My good friend Devon Andrich is a real estate attorney who lives in Phoenix, Arizona. I’ve known him since I was 17; we worked together flipping pancakes at Bob Evans. Sometimes it’s hard for us to believe how far things have come in a relatively short period of time.
When I was spoke in Arizona last month, Devon shared some unique strategies on negotiating short sales with banks. He knows his stuff, and as I listened to him, it was hard to believe this was the same guy who used to play “Think Fast” with me at Bob Evans. (“Think Fast” is a game where one person would throw something, such as an egg or pancake, at another person during our busiest part of the business day. The thrower had to yell “think fast!” before the item went airborne, and the catcher had to immediately drop everything he was doing and catch the random flying object.)
After I returned from Arizona, Devon shared a report that he wrote entitled “When to Walk Away”, and with his permission, I’m now sharing it with you. You can check it out by clicking here.
As you’ll see, you always know where you stand with Devon. On one hand I agree with most of what he wrote. On the other hand, the reason people feel bad and experience these emotions is because they have signed and PROMISED to repay their loans, and now they aren’t living up to their promises.
In my opinion, however, if someone is behind on payments, it IS their fault. They are the ones who failed to plan and didn’t have enough savings to handle their house payments and the unexpected things that may arise. They are the ones who chose (most of the time) not to put any (or enough) money down on their original purchases. They signed loans that they probably never read before signing.
For these reasons alone, they are obligated to pay their mortgages if they are able to. If they can’t, they can’t; then they need to consider alternatives, such as short sale, etc… But ultimately, they have made serious commitments that they need to follow through on whether they want to or not.
So what do you think? I’m curious to hear your thoughts on this. Is Devon right on with his approach? Please leave a comment below.
5 responses so far ↓
1 Ryan Thompson // Mar 11, 2010 at 11:58 am
Nice article. Being a Christian, I think it’s our responsibility to repay our debts.
However, if fraud was involved at the signing of the mortgage note, the contract is null and void. Of course if YOU have knowingly participated in the fraud, that’s a different matter.
Our laws show that this is true. As you’re probably aware, some mortgages HAVE been canceled because of it (through MUCH expensive litigation, though).
I believe it’s irresponsible to walk away from our mortgages if there was no fraud, and we intended to live in them, no matter how much the price went down.
Things *could* change. As stated in the PDF, interest rates probably will rise, and the ones with 5-8% mortgages will be glad they stayed in their homes, even though they were upside-down.
There may be a silver lining in this…
The only difference between the economic times now compared to the late 70′s and early 80′s is that back then there wasn’t much of a chance of hyperinflation.
When we see hyperinflation happen here in the USA (I think it’s inevitable), not only will the interest rates be sky high, but the money will be so diluted, that the home values will sky rocket and paying off that mortgage will be done so quickly it won’t even matter anymore.
This of course is a worse case scenario, but I think it’s a possibility.
With all this being said, I don’t think homeowners should stress about our economic times and the problems they’re having with their mortgages. Just hang in there, and plan accordingly. If you can’t pay, you can’t pay. If you can, pay. We’ll get through it just as we did before.
And that’s just my two cents (which coincidentally is the current value of the dollar compared to 1913 values when the Federal Reserve took over our currency).
Nice article!
~ Ryan Thompson ~
2 Jeremy Cohn // Mar 11, 2010 at 1:49 pm
Interesting to know that folks that borrow against their homes are not well protected against the AZ anti-deficiency laws. I’m new to this arena, but it seems like it might be less convincing for homeowners to choose short sales if they know they cannot just “walk away”.
3 stan bailey // Mar 15, 2010 at 11:58 am
http://www.irvinehousingblog.com/blog/comments/the-swiss-central-bank-openly-discourages-mortgage-lending/
maybe its everybody’s fault …
4 Shaun // Mar 15, 2010 at 2:06 pm
Don’t forget that a foreclosure on someone’s record still stays there for 10 years. Granted, a short sale is still a negative stint for them since they did not pay completely as agreed, however, at least it shows that they made an effort to resolve the issue. For this reason alone, it’s the right thing to do, and this is how it should be presented to the homeowner. FYI.
5 Fred Kuelker // Mar 15, 2010 at 4:27 pm
Shaun,
The attorney’s position with regard to homeowners staying in their houses, rather than walking away, makes sense as he has structured a defense from the homeowners perspective.
If the lender refuses to consider another option to keep the homeowner afloat, this can create an attitude of defiance on the part of the homeowner. They know there is a good chance the house will be auctioned off. They also know they are out on the street if they walk away from the house. And in the minds of some, they recognize that foreclosure does not stop the financial or even legal challenges they are likely to face from both the lender and others they owe money.
Wall Street and financial institutions are reported in the media to be the root cause for our languishing economy, the market crash, unemployment, and the down turn in the housing market.
No question some lenders were greedy and unconscionable with the loans they approved. Loan applicants that never should have qualified or loans that were paper transactions like in a monopoly game. Now we are looking at record numbers of people facing foreclosure and what do the lending institutions do they re-confirm their negative image with the public. Too often they do not want to work with homowners or investors, as they attempt to get all of their money back, even if it shreds the lives of the very people they setup for failure.
It appears that the attorney in this case sees himself as the white knight in this process fighting for the underdog. He positions homeowners as victims, not as people who did not honor their end of an agreeement. He is willing to ignore the entire transaction process i.e., the mortgagee was presented with a contract, informed of its content and the terms of the loan, and the paperwork was signed by the mortgagee and notarized, confirming the contract agreement.
My recommendation for managing this situation with homeowners in default on their loans would be to form two groups, compassionate H/Os and non-compassionate H/Os.
Compassionate H/Os are individuals facing hardships do to extreme circumstances. (The specifics as to who qualifies can be determined by the lenders). People in this category would be reviewed on a case by case basis and presented with optional loan restructuring strategies.
Non-compassionate H/Os are individuals with changes in their lives, but their misfortunes are linked to poor spending practices or they were in over their heads financially from the outset of the loan. Many of these people have little or no skin in the game and without a second thought are willing to stop payment on their mortgage, play the victim, and attempt to stay in the house until forced out.
I have very little compassion for the undeserving.
Perhaps the attorney is able to justify acts of unaccountability by people who seek to live off the work and earnings of others when it comes to healthcare, food, clothing and transportation.
People that are of this mind-set do not look favorably upon a capitalistic system. Equal access to all things. No incentive or reward for acheivements. Everyone has access to the same goods and services. No penalty for wrongful acts. If these concepts become standard practice they will harm our society.
We live in a time in which pain and suffering are classified as in-humane. No one should have to face obstacles in life.
I will never condone unaccountability or irresponsible behavior.
I would suggest that bank presidents and their board members should convene and formulate practices that show they are receptive to work ing with people that are legitimately good customers. These customers need to be presented with some options that will help them get through a difficult time in a “reasonable” amount of time. Both parties stand to win with this approach.
There are humane solutions to the foreclosure epidemic. I just don’t believe the answer is through obstructionist legal practices as proposed by the attorney.
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