When the right thing to declare is Bankruptcy

Many Franks pointed out this profile from CBC’s Sunday Edition on a bankrupt homeowner.

This isn’t really a tragedy.

It isn’t even just a story about personal responsibility.

This is actually a simple “here’s what” for all the policy makers who thought “what could be the downside of offering up government backed zero down 40 year loans?”.

Sure, it’s all ‘booming economy this’, ‘free money that’ for a while.

And who doesn’t like free money?

Seven times in the preceding two years I had approached the bank that held the lion’s share of my credit card debt and asked them to reduce the interest from 20 percent to something more manageable, something more like 10. I explained that I had been laid off, that I was now not only a single mom but a full-time student, living on student loans. I explained that I was trying my best to pay it off but I couldn’t even make a dent in it with interest that high. Seven times they turned me down. The last time I met with a bank officer, she told me to make all my payments on time for a year and then come back and she’d consider it. I shuffled off, head bowed.

And then the mortgage company told me they were calling the mortgage – a forty-year-mortgage with no money down, made back in the day when you could still do that. I have paid nearly sixty thousand dollars towards that mortgage. Nearly five years in, I have yet to touch the principal. Get a new lender, they told me or come up with the pay-out amount, the same amount of money I borrowed initially. Impossible. I cried.

The silver lining? Bankruptcy was a relief. The kids will be fine, their mother obviously loves them, and the bank made their money.

I paid that credit card debt four times over. The bank is NOT getting ripped off here. They’ve done just fine by me. And my house? We loved our little house, it has been just lovely for us. And now it will be just lovely for some other family who needs a home. We’ll find another little house, or an apartment, and we will make it fine for us, too.

Read the full story over at the CBC.

story submitted by iconoclast

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patriotz
Member

The first question that came to me is how someone who bought in 2008 could be underwater on the mortgage and end up foreclosed in 2013. Answer is that the writer bought up-Island which has already suffered a major RE bust.

What I like about this story is that it is an excellent example of how the moral hazard created by government guarantees creates collateral damage. The holder of her credit card debt ends up taking a loss because of her mortgage borrowing. The latter courtesy of a mortgage company which doesn’t care whether some other lender (i.e. the bank which issued her credit card) takes a hit down the road. You can also read between the lines that the bank was plenty steamed about here taking out that mortgage.

Uncoveredoption
Guest
Uncoveredoption

The lender wasn’t a big 5 bank? Which monoline player was this who had to call in a mortgage?

patriotz
Member

You might read this and try to reconcile it with the story quoted above.

https://www.viu.ca/news/page.asp?ID=2274

pricedoutfornow
Guest
pricedoutfornow

I think that sometimes bankruptcy is the way to go. I know a few situations where I think people should really consider going this route-cases where I see people madly cashing in their RRSPs in order to try to keep paying that unmanageable debt. They are scrambling and don’t know what they will do once they’ve drained every bit of savings they have. RRSPs are bankruptcy protected (subject to certain limits) and these people do not realize that if they went bankrupt, lost the “asset” (it’s really just a noose around their neck) they would actually walk away with more than draining all their savings. It’s really sad to watch people dig themselves into this hole.

Anonymous
Guest
Anonymous

Patriotz: “The holder of her credit card debt ends up taking a loss because of her mortgage borrowing. The latter courtesy of a mortgage company which doesn’t care whether some other lender (i.e. the bank which issued her credit card) takes a hit down the road.”

No the credit card company took a loss because they gave unsecured credit to a person who is not credit worthy. That is why credit cards charge 20% plus interest to compensate for losses like this. The banks would have given this same mortgage likely had they had the chance.

Bo Xilai
Member
Bo Xilai

Another horror story about unethical real estate agents… This time in Kelowna…

http://www.cbc.ca/news/canada/british-columbia/story/2013/04/08/bc-realtor-inspection.html

Q
Guest
Q
A couple buys a house, site unseen, based on photos on the realtor’s website, used the seller’s real estate agent and home inspector and then found major problems with the house 12 days after moving in. From the CBC: “A B.C. couple say they were tricked into buying an “unlivable” house when they moved from Yukon to the southern interior city of Kelowna last summer. Colleen MacKinnon and Shawn Howe discovered mould, dangerous wiring, broken appliances, damaged floors and less square footage than advertised when they took possession of their home last July. None of the bedrooms had heaters and the ceilings were so low in three of the bedrooms that they could only stand up straight if they stood in the middle of those rooms. “I was so upset, I was almost crying,” MacKinnon told CBC News. Less than… Read more »
Q
Guest
Q

According to a poll conducted by the Bank of Montreal (the banks are doing in-house polling now? Can’t contract it out to Ipsos-Reid?), the average first-time home buyer in Canada is 29 years old and has a 48k down payment on a 300k house. That sounds pretty healthy for the market. That’s a 16% down payment, not too bad for 29 years old. Somehow, I don’t believe it. There is no mention of a professional polling firm doing this study. But the last paragraph says it was an online poll and that the Marketing Research Intelligence Association says you can’t assign a margin of error to an online poll because it is not a random sample. So basically the poll is crap.

http://www.vancouversun.com/business/homebuyers+they+expect+spend+first+property+poll/8215920/story.html

JR
Guest
JR

“The first question that came to me is how someone who bought in 2008 could be underwater on the mortgage and end up foreclosed in 2013.”

Umm every condo owner and most home owners the FV who bought between 2007 are underwater, some severely.

Looks like I had the most controversial post from yesterday. To be clear, I’m not saying it’s right to not pay someone interning full time for 6 months, but for a student or someone in a career pivot doing it part time for several months it’s perfectly reasonable. So it’s ok to PAY someone to teach you a bunch of highly questionable skills from one of these ripoff online schools but you can’t go and actually acquire those skills for free from a industry leading employer? Get real.

@pricedoutfornow
Guest
@pricedoutfornow

pricedoutfornow Says:
April 9th, 2013 at 7:02 am 4
I think that sometimes bankruptcy is the way to go.

yeah, no shit. maybe that’s why it exists as a legal option which people use every day. thanks for your amazing insight.

Jenny Italia
Guest
Jenny Italia

@ #6 Bo Xilai Says:

Another horror story about unethical real estate agents… This time in Kelowna…

Royal Bank Loves Realtors

See Page A5 todays Province.
Full Page Add for their
3rd Annual REALTOR APPRECIATION WEEK!

Bull! Bull! Bull!
Guest
Bull! Bull! Bull!

looking forward to today’s stimulating discussion about everything other than real estate.

bird-man
Guest
bird-man

China’s bird flu crisis claims new victim
Seventh person dies following infection, state-run news agency reports

http://www.clickorlando.com/news/China-s-bird-flu-crisis-claims-new-victim/-/1637132/19672582/-/10fm0hr/-/index.html

Jasmine
Guest
Jasmine

YoooooHooooo
Eat Tish! VCI Bears and Realtor Haters!
Royal Bank Loves Realtors.

bon jovi
Guest
bon jovi

@Q
it is BS poll. pure propaganda.
my poll among the people i am in contact is that 5% is the maximum DP on 450-500k mortgage. a few of them 0% on 300k. not only that, the zero percenters have only part time jobs. you are richer then you think 🙂

Bailing in BC
Guest
Bailing in BC

#1 patriotz Says:

“The first question that came to me is how someone who bought in 2008 could be underwater on the mortgage and end up foreclosed in 2013. Answer is that the writer bought up-Island which has already suffered a major RE bust.”

Same thing in Squamish. From my observation (no stats)the market peaked here in the spring of 08. It will be interesting to watch how the market goes as first time buyers from 08 go about renewing their 5 year mortgages under these new tighter lending rules.

UBC in crisis mode
Guest
UBC in crisis mode
Anonymous
Guest
Anonymous

….looking forward to today’s stimulating discussion about everything other than real estate….

Love the irony!

PBoenish
Guest
PBoenish

Now is the best time to buy a home

Short'em High
Guest
Short'em High
From the NHA, National Housing Act of Canada: An Act to promote the construction of new houses, the repair and modernization of existing houses, and the improvement of housing and living conditions source: http://laws-lois.justice.gc.ca/eng/acts/N-11/page-1.html Yet, from the two stories featured on this forum we see that the net effect of NHA taxpayers’ 100% backing of public mortgage securities and 90% backing of private mortgage securities accomplishes none of the stated top line goals in the Act. Instead we see the beginning of an unending human train wreck beginning at the bottom rung Honey Boo Boo unaffordable and foreclosed home, up to the hopeful couple’s “remarketed” condemned home bought sight unseen, and eventually up the socioeconomic ladder and coming to a neighbourhood near you! Easy NHA backed credit for homes doesn’t build or renew buildings for the improvement of living conditions.… Read more »
Just looking...
Guest
Just looking...

@patriotz

I think the VIU article can be squared with the CBC story. I listened Sunday AM to the CBC.

Essentially, she has a good job with a decent income. She was in a debt/interest spiral. Buying a house at zero/forty didn’t help, no doubt.

She says on graduation (when the VIU story was written) the income would be enough to overcome the debt. It wasn’t. She is still better off than before the education and will not be joining the welfare rolls moving forward.

I agree with her that the banks didn’t lose. They had her on the hook paying interest for years, they receive the asset. That’s how things go. The billions in profit is a testament to their success at the macro level in ensuring the house always wins in the long term.

Just looking...
Guest
Just looking...

Essentially, she just learned the lesson that many here repeat daily: “owning” your home is not the main driver of financial success or the key to a happy stable life for family and self.

She did us a favour by telling her story through the national media. Maybe some people listening will be less likely to pressure their kids into buying into an insane market.

Anonymous
Guest
Anonymous

This may be your future situation if you own a house;

Take out loans like crazy…husband and wife ‘split’ briefly because of stress. Wife gets house while husband gets those other loan proceeds. Wife declares bankruptcy a few months later because she cant pay the mortgage.

In future, husband and wife get back together. Husband buys home in his name only.

Mortgage mess and debt in rear view mirror.

I can see it happening.

Makaya
Member
Makaya

Troll Index© at an all time high today (just like old inventory). It must be terrible out there for realtors…

Many Franks
Guest
Active Member
Many Franks

@Anonymous: Creditors don’t care about your separation agreement and will come after you all the same. If your intention is to stockpile assets with your spouse, declare bankruptcy, then suddenly discover that love was there all along, that’s a pretty obvious fraud.

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