases using leverage that people hope and dream goes up in value. It is absolutely asinine that culturally we have been brainwashed into thinking that increasing home prices are actually good for us. Increasing home prices are actually the opposite very, very bad for everyone (except banks and those who use financial leverage). And a simple exercise in math will prove it. Home A is at 100k, Home B is at 200k. A 10% increase in values means home A is now worth 110k and home B is worth 220k. The relative difference increased from 100k to 110k. Meaning that if the person who lives in home a wants to move to home b they now have to pay 10k more than they would have. If their income has suddenly increased, great no problem, if it hasn't they are now paying more to purchase home b.

And in this current environment (especially since 2000) incomes have gone absolutely nowhere, meaning that all things being equal home prices should go nowhere. In fact, if it weren't for the stupidity of 30 year mortgages and debt people would be glad home prices go down. In fact what people need to be concerned about isn't whether their particular home went up or down in value, but the relative value of their home compared to everyone else's. And your home value doesn't even come into play until you actually sell it. It could be worth $2 today and 100k when I sell, it doesn't matter until I actually sell it.

A house is an expense, it isn't a place that magically saves money or stores wealth. Society-wise we'd all do better to just view it in that manner. It is a business transaction, no more no less, instead we attach all sorts of emotion to it that clouds our minds into believing it is something more than simply put a place to live and keep us safe from the elements.

[yjacket]

This isn't about raw stats, it's why members should be mixed up in the same or worse practices as their nonmember partners.

Please read the original post. The original question had nothing to do about being backed into a corner or being stressed financially, but instead dabbling with the system to buy better while dropping commitments of first or second mortgages which the members are in a perfect position financially to handle. Meanwhile remaining in good standing in their church and community.

This is a very real problem, I don't understand why it's getting written off in this thread.

It is only a real problem b/c you claim it is a problem. If I am to state your position correctly, you believe that there is only 1 way to fulfill a contract on a mortgage if someone has the means to do so and that is to pay it off. I trying to explain that a mortgage has various methods of getting out of payment, one ethical way to do so is to default and give the house back to the bank. It would actually be unethical to "lock" someone into paying for a mortgage that they do not want to pay for.

If you are referring specifically to someone who has a loan on a house, buys another house 1st and then defaults on the 1st house. An individual has to be in a very, very good financial position to do so. And if they are in that good of a position, they didn't get there by accident, they worked for it.

Defaulting on the 1st house will cost them, they will have penalties associated with it. You are making it seem as if they get off scott free: they do not. Just because they aren't destitute and living in a card-board shack doesn't mean they are not repercussions. And I think the repercussions should be harsh. Until the Federal Government got involved, banks would pursue the individuals for the difference of the loan. The IRS pursues taxes on the forgiven loan amount. Their credit is shot and they wouldn't be able to purchase anything using credit for at least 7 years. In general, the only way out of such a situation was to declare bankruptcy. The banks have eased up on the punishments, that's not the defaulters fault. Again that is a very weighty decision that someone makes, it isn't made lightly and without regard to consequences; but to claim it is unethical I believe is too much.

[yjacket]

Could I ask you to answer the question I asked please?

I didn't ask if lenders calculated default rates into their spreadsheets. Or if they added default rates into their interest rates. Or if they knew if a percentage of borrowers wouldn't make payments. Or the purpose of credit scores. Or what impact the Fed Reserve has on interest rates.

I asked you a simple question: If you are as upfront with a potential lender as you are being with us, do you honestly believe anyone would enter into a contract/mortgage/loan with you?

"Hi there potential lender! I just wanted you to know that I don't believe any of this stuff I'm signing actually means I "must" make payments! That's not a problem for you, right?"

Well, I don't think they got a loan specifically with the intent to default . . . if that is the case why get a loan? The bank does get to repose the house. So if you intend to default you are just wasting money. No one gets a loan with the intent to default (unless you truly are a scamster). I am just explaining that default is an option, you don't have to be "struggling to make payments" to default, the bank knows it and assumes that and defaulting has nothing to do with being ethical. It is embedded in everything about the loan buying process.

[yjacket]

I think that its not a huge problem. Honestly I think most people will have no clue what you are talking about other than broadly. Certainly not enough to actually do what you are talking about.

Unless they are into banking or real estate. Or con jobs.

You are going to find people who dont care who they hurt, anywhere and hopefully less in the church. I also would not call it a sin unless we are going to call business itself a sin in most cases. What business wants to lose money? What homeowner wants to lose money? I would imagine the ones who do this sort of thing feel like they are justified because its money not people. And people 'should watch out for themselves'.

Would I do it? No.

I agree with the vast majority of this. Would I do it, it depends on the situation. I never want to be in that situation so I have taken steps to ensure I'm not.

I would add that just about every business decision hurts some people and helps others, it's just the way it works. One man's loss is another's gain. Thousands and thousands of people are today able to buy homes for cash and never have to worry about feeding the alligator b/c of the housing bubble/crash. It's great for others and bad for some.