Strategic Default Monitor – How To Strategically Default

Tuesday, December 21, 2010

DEBT DEFENSE MUST READ ALERT : Is It Possible To Face Jail For Not Paying A Debt?

This is a long post but it is worth the time to read everything


This post is based on a story written in The Home Equity Theft Reporter. The Home Equity Theft Reporter is a must read for people seeking to protect their home, cash, and investments from improper debt collection and foreclosure practices. 


The Minneapolis Star Tribune reported that a 57 year old woman was arrested while driving home. At first she did not know why. After being placed into a county jail she learned that she was arrested for missing a court date over a lawsuit for an unpaid debt.

Got Questions? Get Answers...AR Wants To Protect His Retirement

Got Questions?

Enjoyed your book, but it doesn't address retirees walking away from a home. What assets can a bank pursue if I'm retired & walking away from a home I own in NJ? I've been told retirement money (401K, pension, social security, bank accounts) are Teflon from all except the IRS. Is this accurate? Please clarify.

Thanks

AR



Get Answers...

Monday, November 22, 2010

Planning For A Strategic Default Series : Developing An Action Plan

We recently received a comment from a reader of our new book Strategic Default: How To Create A Brighter Financial Future For You, Your Family Or Your Business. The reader had asked why we did not address strategic default from a state by state perspective. The reader acknowledged that the book lays a strong foundation in preparation for a strategic default. Perhaps the reader did not understand that each person's situation and perspective is unique. On top of that each state has its own rules and laws which are changing. That said, our reader's question did open our eyes. We now understand that it will help the readers of this blog if we provide concrete steps to successfully execute a strategic default.  


The following is summary of Chapter 8 of Strategic Default: How To Create A Brighter Financial Future For You, Your Family Or Your Business. The title of Chapter 8 is The Process. The chapter provides a step-by-step guide of what is necessary to initiate and survive a strategic default. Here is the summary from the chapter:

Tuesday, November 16, 2010

Credit Reporting Companies Seek To Fight Back Against Strategic Defaults With Lower Scores!!

Credit reporting agencies are taking serious notice of strategic defaults. The main credit reporting agencies, Equifax, Experian, and Trans Union, have seen a sharp and significant increase in default rates among prime borrowers. The main credit scoring companies, Fair Isaac creator of FICO and VantageScore Solutions creator of the Vantage Score are seeking to account for the change in consumers payment behavior during this current economic crises.


Below is an excerpt from an article published by The Real Deal as it relates to this new attitude by credit reporting company's:


"[i]n late October, both Fair Isaac, the developer of the FICO score that dominates the mortgage field, and VantageScore Solutions, a joint venture by the three national credit bureaus and marketer of the competing VantageScore, outlined modifications they are making to handle the vast credit disruptions caused by the housing bust, the recession, high unemployment and behavioral changes by consumers. Not only are borrowers who previously were rated outstanding credit risks far more likely to default today...but many homeowners are defying long-standing credit industry assumptions by going delinquent on their first mortgage payments while simultaneously continuing to pay their credit card balances and second mortgages on time. Strategic defaults -- walkaways -- by high-score borrowers also have been an unexpected and shocking development."


"To adjust its statistical models to these new realities...VantageScore 2.0...expected to be rolled out nationwide to lenders in January, focuses in on the subtle warning signs of credit stress that might have been missed earlier -- and penalizes or rewards consumers with higher or lower risk scores than they would have received before. New FICO 8 Mortgage Score is based on similarly exhaustive research into consumer credit behavior changes...[w]hen used by a lender to rate the risk of new applicants or existing mortgage customers. The Mortgage Score is likely to be anywhere from 15 percent to 25 percent more accurate in detecting signs of future default compared with the standard FICO model."


So what does this all mean?

Monday, November 1, 2010

Strategic Default TV : The Daily Show Exposes Mortgage Bankers Association Hypocrisy For Strategically Defaulting!!! - StrategicDefault.TV

In a January 7, 2010 New York Times Article John Courson, the president and CEO of the Mortgage Bankers Association made very critical statements about people walking away from their homes or in other words strategically default. To quote from the article, John Courson:

"told The Wall Street Journal that homeowners who default on their mortgages should think about the 'message' they will send to 'their family and their kids and their friends.' Courson was implying that homeowners — record numbers of whom continue to default — have a responsibility to make good. He wasn’t referring to the people who have no choice, who can’t afford their payments. He was speaking about the rising number of folks who are voluntarily choosing not to pay."

It seems that the Mortgage Bankers Association has had trouble following its own "moral directives". And WOW!!! You have to respect Jon Stewart's team from The Daily Show for completely exposing the hypocrisy of the Mortgage Bankers Association in the following video clip:

The Daily Show With Jon StewartMon - Thurs 11p / 10c
Mortgage Bankers Association Strategic Default
www.thedailyshow.com
Daily Show Full EpisodesPolitical HumorRally to Restore Sanity

Thursday, October 21, 2010

Got Questions? Get Answers... RH Wants To Protect His Daughter's College Fund After Strategic Default

Got Questions?

I would like to do a strategic default, however, I'm concerned that BOA will be  allowed to take my daughter's college fund, which is only $17,000, and also pursue me relentlessly for years.  Is this true for residents of North Carolina? Our home, which we paid $385,000 for three years ago is now worth $290,000,  which is less than we owe. We can just about afford to stay and pay all of our  bills but this could change if our income goes down even slightly. Thanks for any advice you can give. RH


Get Answers...

Saturday, October 9, 2010

Collection Tactics Monitor: October 9, 2010

In our previous Collection Tactics Monitor: October 6, 2010 post, we talked about a debt collection technique employed by a company called Heritage Pacific Financial. Please read the prior post so you can put this post into context. Since that post, we received the following email:

"Hello, I am writing you on your article http://www.debtdefense101.com/2010/10/collection-tactics-monitor-october-6.html. I am pretty much in the same case than “Kim” except Heritage Pacific took it a step further and filed suit against me. More or less the same Boiler Plate FRAUD complaint. I’m in process of hiring an attorney to respond to this and ask the court to dismiss this case (plus their Statute of Limitation is expired). I wonder if the hundred of people being victimized by this company http://hpdebtexchange.com/ couldn’t unite and counter-sue or get them close down business…Best, PK"

So assuming that PK's email is true then Heritage Pacific believes one or all of the following:

Monday, October 4, 2010

Introducing Our New Book - Strategic Default: How To Create A Brighter Financial Future For You, Your Family, Or Your Business

I am proud to announce the recent publication of the book, Strategic Default: How To Create A Brighter Financial Future For You, Your Family, and Your Business. You can purchase the book from this website right now. It will be available as an ebook and other publishers, including Amazon, in the near future. 

First. Let's talk about the WHY for this book. The book is inspired by all of our readers questions and comments. It is inspired by everything I have learned about the strategic default process.

The purpose of the book is to give you a solid footing when deciding to walk away from a debt. You can compare this book to a foundation of a house. The purpose of a foundation is to carry the full weight, the full load of the home placed on it. We all understand that a home needs to be built upon a proper foundation in order for it to last. 

You need a proper foundation to strategically default. The decision to strategically default requires a complete understanding of the process. You need to reach your goals with a strategic default. You need to understand the risks. By understanding your objectives and risks of a strategic default, you will eliminate fear and instill confidence. You will be successful. 

The primary goals of a strategic default are:
  1. Cash Flow Protection
  2. Savings Preservation
  3. Wealth Protection 

The primary risks of a strategic default are:
  1. Deficiency debt leading to a deficiency judgment. 
  2. Lower credit score.
  3. Loss of the home or property to a foreclosure sale.
  4. Fannie Mae action or government actions against strategic default.  
  5. Debt collections tactics, including mail, letters, personal visits to the property, phone calls to cell phone, work, and/or family members.

The purpose of the book, Strategic Default: How To Create A Brighter Financial Future For You, Your Family, or Your Business is to help you reach your primary goals and to help you reduce or eliminate the primary risks. It is to instill confidence and certainty. In this way, you can execute a strategic default to best fit your circumstances. This book will help you realize the primary goals of strategic default. 

The book contains a step-by-step strategic default checklist. This "must follow"  strategic default checklist helps you successfully put a strategic default into action. 

We must all make the first step. We must put our best foot forward. When it comes to strategic default, the results are not immediate. There is an important principle asserted in the book. The eighth principle from the chapter, Eleven Principles of Strategic Default is:

8. A Strategic Default Is Measured in Years, Not Days or Months

Any decision to walk away from debt begins a long process. The process can last years. It can take a lender or creditor a year or more to foreclose on a property. It can take you three to four years to repair your credit. It can take a year or more to pay back a debt.           

It can take a lender or creditor a year or more to win a court action to collect money. You can live in your property, payment free, for a year or more before a lender can successfully foreclose. It can take a year or more before you regain your personal and financial confidence. A lender or creditor can spend a year or more trying to collect a debt through a long process involving letters, phone calls, and/or legal action.

The point of this principle is to show you that a strategic default takes time. It's one thing to implement a strategic default i.e. stop debt payments. It's another thing to live through the process after you stop making payments. The book is a helpful guide while you live through the strategic default process and its ensuing consequences. 

Strategic Default: How To Create A Brighter Financial Future For You, Your Family, or Your Business was written for you so you can reach your primary goals, eliminate fear, and live with confidence. Essentially, the knowing and understanding that you made the right decision. Your ultimate goal is to protect your cash, savings, and wealth for you and your family

So please purchase and read the book. Then decide for yourself. It can change your life for the better. 

All comments are welcome. 

Thank you.

Augustine Diji

Sunday, September 26, 2010

Got Questions? Get Answers...JA Wants To Buy Another Home First Then Strategic Default On The Current Home

First off, your website is great, thanks for all the information you've posted. I know you cannot take the place of paid legal advise but I was hoping to get your opinion on my situation.

My wife and I currently live and own a home in Oregon. It's small and we are ready to move on. We owe about what the house is worth so selling it has not worked. Due to our income and low debt we have qualified for a home loan on another house and plan to buy it and move there.
We would rent out our current house, and if we run into any financial trouble, just stop making payments on the rental and focus on keeping our new primary residence. Since Oregon is a non-recourse state, the lender should not be able to come after our assets or primary residence for not paying the rental house mortgage correct?

Get Answer: The issue of non-recourse/anti deficiency is an important one. Keep this in mind: even if Oregon is a non-recourse state, you need to now how Oregon implements its rules. It may not be an absolute, blanket ban against the collection of a deficiency debt by a lender. Please check this link to learn more about Oregon's deficiency laws : https://www.oregonlaws.org/ors/86.770. So yes...please consult with a qualified attorney in your area. 

What if we refinance the soon to be rental house to get a better interest rate? 

Get Answer: That would lower your payment and perhaps make it profitable to rent the house. Even with no current equity. Yet you are not totally upside down. 

I was told that if you refinance, your loan becomes full recourse, regardless of what state you are in, is this true?

Get Answer: It may be true. Generally, if a loan was not used to purchase the house then there may not be any protection under relevant non-recourse/anti-deficiency laws.  So please consult with a qualified attorney.

If we want to keep and rent this house long term, a refinance makes the best financial sense, but I don't want to take away the option of a strategic default by refinancing into a full recourse loan. An extra $100 in interest payments per month seem worth the cost to keep all options open.

What is your opinion on this?

Get Answer: Well said. Essentially the $100 monthly cost is your insurance payment for staying protected under Oregon's anti-deficiency laws. Yet, if you refinance the loan you may earn income. Furthermore, if you refinance into a fixed rate mortgage then over time the principle balance will be lowered. You may gain equity if property prices have stabilized in your area. However it may not be likely.  Keep in mind that if the foreclosure sale of your property satisfies the lender in full then there is no deficiency.  Also any difference owed to the lender may be settled for less than what is due or it may be forgiven. Forgiven debt may be considered taxable income. However, under current Federal law forgiven debt may not be taxable if it involves a primary residence. Focus on acquiring the other property as soon as you can. Spend more time considering your strategic default alternative. Please read this link to learn more about debt obligations and deficiency. Also speak with a qualified professional to round out your thinking.  

Thanks
JA

Thank you for reaching out.


---- Below Is JA's Response To Get Answers...----


Thanks for your response, that was helpful.

I've done a little more research on Oregon's anti deficiency laws and it seems its not as clear for us as recourse vs. non-recourse state like I first thought.

This is what I understand from reading the statutes:
If a non-judicial foreclosure is an option under your loan contract (if a power of sale agreement was signed as part of your loan, which is likely) in Oregon, then the bank can go this route seize your house and sell it with proper notice. They are not allowed to come after you for any debt deficiency resulting from the sell of your house in a non-judicial foreclosure.

If there is no power of sale agreement, or if the bank simply chooses to go this route, they can choose a judicial foreclosure. This will result in a public auction of your house and a deficieny judgement against you for the difference in what the bank gets and what you owe. Because this option is more time consuming for the bank, it is less likely, unless you are significantly under water and the bank thinks you have enough resources to make a deficiency judgement worth thier effort. Luckily for us right now we owe about as much as the house is worth so the bank most likely would not pursue this option. If housing prices continue to fall that might not be the case.

So it turns out the walk away options is less do-able then I had hoped. Especially because the mortgage debt tax foregiveness only applies to primary residences, not rentals. For now it looks like we will proceed with buying the new house, renting out the first house and hoping that property values stabilize or rise. If not, we'll have to think a little bit more about the consequences of a strategic default.

Thanks



JA



Friday, September 3, 2010

Strategic Default Monitor - Recent News Updates - September 1, 2010


An article like the following cannot go unnoticed, unread, and un-commented upon. MSNBC.com reports on Homeowners Feeling The Pressure From A Life 'Underwater'.  The article talks about a homeowner who is "doing what millions of Americans are doing these days: He's getting used to living life 'underwater' - the real estate industry's term for a property worth less than the outstanding mortgage on it".

From the perspective of any person considering a strategic default, there are two main points in the article to consider:

1. The homeowner interviewed in the article has a good job and can afford to make payments, however he cannot tap into any equity. He purchased the property with 100% financing. On top of that he is illegible for a loan modification because he makes to much money. My thought: Why not provide a principle reduction to home owner's willing to make mortgage payments on an upside down property. 

2. The homeowner admits to being tied down to the property. However he  moved into the basement to rent the two bedrooms in his home. His goal is to use the extra money to reduce the principle balance of the mortgage. My thought: This homeowner has found a creative way to regain equity so he can become "untied" from the property. He is also preserving his good credit in hopes of getting a loan or refinance in the future.The only questions are: can he create equity faster than the current decline of property prices? and will good credit matter if he does not have cash for a down payment or if lenders continue to restrict lending? Only time will tell. 

This next article firmly establishes that business minded investors are strategically defaulting in order to get a better deal. Wall Street Journal Online reports that Commercial Property Owners Choose To Default.

Now, of course, this is old news. Businesses have always used a strategic default when it is in its best financial interest. Businesses generally do not have moral constraints. Yet, this recent article establishes that strategic default is growing simply because assets (in this case real estate) are worth less than the debt secured by the asset. Most importantly, the article illustrates why homeowners and small real estate investors should seriously consider strategic default. 

The article begins "Like homeowners walking away from mortgaged houses that plummeted in value, some of the largest commercial-property owners are defaulting on debts and surrendering buildings worth less than their loans."

My thought: One should not overlook this comparison by a major business publication. 

"Companies such as Macerich Co., Vornado Realty Trust and Simon Property Group Inc. have recently stopped making mortgage payments to put pressure on lenders to restructure debts. In many cases they have walked away, sending keys to properties whose values had fallen far below the mortgage amounts, a process known as 'jingle mail.' These companies all have piles of cash to make the payments. They are simply opting to default because they believe it makes good business sense."

My thought. It should be understood that lenders handle strategic defaults on commercial loans differently from residential loans. In other words, a strategic default on a commercial loan has a better chance of forcing a lender to make a deal than a residential loan. At the end of the day the decision is purely financial. It is more likely a lender will collect from a commercial loan modification than a residential loan modification. That being said one cannot ignore the hypocrisy of it all. Several weeks prior Fannie Mae announced that it would punish homeowners who strategically default. In fact, our government has been seeking do the same thing. WHY DON'T THEY PUNISH COMMERCIAL PROPERTY OWNERS. 

"These pragmatic decisions by companies to walk away from commercial mortgages come as a debate rages in the residential-real-estate world about 'strategic defaults' when homeowners stop making loan payments even though they can afford them. Instead, they decide to default because the house is 'underwater' meaning its value has fallen to a level less than its debt.  Banking-industry officials and others have argued that homeowners have a moral obligation to pay their debts even when it seems to make good business sense to default. Individuals who walk away from their homes also face blemishes to their credit ratings and, in some states, creditors can sue them for the losses they suffer. But in the business world, there is less of a stigma even though lenders, including individual investors, get stuck holding a depressed property in a down market. Indeed, investors are rewarding public companies for ditching profit-draining investments." 

My thought: This represents a turning point in the argument against home owner's strategically default. No matter how one reads the prior quote from the article there is one inescapable conclusion. It will no longer be possible to separate the accepted practice of strategic defaults by big business, commercial investors, and our government from strategic defaults employed by consumers. Therefore, it is unlikely Fannie Mae's attempt to punish strategic defaulters will work. It is unlikely that any rule, regulation, or law to limit or prohibit a strategic default by a citizen will ever be effective and most importantly, it is unlikely an such rule or law will ever be legal.

For those who are considering a strategic default. Rest assured that if a strategic default makes sense, you will always be on solid footing.

Wednesday, August 25, 2010

Strategic Default Monitor - Recent News Updates

There has been some interesting news as of late. Our current updates point to changing attitudes about strategic default. It reinforces Why Strategic Default Makes Sense For Individuals and it lets us know that strategic default will be considered by many more people as time goes on. Please read on... 


The Wall Street Journal recently reported that Commercial Property Owners Choose To Default.



The best part of this article is that it completely speaks for itself. It requires no commentary. I have put the relevant points of the article in italics and quotations.

"Like homeowners walking away from mortgaged houses that plummeted in value, some of the largest commercial-property owners are defaulting on debts and surrendering buildings worth less than their loans"

"Companies such as Macerich Co., Vornado Realty Trust and Simon Property Group Inc. have recently stopped making mortgage payments to put pressure on lenders to restructure debts. In many cases they have walked away...[t]hese companies all have piles of cash to make the payments. They are simply opting to default because they believe it makes good business sense."

"These pragmatic decisions by companies to walk away from commercial mortgages come as a debate rages in the residential-real-estate world about "strategic defaults...Banking-industry officials and others have argued that homeowners have a moral obligation to pay their debts even when it seems to make good business sense to default." 

"But in the business world, there is less of a stigma even though lenders, including individual investors, get stuck holding a depressed property in a down market. Indeed, investors are rewarding public companies for ditching profit-draining investments."

Watch this video to learn more:


Enough said... 

In an article entitled The Ethics of Strategic Default by Mark Miller, the writer refers to a "moral outrage" regarding strategic default. While acknowledging a strategic default can be a good business decision, he points to individual anger about strategic defaulters. The article is a review of past research papers on the strategic default phenomenon.  The writer asked an executive vice president of the American Bankers Association if a strategic default constitutes a moral or ethical breach. The answer:

"He argued that banks want to help homeowners find alternatives to default, and stressed the importance of talking to lenders first, citing the all-but-certain hit to credit ratings, and the possibility that a bank will come after a defaulting borrower's other assets. But he stopped short of calling a mortgage a moral obligation. 'It's a strategic decision to back out of an obligation, but the world has changed. Would they like someone else to take on the paper loss that they have? Do people do things like that? Obviously they do."

It is not clear what was meant by "would they like someone else to take on the paper loss that they have", especially since the American Banking Associations represented large lenders that were all to happy to allow TAXPAYERS TO TAKE ON THE PAPER LOSS OF BIG BANKS THROUGH BAILOUTS, TARP, AND OTHER TAXPAYER FUNDED HANDOUTS. 

At the end of the day, even the executive vice president of American Banking Association admitted that there is no moral or ethical obligation regarding a strategic default. In his own words a strategic default is "a strategic decision to back out of an obligation."

Anyway...Enough said... 

The blog, Naked Capitalism, recently published it's Strategic Default Awareness Check. Essentially the author went to Google Trends and put in the search term strategic default. It was concluded that the search term strategic default is a "new subject of interest". 

So...we took a look at Google Trends. After typing in the search term strategic default, it appears (based on the data) that significant interest in the topic began around December 2009 and it has continued to remain an important search term. Prior to December 2009, the only time strategic default showed up on the charts was in September 2009. All other times the strategic default search term was non existent.

What does this mean? It means that strategic default has become an important research topic this year. We predict that it will continue to grow in importance as time goes on.




Friday, August 13, 2010

Debt Defense 101 : Whistle Blower Says Fannie Mae Took Homeowner's "Trial Mod" Payments With No Intention Of Permanently Modifying Loans

Now this is an issue for anyone who is considering a strategic default or trying to get a loan modification. Many times, a person decides to strategically default after being refused a loan modification. In certain circumstances the homeowner has made monthly "trial mod" payments while waiting for approval of a permanent loan modification ONLY to be rejected later. This happens quite often under the Federal Government's HAMP (Home Affordable Modification Program) aka Making Home Affordable program. The HAMP program was created for homeowners to avoid foreclosure. Instead, it has lined the "wallets" of Fannie Mae and other lenders with tax payer money.

Now why would homeowners make monthly "trial mod" payments if they knew they would be rejected? They wouldn't. However, homeowners are duped into making the payments.

Consider this: If a homeowner is able to make monthly "trial mod" payments as agreed, why doesn't the lender agree to a permanent loan modification. What better proof does a lender need regarding a homeowners ability to pay then the fact that the homeowner is actually making the payments under a "trial mod".

The purpose of this post is to show you how to use lending institutions "clear and convincing malfeasance, unfair negotiating and delay tactics, and outright bad faith" against them as a defense to collection efforts and foreclosure. On top of that it can be an offensive tool to get a permanent loan modification.

The defense rule is this: If a lender is unwilling to negotiate a loan modification in good faith (which includes being treated with respect during the application process), then you have the right to use any and all available defenses against a lender to keep your property even if you are not paying.

So let's begin...

The Center for Public Integrity reports that a Fannie Mae whistle blower has claimed that Fannie Mae executives mismanaged the HAMP program and wasted public funds.

The key quote from the article is as follows: "One issue inside Fannie was its push to put as many borrowers as possible into short-term trial modifications, at the expense...of getting qualified borrowers into permanent modifications...Herron charges that Fannie Mae continued in headlong pursuit of 'trial mods' even though it knew many had little chance of becoming permanent. As late as September 2009, barely 1 percent of trial modifications had converted to permanent modifications by the end of their three-month trial...Nevertheless, Fannie preferred doing trials, Herron alleges, because it was eligible to receive incentive payments from the Treasury Department for trial modifications it booked before the end of 2009."

Based upon these allegations, we now know the following:
                      
1. Fannie Mae took monthly "trial mod" payments from homeowners even though Fannie Mae had no intention of providing permanent loan modifications.
2. Fannie Mae was paid by the Treasury Department (with your tax money) for taking home owner's monthly "trial mod" payments.
3. Fannie Mae made "double the money". Fannie Mae had both hands in your pockets and cleaned you out. Fannie Mae took "trial mod" payments while it took tax payer funded incentive payments despite rejecting over 70% of home owner's seeking a permanent loan modification.

So let's do a little math. It was estimated that 1,000,000 homeowners were placed on monthly "trial mod" payments under HAMP through March 2010. So if, on average, each homeowner was making a payment of $1500 per month then Fannie Mae and other lenders were collecting $1.5 billion dollars per month. If the Fannie Mae and other lenders received a $500 to $1000 incentive payment from the Treasury Department for each borrower in a monthly "trial mod" program then these entities collected $500 million to $1 billion dollars.

BTW...WHY DOESN'T FANNIE MAE (OR OTHER LENDERS) GIVE BACK THE TRIAL "MOD MONEY" AFTER IT REJECTS A HOMEOWNER FOR A PERMANENT LOAN MODIFICATION?

And let's not forget, Fannie Mae recently implemented rules to "punish", to "chase" and to "spy on" any homeowner who decides to strategically default.

My Opinion: This can be a strong defense to a foreclosure case, debt deficiency case, or loan modification rejection under the following conditions:

If the homeowner:

1. applied for HAMP aka Making Home Affordable.
2. has made or continues to make monthly "trial mod" payments.
3. has been rejected for a loan modification or has experienced a long delay in a decision to modify their loan.

Then the homeowner can raise the following defenses under the following circumstances:

1. If foreclosure papers are served on a homeowner then one of the defenses should state: "The lender refused to approve me for a loan modification under HAMP aka Making Home Affordable even though the lender took 'trial mod' payments and even though the lender was paid my tax dollars to set me up with a 'trial mod' payment. The lender had no intention of giving me a permanent loan modification. This was claimed by a Fannie Mae whistle blower."
2. If a lender or third party debt collector seeks a deficiency judgment, then one of the defenses should state "At some point in time, the lender took my 'trial mod' payments and received my tax dollars in the form of incentive payments to set me up with a 'trial mod'. The lender should give me back my money because the lender acted in bad faith. The lender knew that it would not give me a permanent trial modification. On top of that the lender has been paid back the loan with my tax dollars. This was claimed by a Fannie Mae whistle blower."
3. When you apply for a loan mod and it's through the HAMP aka Making Home Affordable program ask your lender..."Do you receive incentive payments from the US government if I make monthly 'trial mod' payments? How much are you paid? Will you return my 'trial mod' payments if I am not accepted for a permanent loan modification? Will you continue collection efforts, including foreclosure, while I apply for a loan modification? Will you send me a response to my questions in writing? What address can I send my questions to?"

By the way, these defenses may be applied to any other lender or servicer. Fannie Mae is not the only mortgage company getting incentives under the HAMP program.

Save the outrage for later. This is about minimizing the consequences of a strategic default. This is about keeping and protecting your cash, savings, and investments.

Keep me posted.

Sunday, August 8, 2010

Recent Updates from the Strategic Default Monitor...



There is data seemingly pointing to the fact that the rich are more likely to intentionally stop mortgage payments than lower income people. The New York Times in the article titled Biggest Defaulters on Mortgages Are The Rich by David Streitfeld, the writer examines data indicating that upper income homeowners are more likely to strategically default than lower income homeowners.


Well this is certainly no surprise. The wealthy are better investors than those who are not wealthy. The wealthy will not spend money on a money losing asset such as an underwater or upside down property that has no chance of gaining equity. They are wealthy because they generally know how to protect their wealth. The moral of this story is that everyone should take lessons from the wealthy.

**********

HousingWire.com reports on a study that states 20 million homeowners will be underwater before 2012. In an article entitled 20 Million Homeowners Could Be Underwater before 2012: Deutsche Bank by Diana Golobay the writer reviews data from Deutsche Bank indicating a substantial increase in under water properties. It is estimated that an additional 6 million homeowners will be underwater through 2011. This is on top of the estimated 14 million homeowners who are currently underwater. In our opinion the most interesting statement coming out of this study is as follows: "Walk away or strategic default from a house with negative equity makes economic sense, especially in locations that have less expensive rentals, Deutsche Bank researchers said."

It's about time we hear a major financial institution acknowledge that a strategic default makes economic sense.

**********

The Wall Street Journal blog reported that nearly one in five homeowners strategically default. Let's look at two key points in the article.

"The research follows on an earlier report by Experian and Oliver Wyman that first aimed to quantify the share of mortgage defaults that are “strategic.” Strategic defaulters are defined as those who miss six straight mortgage payments without missing multiple payments on auto loans and other consumer debts for the six months after they first fell behind on mortgage payments."

My Opinion: This definition of what constitutes a strategic default is somewhat arbitrary. I believe it is built on the wrong assumptions. It assumes that consumers value a house more than credit cards or a car. It assumes that a homeowner would stop paying their credit cards or auto loan before missing a mortgage payment. Mortgage payments tend to be higher percentage of a home owner's monthly income. It is also as likely that a homeowner is unable to afford their mortgage payments but can afford the lower credit card and auto payments. For example, a car can be seized if the payments are not made. The car could be used for work, taking the family to the hospital, taking the kids to school, or for travel. The credit cards may have available credit so a strapped homeowner can tap cash or charge necessity. A strategic default is primarily based upon on premise: It does not make sense to make payments on or put money into a worthless asset. It is a rejection of economic slavery. Countries, governments, businesses, investors, and individuals have been strategically defaulting since the beginning of time.

I guess the real question is: For whose purpose does the definition serve?

This dovetails into another article from the Wall Street Journal blog where it was asked How Far Underwater Do Borrowers Sink Before Walking Away?. Let's look at a few key points in the article.

A study by the Federal Reserve Board of Governors found that borrowers strategically default when the mortgage balance exceeds the value of their home by 62%.

"concerns are mounting among lenders and investors that some borrowers who owe far more than their homes are worth are now choosing not to pay mortgages that they can afford...But the silver lining here is that it suggests a rather high threshold for borrowers to walk away...The Fed study finds...that borrowers are more likely to walk away from homes in states where lenders can’t sue them for a deficiency judgment."



"Borrowers with higher credit scores also find it more costly to default. The median borrower with a credit score between 620 and 680 walks away when their loan-to-value ratio hits 151%, while the median borrowers with a credit score above 720 walks away with a loan-to-value ratio of 168%."

My Opinion: The first question is...who is the target audience of these studies? The target audience appears to be lenders, investors, and the government. Why? Well let's quote once again from the article "concerns are mounting among lenders and investors that some borrowers who owe far more than their homes are worth are now choosing not to pay mortgages that they can afford".

Why are concerns mounting? The quote is self evident and self proving. Lenders, investors, and the government are all very use to borrowers acting against their financial self interest. Essentially expecting borrowers to continue making payments on properties, loans, bailouts or debts that simply drain cash and have absolutely no chance of providing a return. These payments from borrowers are the last and final source of cash for our heavily indebted lenders, investors, and government.
I may be scared if I were in their shoes.

Bottom Line: Borrowers do not want to (and probably should not) pay mortgages on properties that are underwater. It is against their financial self interest in all respects. On top of that lenders and investors routinely follow the principles of strategic default.

The next government study should be entitled
"Banks and Creditors Have Decided To Reduce Principle Balances In An Effort To Reduce Strategic Defaults"





And We Quote - "Trying to Turn People's Homes Into Debtor's Prisons"

This short video highlights an important concern for any person considering a strategic default. An underwater property can be a "debtor's prison" if the homeowner continues to make payments on an asset that will never have any equity. Just as important is our government's hypocritical demand that no one should strategic default. Instead our government is asking citizens to waste their savings and cash, all under the false notion that the property will regain equity. We don't think so.

Tuesday, August 3, 2010

The Must Know Rules of Debt Defense


The basic rules of Deficiency Debt Defense 101 are a ever growing list of MUST DO RIGHT NOW & MUST IMPLEMENT RIGHT NOW!! in order to achieve the goal of deficiency debt defense.

The primary goals of deficiency debt defenses are to:

1. Reduce the Risk and Amount of Deficiency Debt.
2. Strengthen Your Defenses Against Deficiency Debt.
3. Lengthen The Time To Pay Back The Deficiency Debt.

A proper defense requires that you plan and prepare now. So make sure to implement all of these rules. Make sure you come back and read these rules every month. We will be adding new rules along the way. Also, each rule will be further detailed and expanded in future blog posts. We will do our best to apply each rule to a real life scenario.

In the meantime start reading and start preparing.

1. Always respond to a legal action in writing. It LENGTHENS the time and STRENGTHENS your defense 100% of the time.

2. Save every debt collection message on your answering machine.

3. Save every debt collection letter mailed.

4. Always send a RESPA request letter to determine if lender or creditor 
still has the paperwork and can prove that it has the right to collect.

5. Send all letters to lender via certified mail (no return receipt is necessary) and regular mail. Always mail one letter to the lender’s designated address and to the lender's corporate office.

6. Become familiar with your states anti-deficiency laws. In states that allow deficiency judgments make sure you know the rules and, if necessary, speak with qualified counsel.

7. Keep in mind once a deficiency judgment is obtained it can last as long as twenty years.

8. Avoid fraudulent conveyances at all costs.

9. Learn strategies and techniques to legally shield your assets from creditors. Use legal strategies and techniques that do not expose you to fraudulent conveyance.

10. Never ignore a foreclosure action or any other lawsuit to collect on a loan. Always respond in writing.

11. Make it a habit to send a complaint letter to the bank each and every time you are treated improperly, unreasonably and disrespectfully. Make sure to detail the particulars of your treatment.

12. Never accept any verbal agreement with a lender or creditor- always insist for evidence in writing.

13. Always seek debt forgiveness or forgiveness of debt in writing when negotiating a principle reduction, deed in-lieu, or shortsale.

14. Always ask for a principle reduction as part of any debt negotiation, workout, or modification strategy. If the lender says “NO” ask for the reason in writing or ask for the lender's principle reduction policy in writing. If the lender does not have it in writing, then send a letter confirming the conversation rejecting the principle reduction. Make sure to put the time, date, and representatives identification number in the letter.

15. Always send a letter demanding a complete financial history of all payments and charges as it relates to your debt.

16. Use a “do not call” letter as a means to stop harassing phone calls. This letter must be sent several times via certified mail and regular mail.

17. Keep a detailed diary of any negotiation discussions with the lender and mail a copy of your notes to the lender “once a month”.

18. The same defenses that is available in a foreclosure action area available in a deficiency judgment action.

19. Remember to read any document that requires a signature. Keep a look out for any clause or sentence that says you "waive" or give up any of your rights or defenses against the loan or the debt. Make sure you have the clause or sentence removed.

20. Be aware that 3rd party debt collection agencies are purchasing deficiency debt for cents on the dollar.

21. Be prepared to negotiate any deficiency and/or outstanding debt with a lender, After all, you cannot blame a lender for trying to collect on a loan.

22. Become familiar with your states and the federal government fair debt collection rules and regulations. A violation of the laws can be a strong defense to a deficiency debt legal action. A violation of any of the appropriate state and/or federal laws can potentially offset the amount you currently owe.

23. Speak to a qualified attorney or legal agency regarding the use of bankruptcy to eliminate deficiency debt. Seek the advice of a qualified attorney, legal aid organization and accountant regarding the risks involved with defending deficiency debt.

24. Just because you borrowed the money does not mean you can’t use legal means to pay less than what you owe or gain more time to pay.

25. Make it a habit to constantly challenge all fees, interest, costs and charges. Ask the lender to send written proof establishing it's right to collect the debt.

26. Demand that any third-party debt collector provide proof of the ownership of any claimed debt.

27. Never send a lender more information than what the lender asks for.

28. Always assume that the collection of debt is improper or invalid, even if you borrow money. Remember, you are challenging the collection tactics and you are challenging the amount owed. 

29. If you are in court for a debt collection case, always ask for discovery. This is a process that allows you to request documents proving the lawsuit and loan. It also allows you to question the debt collector, live in person, and on the stand. If, during the debt collection case, the debt collector does not produce the documents or an individual to testify, then ask for a DISMISSAL WITH PREJUDICE. 


Sunday, August 1, 2010

Deficiency Debt Defense has Begun at DebtDefense101.com......

We have learned so much from our readers who are considering a strategic default. One thing we have learned is that the decision to strategically default involves so much more than not paying a certain debt.

It involves understanding the the consequences of the decision no to pay a debt, especially if there is money to pay the debt.

A strategic default is not measured in weeks or months. It is measured in years.

Not only do we want to preserve and protect our cash and investments by strategically defaulting, we certainly do not want a lender, creditor, or third party debt collector chasing us for the debt one or two years later.

The goal of strategically defaulting is protecting your cash and investments for as long as possible.

Well...Please start reading Debt Defense 101 to learn about all of the available news, tips, strategies, and defenses against and about the collection of deficiency debt. It's all about learning the basics.

THE BEST WAY TO DEFEND AGAINST THE COLLECTION OF DEBT IS TO PREPARE IMMEDIATELY AFTER YOU STOP PAYING THAT DEBT.

So please read Debt Defense 101 in conjunction with this this site, so you can learn the basics. So you can protect your financial future as long as possible.

Your comments and suggestions are always welcome.

Tuesday, July 20, 2010

Got Questions? Get Answers...BSE Wants To Walk Away From Two Investment Properties in Vegas

GOT QUESTION?

This question has to do with two properties I own in Las Vegas. Briefly , they are two townhomes in the same develpoment w/ mortgages by two different lenders. Both are intrest only ARM's due to adjust in 2012 and 2013. I've owned them since 2005 and they are currently worth 50% of what I paid. Principe balance on one is $204,000.00 and $172,000.00 on the other. I'm current on both and they are rented but with neg. cash flow. I sold my buisness in 2004 and all of the note payments from the sale of my buisness has gone into these two properties. When these mortgages adjust I most definately will not be able to afford them. My wife and I are both on the notes, she is currently employed and I work part time on a cash basis. We also own our home her in New York as well as a commercial property. The lenders won't talk to me until I miss at least three payments, I'm condisering walking away. What are the potential consequences? By the way I put down $50,000.00 on each of these properties.

Thanks for your help!

BSE

GET ANSWER…

Dear BSE:

Thank you for writing.

First of all, you and your wife are equally liable and equally responsible for the mortgage loan since you both signed the note. A lender or creditor will not differentiate between who signed the note first or last, as long as it has been signed by each party.

The primary risks of a strategic default are:

1. Deficiency debt leading to a deficiency judgment.
2. Lower credit score.
3. Loss of the home or property to a foreclosure sale.
4. Recently, Fannie Mae implemented a rule that bans a person from
obtaining a Fannie Mae mortgage, if that person strategically defaults. The ban last for seven years. Furthermore, the United States Government may pass a law that bans a person from obtaining a government insured loan, if it is proven that a person strategically defaults. Read this
link to learn more.
5. Debt collections tactics, including mail, letters, personal visits to the
property, phone calls to cell phone, work, and/or family members. Not all debt collection tactics are legal. You should become familiar with your state’s debt collection protection laws and the Fair Debt Collections Protections Act. Read this
link to learn more.

My experience has established that most people who strategically default are most concerned about deficiency debt. Most people do not want to be chased down for more money by creditors or lenders.

Let’s go through deficiency debt issues carefully. A deficiency debt also known as debt deficiency arises when collateral that is used to secure a loan cannot satisfy the total amount due on the loan. The unsatisfied amount due on the loan is a deficiency debt.

A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note or mortgage loan, in full. A deficiency judgment can be obtained when there is a deficiency debt.

You mentioned that your properties are in Las Vegas, Nevada. Nevada is a recourse state. That means a lender has the right to seek a deficiency judgment. A lender must file for a deficiency judgment in a certain period of time after a foreclosure sale. Please read this
link to learn more.

If a lender or creditor forgives the deficiency then you will not be exposed to a deficiency judgment. When a lender or creditor agrees (IN WRITING) to forgive a debt as opposed to seeking a deficiency judgment, then the forgiven debt may be considered income by your state taxing authority and the IRS. Forgiven debt is income.

Under current Federal Law if a debt is forgiven on a primary residence then there is no tax due to the IRS. However, your properties are investment properties so it is unlikely you can benefit from the rule.

There are ways to minimize your risks of a deficiency judgment:

You can negotiate a principle reduction. This is when a lender or creditor agrees to reduce the principle balance of a loan. You can ask the lender to forgive the difference (IN WRITING) as part of the negotiation.

You can negotiate a deed-in-lieu. This is when you enter into a written agreement to give the property back to the bank. The key is to negotiate a full settlement of your total outstanding mortgage debt including fees and penalties in exchange for the deed to your property. A full settlement of your total outstanding mortgage debt eliminates a deficiency and tax liabilities. A partial settlement still leaves open the possibility of a deficiency judgment or forgiveness of the remaining balance.

You can negotiate a short sale. This is when a lender let’s you sell your property for an amount less than what is owed on the mortgage. Essentially your lender may be willing to accept less than the full amount due on a mortgage. If you owe the lender $400,000 then the lender may agree to let you sell the property for $350,000.

In all these cases you must get the lender to agree to forgive the deficiency.

Beware of the Turn In Your Financial Documents Trap. This happens when the lender’s representative asks you to turn in your financials via telephone or fax in order to see if you qualify for a loan workout, principle reduction, deed-in-lieu, or short sale. Before you agree to turn over your financial documents ask the lender to send you something in writing stating that they will seriously consider a work out option if you turn over your financials. Or ask the lender to direct you to their website regarding their loan workout processing rules. The problem I have is this: What happens to your financial documents, if your lender refuses to negotiate a loan workout? Can the lender use this information against you? For example, can the lender use the information during a foreclosure action or during a lawsuit seeking a deficiency judgment? In order to collect on a properly obtained deficiency judgment, the creditor or lender must locate your bank account, or locate your investment account or locate your place of employment or locate any other asset that has value. I don’t think anyone wants to turn over their financial documents to be used in any way to take their money.

If you do decide to turn over financial documents to the creditor or lender, then cross out all of the account numbers. If the creditor or lender refuses to work with you after you have turned over your financial documents then immediately move all of your money and your investments to another financial institution. Only turn over what the lender asks for nothing more.

A creditor or a lender has the right to garnish wages if it properly and legally obtains a deficiency judgment in a court of law against a person who entered into a legal loan agreement with the creditor or lender. Your wife could be exposed to wage garnishment if the creditor or lender successfully obtains a deficiency judgment against her.

Keep in mind that even if a creditor or lender successfully obtains a deficiency judgment, it does not mean all is lost. You can negotiate a settlement with the creditor or lender. The creditor or lender may take 50% or less than what is owed instead of spending time in court. Also keep in mind to NEVER LET A LAWSUIT FOR A DEFICIENCY JUDGMENT GO UNDEFENDED. NEVER IGNORE THIS TYPE OF LAWSUIT. The simple reason is that you may stop the creditor or lender from getting a judgment or you may be able to use your defense to this lawsuit as a means to negotiate a settlement.

A critical decision is how to protect your assets. There are various tools and strategies that can be employed to legally protect or hide your assets from a creditor. Keep in mind there is a rule called fraudulent conveyance. Essentially, a fraudulent conveyance is when a debtor transfers their assets in a way to prevent a creditor from collecting on a debt. There are specific rules regarding fraudulent conveyance, so this should not prevent you from properly protecting your assets.

Unfortunately, you will lose your initial $50,000 investment. However, you should speak to an accountant to determine what happened to your cash investment if the property is sold at a loss.

You should seriously consider working with a qualified real estate broker, attorney and/or accountant in order to understand your specific risks.

You have much to consider. I am confident you are on the right track.

Please feel free to write me at anytime.

Sincerely,

Augustine A. Diji