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

[yjacket]

I have a huge problem with someone coming in with this type of a hypothetical (or maybe it's a real-life example) in this case and saying it's right or wrong. Not enough facts exists in order to make that determination. That's what courts, Bishops, lawyers, judges, etc. are for. Of course we have to judge righteously, but as we are internet jockies not courts it is not for us to judge.

Yes some people are scumbags and just care about what's mine, some people are evil and just care about themselves regardless of who their actions affect, they will lie, cheat, steal, etc. to gain an advantage. But just because someone strategically defaults does not mean they are one of these types of people.

I have an issue with this type of a hypothetical scenario because it becomes emotionally charged. It becomes worse if it is a real-life example. The facts presented are one-sided, presented in a manner that ensure the person telling the story is more likely to be in the right. One person believes b/c they perceive that someone is getting an unfair advantage that it's wrong. Rather than looking at the situation and analyzing the particulars, they come off with a blanket "it's unethical". They end up becoming hypocrites by looking at their neighbors and picking out the perceived mote in their brothers eye without looking at the beam in their own eye.

That is why I believe I have consistently said it may or may not be ethical, and for that I get blasted. I have individuals claiming in some way that I cannot possible be a good Mormon because of this position.

[yjacket]

I would just add in the larger scheme total US debt is over 300% debt to GDP.

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/01/World%20debt%20to%20GDP.jpg

The issue of debt will become a major issue in future years. As I've said before there are only 3 ways out. Default, inflate, pay it off. Paying it off would entail decades of real pain, in fact there may be no real way to actually pay it off. Debt liquidation is the quickest and least painful way out. It sucks, but it reboots the system. How we approach housing debt liquidation is indicative of how we will approach things when grand scheme debt liquidation is necessary. Obviously, the people who lied and cheated are evil, but some people just need to liquidate debt. Debt = slavery.

Debt IMO should only be used for things that will increase productivity, i.e. build a new factory invest in new machinery, etc. Debt for a house or a car is in general a losing proposition.

[Just_A_Guy]

I have a huge problem with someone coming in with this type of a hypothetical (or maybe it's a real-life example) in this case and saying it's right or wrong. Not enough facts exists in order to make that determination.

I respectfully disagree as per the hypothetical of the original post:

]More and more foreclosures and short sales are being used by those who have financial means to sell outright but choose not to only to increase their wealth and standing in society. Basically when a house goes down in value, a member will buy a much more expensive home using either their own funds or a money from a second loan on the first, then short-sell or foreclose the first. The same member is then happy to pocket the profits on the second home when the value goes up.

We can disagree with regard to whether this is happening "more and more", but as-written, I think we can get a sufficient view of "intent" to make the requisite judgment.

Similarly, Eowyn claimed:

I've even seen someone in my ward start a short sale for the express purpose of having leverage to negotiate with the bank to take a fraction of what's owed on their second mortgage, as opposed to getting next to nothing if a short sale went through. They never intended to short sale it, they just wanted to put the bank in a bind to get out of paying thousands and thousands of dollars that they had borrowed on the house.

She later supplemented with:

They did tell me so, and exactly what their intentions were.

If Eowyn is telling the truth, then I think we know all we need to know about that particular anecdote.

That's what courts, Bishops, lawyers, judges, etc. are for. Of course we have to judge righteously, but as we are internet jockies not courts it is not for us to judge.

But I believe you've already conceded--and indeed, it seems to be something of a consensus here--that what is legal may not perfectly mirror what is ethical; so the idea of letting a court of law do my thinking for me in this regard seems questionable. And while we have no right to pass judgments on "worthiness", it's also problematic to assume that someone's behavior has been on the up-and-up because he "passes" a bishop's interview.

I submit that judging specific instances of behavior - either hypothetical or otherwise - can be is instructive so long as the focus remains on ourselves, what our own limits are, and how we would behave in a similar circumstance.

I have an issue with this type of a hypothetical scenario because it becomes emotionally charged. It becomes worse if it is a real-life example. The facts presented are one-sided, presented in a manner that ensure the person telling the story is more likely to be in the right.

If we were publicly shaming specific people, I'd be more likely to agree with you. It's one thing to mock someone who just happens to sin differently than us. It's entirely another thing to suggest we quit talking about sin altogether.

That is why I believe I have consistently said it may or may not be ethical, and for that I get blasted. I have individuals claiming in some way that I cannot possible be a good Mormon because of this position.

I, for one, hope you stick around. Your comments have been extremely thought-provoking.

Edited August 6, 2012 by Just_A_Guy

[yjacket]

Just-a-guy thanks!

I'd like to see a specific instance of this happening, otherwise it is just conjunction:

"Basically when a house goes down in value, a member will buy a much more expensive home using either their own funds or a money from a second loan on the first, then short-sell or foreclose the first. The same member is then happy to pocket the profits on the second home when the value goes up"

The basic premise seems to be that the member is profiting during the strategic default.

IMO the bank should be able to pursue the foreclosure loss. And in the vast majority of states this is true. There are 12 states were loans are non-recourse:

Recourse v. Non-Recourse States

Maybe that is where the confusion comes in. My state GA, the bank can sure has crap pursue you if you default on a loan (as they should be able to). The way you get out of that is through bankruptcy. That's why to me, the issue is a moot point. It can't happen. Of course lenders and creditors should be able to pursue losses in court. The counter-point should be that basically in states that are non-recourse loans should be a) harder to get and b) much higher interest rates to compensate for the banks inability to pursue losses.

The only way to possibly make it happen is to buy the 2nd house using some sort of incorporation, etc. which gets into a whole other set of criteria that isn't germane to this discussion.

I have no idea why a state would make mortgage loans non-recourse . . . that's just dumb. I would also argue that in those select cases of this happening the person is most likely not buying a more expensive house, they are probably downgrading. I personally find it extremely hard to believe (and I would like to actually see a specific instance) where someone who has strategically defaulted ended up in a bigger home, nicer neighborhood etc.

As for the short sale that eowyn mentioned, we'll agree to disagree. I find it as a negotiating tactic, I don't see anything unethical this negotiation.

[some]

Just-a-guy thanks!

I'd like to see a specific instance of this happening....

I have no idea why a state would make mortgage loans non-recourse . . . that's just dumb. I would also argue that in those select cases of this happening the person is most likely not buying a more expensive house, they are probably downgrading. I personally find it extremely hard to believe (and I would like to actually see a specific instance) where someone who has strategically defaulted ended up in a bigger home, nicer neighborhood etc.

Buying a home ESP in such circumstances doesn't happen by accident. This is why lawyers and financial anylysts exist. The entire transaction can be set up months or years before execution.

There are many ways to fool the banks. Also I'd rather not give specific examples. If you don't know then it's probably better left that way.

[yjacket]

Buying a home ESP in such circumstances doesn't happen by accident. This is why lawyers and financial anylysts exist. The entire transaction can be set up months or years before execution.

There are many ways to fool the banks. Also I'd rather not give specific examples. If you don't know then it's probably better left that way.

This seems like a fallacious argument. Make a claim that X happens, when someone asks for an example of X happening then saying I'm not going to give specific examples of X happening . . . but trust me it does there are many ways to do X and you're better off not knowing. Sorry my BS o meter is spiking.

The title of this thread is strategic foreclosures and short sells, I have been addressing those aspects. If the thread title were running ends around the financial system then that is a different topic. If you believe that you have specific evidence of such against a particular individual then I would suggest you bring such evidence to the persons Bishop and let them deal with the matter.

I have no reason to doubt that such a case does exist, but if so it is probably a very limited scenario and if you feel it is a huge concern then go to the person's Bishop. If you are a part of something you feel is unethical then stop being a part of it. If it's b/c the state this is occurring in is non-recourse, the best thing to do is to change the laws to make it a recourse state.

My sole point is that just because someone strategically defaults it does not necessarily make it unethical. Even if they buy a home afterwards it doesn't necessarily make it unethical. The more loops and twists and turns the more likely it is unethical, but you really need a case by case basis to make that determination.

[Guest]

Okay, okay... yjacket here has a point. I'm even getting confused on what we are talking about here.

My understanding of the OP is a foreclosure or a short sale as a BUSINESS STRATEGY. Isn't that what we are talking about here?

This is basically the same concept as a company invoking bankruptcy protection while they restructure and recoup losses. Donald Trump is probably the most prominent example of this strategy.

Remember, a house is just a business asset here. So, basically, what we're arguing about is - if it is ethical to make money by invoking the exit clause of a contract.

So, anybody following NFL here? Do you know about Maurice Jones-Drew? He signed a 4-year contract with the Jacksonville Jaguars. 2 years into the contract, he wants more money, so he is refusing to show up for practice and such until they restructure his contract. For MoJo, his reasoning is - he got a really high running back rating last year so it is the perfect time to play hard-ball.

Same exact example here as the mortgage topic. Is it ethical for MoJo to skip out on practice to force the Jaguars to restructure his contract?

In my opinion - and I guess in yjacket's opinion as well - this is completely above board and ethical. It might be argued that it is low class and it is sure making fans upset at MoJo... but it's ethical.

[EarlJibbs]

I scimmed through the posts and here is my two cents, sorry if this is covered, but what I read showed differently.

If you make an agreement with anyone to pay back money and you can (regardless of the current inflation or deflation of an asset) it is your responsibility to make ammends for that.

If you know you are going to be in trouble and cannot pay, then pursue a Short Sale or Deed in Lieu of Foreclosure. If you do it simply to stiff the bank, to not pay it back, to save you a couple bucks.... who are you fooling? Definitely not God. Play it straight. Some of the comments here frighten me. The option of Bankruptcy or a Short Sale are there for a reason, but dont think that just because they are there that the way you use them is condoned of God because you found some loop hole. Remember those are laws of men. I am sure I am going to take some heat over my comment, but oh well. We can still be friends.

The way some are comparing it here (like a job) if your job offered you X amount of money and then decided half way through your job that they wanted to re-negotiate what would your thoughts be then? I am sure you wouldnt say "it's fine", or "wow, that was pretty strategic, good for them" I am sure there would be lawsuits and other legal means to obtain your money and work you were promissed. I dont think you would say it was "ethical" of them. Not in the least.

What are we without our word? Our promise?

[BenRaines]

I just want to say that I am glad that I will be judged only on my own actions and not the perceived or believed actions and motivations of others.

I chose not to judge harshly so that I can minimize being judged harshly.

Ben Raines

[yjacket]

I just want to say that I am glad that I will be judged only on my own actions and not the perceived or believed actions and motivations of others.

I chose not to judge harshly so that I can minimize being judged harshly.

Ben Raines

100% agree.

Dealing with contracts, foreclosures, defaults, money, etc. is an extremely complex, ever changing situation. No one, except the people who make those decision, have access to all the information available as to why they made a certain decision. There is a reason why bankruptcies, foreclosures, defaults, etc. are removed from the court of public opinion and have developed into laws.

In the vast, vast majority of cases, when something is unethical . . . it is also against the law.

Besides, it is entirely subjective as to what is "financial stress". Financial stress for someone making 20k/year is different than someone making 120k/year. Some people would feel naked having less than 50k in a bank account, others would be grateful to have 500 bucks.

It's like people think someone who strategically defaults gets off without any penalties. Oh there are penalties and lots of them and unless you plan on moving to another country you are stuck with the penalties for many years. There ain't no free lunch.

[Guest]

I scimmed through the posts and here is my two cents, sorry if this is covered, but what I read showed differently.

If you make an agreement with anyone to pay back money and you can (regardless of the current inflation or deflation of an asset) it is your responsibility to make ammends for that.

If you know you are going to be in trouble and cannot pay, then pursue a Short Sale or Deed in Lieu of Foreclosure. If you do it simply to stiff the bank, to not pay it back, to save you a couple bucks.... who are you fooling? Definitely not God. Play it straight. Some of the comments here frighten me. The option of Bankruptcy or a Short Sale are there for a reason, but dont think that just because they are there that the way you use them is condoned of God because you found some loop hole. Remember those are laws of men. I am sure I am going to take some heat over my comment, but oh well. We can still be friends.

The way some are comparing it here (like a job) if your job offered you X amount of money and then decided half way through your job that they wanted to re-negotiate what would your thoughts be then? I am sure you wouldnt say "it's fine", or "wow, that was pretty strategic, good for them" I am sure there would be lawsuits and other legal means to obtain your money and work you were promissed. I dont think you would say it was "ethical" of them. Not in the least.

What are we without our word? Our promise?

I am a contract worker. Companies I work for ALWAYS put in the contract that they can terminate or reduce my rate before the contract expires with X months notice. It's their exit clause. They are not obligated to keep me working so I can feed my family if it is not to the best interest of the company.

Because of this, I structure my finances so that I am protected in case the company terminates my employ.

And yes. It is ethical of them. What wouldn't be ethical for a company is to remain running on the red - reneging on their promise to deliver returns on investments just to keep an employee working. Remember, the company only exists to produce a return on an investment. It doesn't exist so people can have jobs.