Short Sales, Foreclosures and Our Money
Short Sales, Foreclosures and our Money – So much to talk about!
In today’s market, short sales and foreclosures have become all the rage. The social stigma of walking away from your mortgage is gone. I have even heard people bragging about it with their friends. They compare how much debt they are walking away from and the person short changing the bank the most, wins. I have heard good arguments from both sides. One side says there is a contract in place between you and the bank. If you quit paying the mortgage, the bank takes your house. Pretty simple agreement, really. The other side says you borrowed the money, you need to pay it back. The bank never guaranteed that your home would go up in value but you did promise the bank you would repay the money you borrowed. I think intelligent people can disagree on this topic as it just depends on how you see the world.
I talk about this now because the Government has recently decided to add another wrinkle to the mess that we are already in. The Government is now using our tax dollars to pay homeowners to short sell their houses instead of just letting the bank foreclose. In addition, the Government is also using our tax dollars to pay banks for each home they approve for a short sale. How much you ask? Well, Uncle Sam will pay a homeowner(assuming they qualify) $3,000 if they short sell their house. The bank gets double that amount for each one.
Yes you are reading this right….the Government is taking the money that you and I pay in taxes and using it to encourage people to walk away from their debt. I find this absolutely abhorrent. What is next? Will the Government use taxpayer money to tell people to walk away from the credit card debt? How about car loans? The Government is being very quick to tell people to walk away from money they owe. It is a shame that we can’t just walk away from the money we owe every April 15th.
July 15, 2010 at 9:50 pm
In a lot of cases it cost the lender less money to accept a short sale than it does to foreclose on the property. This allows the home owner to get out of their property and allows the bank to save money. It’s a win win. If the bank thinks they can get more once they foreclose they will do so and not accept a short sale.
July 15, 2010 at 10:07 pm
My guess is that the banks don’t view short selling and losing $100k on a house instead of foreclosing and losing $130k as a “win/win” but I understand your point.
The point of my post was more about the Government paying homeowners with our tax dollars to short sell their house. They have no business stepping into the relationship between the homeowner and their lender. There is a contract in place signed by all parties. If they choose to work something out beyond that, great.
The fact that my money is being given to some guy that decided to short sell his house and walk away from a bunch of debt is what really irritates me.