Hardest Question - Time to pull the Trigger??

[IdahoCopper]

All the signs are pointing to the rapid collapse phase happening much sooner than later.

In my case, I have two rental properties that cannot be sold without pushing money across the table to pay the difference between the potential selling price, and the outstanding mortgages. They have been on the market for 3 months, with few lookers and no offers.

The rental income from them has been fairly stable, but I'm spending $100 per month to make up the shortfall between the mortgages and rental income. That's not all that much and I can afford it for now.

However with the endgame approaching, I'm now beginning to think the $1800 per month being wasted on those mortgage payments should be buying gold or silver every month. Its called strategic default.

With some pro se legal effort, its possible to drag out the foreclosure processes on the two properties for at least 10 months, and perhaps stretch them out to as much as 24 months. That is $18,000 to $43,000 that can be salvaged out of the two upside down properties.

The big question is, "Is it time to pull the trigger?" Is it time to abandon any hope of a national economic turnaround, and begin to do what is best to prepare for the disaster; regardless of any potential long-term consequences if things do not go significantly bad?

.

[Know Common Cents]

Thought about bailing out of the least desirable one and staying the course on the other? Seems like a fairly radical move to jettison both at once.

[IdahoCopper]

Thought about bailing out of the least desirable one and staying the course on the other? Seems like a fairly radical move to jettison both at once.

The house I'd prefer to keep, is the one upside down on the rent-to-mortgage. The other house brings in a whopping $34 profit per month. The keeper is just a nice 2-bdrm house I never have any trouble with. The other is a 2bdrm/3bdrm duplex and has more issues.

The old sayings, "In for a penny, in for a pound." or "May as well be hung for a sheep as a lamb." may apply here. If I'm gonna default and wreck the credit score, it may as well be for a two-fer.

[scrapper2010]

Man I don't know, I would say if you have steady renters in both, it's hard to beat someone paying your mortages for you. But I understand what you're saying. If it was me I would keep riding it out for a while. I was lucky and was forced to sell three units while the gettin' was good back in 2005. I've actually been thinking about looking for another property sometime soon. Good luck with whatever you choose to do.

[barrytrot]

So defaulting on your debt is something you consider a "tool" to be used any time?

Where I come from, that's considered very poor form. Something that only those of ill-repute would consider doing.

I would recommend you try to earn money honestly. You earn less, but honesty is priceless.

[IdahoCopper]

So defaulting on your debt is something you consider a "tool" to be used any time?

Where I come from, that's considered very poor form. Something that only those of ill-repute would consider doing.

I would recommend you try to earn money honestly. You earn less, but honesty is priceless.

When the ship (of state) is sinking, what is a life-preserver? Anything that floats.

Who is harmed by defaulting on mortgages with MERS in the middle? The true facts are those mortgages are frauds, filled with lies. I did not borrow "money" to buy those houses. I created the funds out of thin air with my signature on the promissory notes. Then the notes were sold, hypothicated, securitized, sliced & diced, and are lost in the wind.

Silver & gold are money.

[barrytrot]

So defaulting on your debt is something you consider a "tool" to be used any time?

Where I come from, that's considered very poor form. Something that only those of ill-repute would consider doing.

I would recommend you try to earn money honestly. You earn less, but honesty is priceless.

When the ship (of state) is sinking, what is a life-preserver? Anything that floats.

Who is harmed by defaulting on mortgages with MERS in the middle? The true facts are those mortgages are frauds, filled with lies. I did not borrow "money" to buy those houses. I created the funds out of thin air with my signature on the promissory note. Then the notes were sold, hypothicated, securitized, sliced & diced, and are lost in the wind.

You are harmed by forfeiting your morals for money.

A person's word should be his/her bond. When it's not it is that person that suffers the largest cost. Many forget this, but for those that don't they live much happier lives.

[IdahoCopper]

What happens to rentals in a hyper-inflation scenario?

Do rents rise as the currency inflates?

With fixed interest loans, it may be possible to pay off the mortgages with worthless paper...and keep the real asset, the real estate.

Is it immoral to pay off mortgage debt with worthless paper? Should I volunteer to pay more to "keep my word" to the lenders?

Does anyone have knowledge about this?

[barrytrot]

What happens to rentals in a hyper-inflation scenario?

Do rents rise as the currency inflates?

With fixed interest loans, it may be possible to pay off the mortgages with worthless paper...and keep the real asset, the real estate.

Is it immoral to pay off mortgage debt with worthless paper? Should I volunteer to pay more to "keep my word" to the lenders?

Does anyone have knowledge about this?

I have knowledge about part of your question:

- You made a deal which involves paying for a mortgage with "dollars".
- If you do that, you are keeping your word.
- If you don't, you are not.

The value of "dollars" always fluctuates, that's not part of your deal. If the dollar is worth more (unlikely) or less (very likely) that has nothing to do with your deal. Your deal is very clear. Abide by it and your other deals and you will be far better off.

[IdahoCopper]

I have knowledge about part of your question:

- You made a deal which involves paying for a mortgage with "dollars".
- If you do that, you are keeping your word.
- If you don't, you are not.

The value of "dollars" always fluctuates, that's not part of your deal. If the dollar is worth more (unlikely) or less (very likely) that has nothing to do with your deal. Your deal is very clear. Abide by it and your other deals and you will be far better off.

The constitution defines what a dollar is. FRNs are not dollars. Writing the word "dollar" on a scrap of toilet paper, does not make it a "dollar".

[NHsorter]

We bought big at the top of the market. I have the means to strategically default and I could then build a place on family owned land. I certainly have no love for Citibank and I would love to stick it to them. However, I have too much pride. I also think that this attitude is what is prolonging the housing market pain. No matter how you try to justify it, you are doing this at the expense of others. Some can live with that, but I am hanging on. It was a bad investment, at this point. That could still prove otherwise.

If we do get hyperinflation, won't it just make it rather easy to pay off the mortgage? Please let me know if I am wrong! I guess I am not smatr enough to game this out alone. I think that having high debt and low FRS's at the dawn of hyperinflation should leave you with some really cheap assets. Provided you stashed away a decent amount of PM's ahead of time, you would still have that wealth and you would still have the property. With that being said, if you can still swing the payments, why not keep paying? And if the [shucks] does not end up hitting the fan, you still have good credit and many years down the road you will own properties that were paid for by someone else (renters)

[IdahoCopper]

You are harmed by forfeiting your morals for money.

A person's word should be his/her bond. When it's not it is that person that suffers the largest cost. Many forget this, but for those that don't they live much happier lives.

This is an interesting conversation, thank you.

So for how long does one attempt to keep his word and pay debts? What if circumstances change, and there is a problem? To pay the debt, does one sell everything down to one set of clothes and a tin cup to beg with? Does one begin to steal to make debt payments?

At some point in a personal financial downfall, it becomes impossible to pay debts. Each person must decide when it is enough loss, and decide to default. I for one would not sell everything down to one set of clothes and a tin cup to make payments to a billion-dollar corporation. Would you do that Barry?

Yea, that's a bit of hyperbole, but there is a kernel of truth within it.

[NHsorter]

If we had debtors prison like back in the day, the real estate market would be much stronger right now. I'm not saying that is the way that I think that it should be, just putting that out there.

Sure, I would not get down to my last set of clothes before pulling the trigger either. No sense in being the last one destroying your own wealth if everyone else is going to default as well. But I don't think that we are there yet. And from what you have told us, you are not having a problem hanging in there.

Come on guys, chime in with your opinions on holding debt/mortgages and how future scenarios can hurt/benefit you. You'll save me a lot of reading if you could just give us all the answers.

[highroller4321]

I would not defualt on them.....

Raise your rates so you can at least break even on the homes. Than keep them on the market and keep trying to sell. 3 months is nothing.... You have to remember you are selling into the worst housing economy of all time.

[barrytrot]

You are harmed by forfeiting your morals for money.

A person's word should be his/her bond. When it's not it is that person that suffers the largest cost. Many forget this, but for those that don't they live much happier lives.

This is an interesting conversation, thank you.

So for how long does one attempt to keep his word and pay debts? What if circumstances change, and there is a problem? To pay the debt, does one sell everything down to one set of clothes and a tin cup to beg with? Does one begin to steal to make debt payments?

At some point in a personal financial downfall, it becomes impossible to pay debts. Each person must decide when it is enough loss, and decide to default. I for one would not sell everything down to one set of clothes and a tin cup to make payments to a billion-dollar corporation. Would you do that Barry?

Yea, that's a bit of hyperbole, but there is a kernel of truth within it.

- How long: As long as you are able. There is not a limit on one's word, at least not on those with honor.

- Should you sell every other possession to keep your word: Yes. I can't answer whether I would do that, as the "gun to your head question" is impossible to answer without an actual gun to your head. I have never defaulted on a debt and in one case it cost me over 50% of my entire net worth. I cannot speak to situations "more desperate" than that. I hope that I would have the strength to maintain my honor, but it is impossible to say.

- Should you starve to death: No. The difference in selling other possessions and actually starving should be obvious. But if not: sacrificing STUFF is always done when confronted with a person's word. Sacrificing life is not as life is more important than your word. Additionally, you should not starve any one else in your family to death. Nor death by exposure to cold, etc.

Possessions < Your word < Life

- Should you steal to make payments: No. Stealing is worse than breaking your word.

[alpacafarmer]

What happens to rentals in a hyper-inflation scenario?

Do rents rise as the currency inflates?

With fixed interest loans, it may be possible to pay off the mortgages with worthless paper...and keep the real asset, the real estate.

Is it immoral to pay off mortgage debt with worthless paper? Should I volunteer to pay more to "keep my word" to the lenders?

Does anyone have knowledge about this?

This is an investment and like all investments it has risk. If the real estate market was going great you would not be considering this. With the market bad you are looking to move your loss to someone else. If there is hyper inflation and you get to pay off your loan with dollars that are worth 10% of what they where when you made the loan then the bank losses and that was their risk.

To help with moral issue try this.

You go up to a slot machine and put in a dollar (your investment) pull the handle and win $1000. Moral

You go up to a slot machine and put in a dollar (your investment) pull the handle and don't win. take a pry bar open the machine and take a $1000. Immoral even though you know the machine is set up in the house's favor and the casino makes millions every year.

[gettin copper]

I pondered the idea of a strategic forclosure on a 3-family home I have as a rental. I think you could stretch it out 18+ months easy. Two issue's made me decide against it.

1. I care about the 3 young families that live there, and they pay there rent. In order to collect rent, and not pay the mortage, I figured I'd have to leave all tenants in the dark about the forclosure. If they get wind that your forclosing and not paying the mortage on their home, there gonna stop paying you rent. Then if you don't tell them, and the bank finally takes it, they usally clear the house, giving everyone 30-60 days to find a new home. I guess I didn't wanna "blindside" these people when it comes to there home.

2. Dealing with these rentals might suck now, but look what happens in 25 years. In reality, someone else is paying the mortage, homeowner insur., taxes etc, on a home that belongs to you. Down the road, whenever you pay these homes off, your gonna get a hell of a paycheck. First, you get a free house, and all the money that it's worth. Then you get a residual income of rent payments for the rest of your life that goes straight into your pocket. Imo, if you can break even now having these homes in your name, it's gonna pay off huge down the road.

goodluck

[IdahoCopper]

Here are the possibilities I can see:

1. Hyperinflation debases the currency and the debt can be paid with worthless dollars, if rents can be raised to keep pace with inflation.

2. Rents can't be raised, because the renters, and potential renters, are destituted by the economic disaster.

3. It becomes impossible to avoid default, sometime in the future, and the properties are lost.

4. The gov't pulls off a miracle and nothing bad happens, ever.

5. Strategic default to preserve some wealth for the coming disaster, and accept the self-inflicted psychic trauma of being naughty and not paying the debt to a billion-dollar corporation. By the way, when the foreclosure happens, the debt is paid via the confiscation of the property. That was part of the billion-dollar corporation's deal-risk, after all.

6. Do nothing, hope for the best, and accept whatever happens like a sheared & slaughtered sheep.

[IdahoCopper]

1. I care about the 3 young families that live there, and they pay there rent. In order to collect rent, and not pay the mortage, I figured I'd have to leave all tenants in the dark about the forclosure. If they get wind that your forclosing and not paying the mortage on their home, there gonna stop paying you rent.

No, you can keep the renters until the end, by offering them a 20 or 25% discount on the rent. They could not move elsewhere and find a deal like that, and they put off moving until the bitter end.

[ardorlan]

Some pointers on moving forward
Switch to a Cash Base Accounting.
Do not keep any officially keep any records.

Its easy to spend an extra 1800 on cost of livings instead of gold when your accounting is poor and you do everything in cash at some point you will get to the short sell process or foreclosure at which point they will want your documents of personal/business accounting. It maybe better to hand your money over to a trusted 3rd party to do any buying of gold (such as your wife). This way you can say you don't have any in front of a court.

Ask yourself what is your credit worth
What are the chance of you being able to use that credit
What kind of return do you expect of gold/silver
How sure are you that you will get your return?
If your wrong how much money could you loose in gold/silver

There is risk in everything, and risk is something you should take, Bet on yourself.

Morals are a two way street.
Wallstreet does not deserve your respect, your trust, your loyalty.
Do what is best for your family.
Jesus himself throw the money leaders out of the temple, was it unmoral for Jesus to do this?
Be right by god, and god will be right by you, I can not say the same for Wallstreet.
Keep your word to your family protect them, provide for them.

[Lemon Thrower]

you are asking the right questions.

the one thing about real estate is it is leveraged to inflation in the sense that if you can raise rents you are in the money. if you cant raise rents you are s.o.l.

i don't know much about real estate but if you don't expect to ever be able to raise rates then cut your losses now.

one thing i would do is ask myself what my assumption were when i got into these and what went wrong? were you counting on future rental appreciation that didn't materialize?

[IdahoCopper]

you are asking the right questions.

the one thing about real estate is it is leveraged to inflation in the sense that if you can raise rents you are in the money. if you cant raise rents you are s.o.l.

i don't know much about real estate but if you don't expect to ever be able to raise rates then cut your losses now.

one thing i would do is ask myself what my assumption were when i got into these and what went wrong? were you counting on future rental appreciation that didn't materialize?

When I was dealing properties, I was hoping for price appreciation and profits just enough to pay off one house, the one I live in. The bubble popped and so did that dream. These two rentals are what's left of the empire, lol. And I still owe on my own home.

Now one house, the 2 brdm, has an interest-only ARM mortgage that resets in November. Just in time to see the interests rates going through the roof. At that point, the mortgage cost will far out-pace the rent. That one also has a convention 2nd mortgage. My thinking is since default is inevitable, just do it now.

The other house has a single conventional mortgage, which in theory could result in a paid-for house in another 26 or 27 years.

[Treetop]

2. Rents can't be raised, because the renters, and potential renters, are destituted by the economic disaster.


honestly i dont see why this is an issue, youd still be able to make the payments. chances are your renters incomes will NOT track inflation....

If it got real bad you could have them pay you in veggies.... well if theres room to grow anything....

Personally Id keep it myself, based on what you have said. Your out 100 or so a month on these properties? isnt that what you said? doesnt matter what the dollars worth, real estate is a hard asset. If I got that right that your out 100 a month, personally I think its a great nest egg someone else for the most part is building for you....

[Copper Catcher]

I posted this on Sun Jul 03, 2011 8:14 am

Political Correctness "Strategic Defaulting" BS

13% of all people with mortgages are either behind in their payment or are already in foreclosure.

6% of the people are taking a strategic default on their mortgage if they owe $50,000 or less

33% of the people are taking a strategic default on their mortgage if they owe $1,000,000 or more

Also California has 1/3 of all the defaults. Surprise!!

So, living in million dollar homes and not paying for them and pretending it is ok

23% to 28% of all houses in the US are upside down in their mortgage!

Source:
Is it OK to walk away from mortgage?
http://www.youtube.com/watch?v=Bg0bhYpQh2Q


P.S. I realize everyone’s situation is different but I have to ask a question. If people are allowed to default when the situation is not in their favor and suffer little repercussion then what damage does this do to our financial system and or country?

Likewise, what should be said of the person who plays by all the rules and or does not borrow money or owe any money and lives within their means? What is their reward? I guess this is the group of people the President keeps talking about wanting to raise taxes on visa via “economic justice” another BS line in the sand. Just my opinion...

[ardorlan]

Allot of mortgage company allow you to push your payments back a month, skipping a month

if you wanted to do this to a lessor degree you could skip 1 or 2 mortgage payments per year and invest that in gold or whatever. Getting a Mortgage Program that allows you to skip payments is really good as a landlord, and usually the option to skip a payment is saved for an vacancy to protect vs negative cashflow for that month.

http://www.investopedia.com/terms/s/ski ... rtgage.asp