Losing your house for any reason is a stressful, disheartening experience. And banks are notoriously difficult to deal with. Mainly because they’re not really interested in working out a deal with you. Especially if you have equity in your house.

That being said, I’m greatly amused by people who get the better end of the foreclosure process, especially when it comes to Bank of America. (I’m not a big fan of Bank of America – I have my reasons…)

Bank of America filed for foreclosure on a house in Florida, about six months ago. The strange thing was that the homeowners, Mr & Mrs. Nyergers, owned their home free and clear. They had bought their house with cash. They had never had a mortgage on it.

In court the judge found the bank wrongfully tried to foreclose on them. Basically he said BofA was trying to scam them out of their home, and ordered the bank to pay their legal fees.

So how did the couple end up foreclosing on the bank?

After more than 5 months of the judge’s ruling, the bank still hadn’t paid the legal fees, and the homeowner’s attorney did exactly what the bank tried to do to the homeowners. He seized the bank’s assets.

According to CBS, the attorney said, “They’ve ignored our calls, ignored our letters, legally this is the next step to get my clients compensated.”

Sheriff’s deputies, movers, and the Nyergers’ attorney went to the bank and foreclosed on it. The attorney gave instructions to to remove desks, computers, copiers, filing cabinets and any cash in the teller’s drawers.

After about an hour of being locked out of the bank, the bank manager handed the attorney a check for the legal fees.

“As a foreclosure defense attorney this is sweet justice” said Allen.

The unfortunate sad part is that bank errors like this are quite common.

The couple’s foreclosure attorney said he sees happen a lot in court, because banks didn’t investigate the foreclosure and it becomes a lengthy and expensive battle for the homeowner.

At least this story had a happy ending.

Related Posts

• February 24, 2010 -- How To Avoid Foreclose: Humor
• May 25, 2009 -- How To Avoid Foreclosure
• November 28, 2008 -- Hitler: Real Estate Only Goes Up!
• June 10, 2011 -- Humor: I Want To Buy Salesforce.com
• October 19, 2010 -- Mozilo Gets Off Easy
• September 19, 2010 -- HomeOwnership Doesn’t Make Economic Sense
• April 7, 2010 -- Should I Buy A House and Take Advantage of Low Interest Rates

Time Cover: Rethinking Home Ownership

Time magazine recently had an interesting article, The Case Against Home Ownership which explained why the American dream wasn’t all it was cranked up to be. Mainly, because it just doesn’t make economic sense. It prevented people from being able to migrate to where jobs where, resulted in a 49% higher consumption of energy amongst detached-home owners, and cost the government hundreds of billions in lost tax revenue every year. And the often quoted inverse correlation between teenage pregnancy and home ownership is sketchy and inconclusive (apparently the correlation between car ownership is higher than home ownership!).

The article heavily criticizes the role of the government in its efforts to  keep housing affordable by offering tax incentives and artificially lowering the interest rates on mortgages. The result of these policies is that people over-extend themselves in an effort to get a bigger tax break and the average homeowner saves less than $600 a year on their taxes. The major benefit goes to families making over $250,000 a year and who probably wouldn’t have any problems being able to afford a home anyway. The UK removed the tax deductions on homeownership a decade ago and actually has a higher rate of homeownership than the US (which has hovered around 65% over the past two decades).

Interestingly enough, Switzerland, which is one of the wealthiest nations, has a  low ~35% level of homeownership.

I just had a discussion with a young couple that bought a condo during the peak. They felt somewhat trapped as the husband was unable to move to better opportunities elsewhere because they were underwater on their mortgage. He hadn’t considered doing a short sale on the property, mainly since they both had jobs and didn’t really need to, but they were renting out their spare bedroom to help pay their mortgage (they had obviously over-extended themselves).

As I’ve repeated many times before, your own house is not an investment, it’s where you live. You buy a decent place in a decent neighborhood that you can easily afford. You do not buy a house because you need the tax break or because the bank will lend you more money than you can afford (of course, those days are behind us).  We’re still a couple of years away from a bottom in the real estate market. Until then, renting isn’t a bad option.

Related Posts

• February 24, 2010 -- How To Avoid Foreclose: Humor
• April 12, 2009 -- Real Estate: No Bottom Yet?
• December 23, 2008 -- 10 Worst Real Estate Markets In 2009
• February 8, 2008 -- Forclosure In The Neighborhood
• February 7, 2008 -- Residential Housing To Drop Another 25%
• June 8, 2011 -- Couple Forecloses On Bank of America
• April 7, 2010 -- Should I Buy A House and Take Advantage of Low Interest Rates

Interest rates are artificially low and we won’t see rates this low for a long, long time. What are your thoughts on buying vs renting for a first timer? In my gut I know that housing is still overvalued, but should I jump on low rates and lock in a fixed payment knowing that future inflation will make this payment even smaller?

Most people do not pay cash for their homes, they get a mortgage. And the monthly payment they can afford, along with the current interest rate determines how large a mortgage they can qualify for.

Lets do some back-of-the-envelope calculations. If you can qualify for $2,000 a month (lets  ignore principle, taxes and insurance for now) and rates are 5%, you’ll qualify for approximately $480,000 worth of mortgage. If rates rise to 6%, you only qualify for $400,000 worth of mortgage.

Did you see how a 20% rise in interest rates caused a 17% decline in the amount of mortgage you would able to qualify for?

If your income isn’t going to increase 20% over the next 2 years, but rates might rise 20%, less people will be able to afford homes. So the pool of available buyers for our $480,000 house has become a lot smaller and demand drops off. According to economic principles, as the demand decreases, prices should decrease as well. Thus, the price should drop to $400,000 to match the purchasing power of buyers.

Additionally,  the banks have unsold inventory sitting on their books – in many cases they haven’t even foreclosed on people who stopped making their payments a year ago.

So we have a scenario where the number of homes on the market is likely to increase or stay flat, interest rates are going to increase, and incomes aren’t going anywhere.

The only reasons you should be buying a house right now are

1. You’re starting a family, don’t want the hassle of moving and can afford a reasonably large house which you will live in for several years
2. You can afford to pay cash and don’t care where the market is going
3. You have specialized knowledge of the markets and can get a much better deal than your local home buyer. Real estate investors will be able to take advantage of the current environment to buy cheap homes that generate positive cashflow.
4. You have a stable job, expect to be in the same place for several years and don’t want your landlord telling you that you can’t paint the living room bright pink

In short, don’t be mesmerized by the tales of real estate agents and Realtors telling you that interest rates will go up and price you out of the market. Only a booming economy with people falling over themselves to buy houses can do that. It may seem like people are out buying homes, but its a temporary phenomena created by all the government to stimulate the housing market. When this stimulus ends, homes prices will probably drift down by the same amount. On a similar note, ZeroHedge has a good article on how dropping homes prices are inversely correlated with rental rates, something I have not been able to verify with my properties!

Only buy a house if you have a good reason to buy one. Don’t get suckered in to it.

At some point we will see inflation, but it’s next to impossible to figure out when.

Related Posts

• June 12, 2009 -- Is It Time To Buy Real Estate?
• June 8, 2011 -- Couple Forecloses On Bank of America
• September 19, 2010 -- HomeOwnership Doesn’t Make Economic Sense
• February 24, 2010 -- How To Avoid Foreclose: Humor
• May 25, 2009 -- How To Avoid Foreclosure
• April 20, 2009 -- In The Market For a Condo? You Can’t Afford It!
• April 12, 2009 -- Real Estate: No Bottom Yet?

Millions of Americans are now deeply underwater on their mortgage. If you’re among them, you need to stop living in a dream world and give serious thought to walking away from the debt.

No, you shouldn’t feel bad about it, and you shouldn’t feel guilty. The lenders would do the same to you—in a heartbeat. You need to put yourself and your family’s finances first.

If you are reluctant to give up on “your” home, realize that it isn’t “yours.” If you are in negative equity, it’s the bank’s home. You’re just renting it. And right now you may be paying way above market rates. You need to be ruthless about your cash flow.

Still, when it comes to the idea of walking away from debts, many people are held back by a sense of morality. They feel it’s wrong to abandon their obligations. They don’t want to be a deadbeat.

Your instincts, while honorable, are leading you astray.

The economy is fundamentally amoral.

Whether we like it or not, walking away from debts is as American as apple pie. Companies file for bankruptcy all the time, and their lenders eat the losses. Executives and investors pocketed millions from the likes of Washington Mutual, Lehman Brothers and Bear Stearns when the going was good. They didn’t have to give back one cent of that money when the companies went into bankruptcy.

Wow, I’m speechless. It seems the greed of Wall Street has permeated down to the lower rungs of society and it’s perfectly okay to socialize your debts and losses. (By socializing, I mean the bank or taxpayer or a large group of people who are not affiliated to you end up paying for your debts/losses/mistakes/greed). Apparently its as American as apple pie. Is this the change I didn’t vote for? If everyone in all sections of society thinks its perfectly okay to default on your obligations, logically, the next question is

How much longer until the US Government starts defaulting on its debts?

Of course, the US Government cannot default, since it can keep printing US Dollars to pay for its debt. Which it is already doing. The only problem is that this increases the number of dollars in circulation and causes the currency to devalue. Sooner or later, we’re going to see a large of amount of inflation. No we may not see hyperinflation like Brazil or Zimbabwe, but we sure might see 10-12% inflation for a few years.

But 12% inflation for only 6 years would cause the price of everything to double. If you don’t think that’s possible, just look at a country which isn’t currently in deep recession, like India. Inflation in India is currently running at 9%. And over the past decade it has been running at a similar rate.

So what’s the effect on the average Indian? Highly skilled workers saw their salaries jump 10 times, while salaries for unskilled labor is up about 5 times. So everyone is better off, right? Not exactly, people living on fixed incomes basically got screwed as prices for everything else went up 5-10 times as well. It was great if you owned real assets like real estate, gold and to some extent stocks, but terrible if you owned bonds or cash. Just make sure your investments are tailored towards those investments that happen to do well during inflationary times.

Related Posts

• September 15, 2009 -- The Recession Is Over, Unemployment Expected To Rise
• January 11, 2011 -- New Year’s Predictions And Why Bernanke Sports A Beard
• May 26, 2010 -- US Debt Breaks $13 Trillion
• January 25, 2010 -- Venezuela Devalues Its Currency
• January 19, 2010 -- Suzie Says “Pay Off Your Home Mortgage”
• September 22, 2009 -- The Sun Sets On Dollar Supremacy
• September 10, 2009 -- Weekly Round Up Of Interesting Articles

Tue Feb 23, 8:17 am ET

MOSCOW, Ohio – An Ohio man says he bulldozed his $350,000 home to keep a bank from foreclosing on it.

Terry Hoskins says he has struggled with the RiverHills Bank over his home in Moscow for years and had problems with the Internal Revenue Service. He says the IRS placed liens on his carpet store and commercial property and the bank claimed his house as collateral.

Hoskins says he owes $160,000 on the house. He says he spent a lot of money on attorneys and finally had enough. About two weeks ago he bulldozed the home 25 miles southeast of Cincinnati.

Ok, there’s nothing really humorous about this. But I thought it was a great story about getting back at the bank. Banks are notoriously difficult to deal with and after accepting billions in bailout money from the taxpayers aren’t really modifying very many loans. If you think that people who default on their mortgages are scumbags and deserve to lose their homes and that banks are just faultless victims, check this link about a foreclosure attorney who tried to help a couple modify their loan. Actually, regardless of what you think about banks or borrowers  you should still read the article. It’s very interesting.

Related Posts

• June 8, 2011 -- Couple Forecloses On Bank of America
• September 19, 2010 -- HomeOwnership Doesn’t Make Economic Sense
• May 25, 2009 -- How To Avoid Foreclosure
• April 12, 2009 -- Real Estate: No Bottom Yet?
• December 23, 2008 -- 10 Worst Real Estate Markets In 2009
• November 28, 2008 -- Hitler: Real Estate Only Goes Up!
• June 24, 2008 -- Help! I’m Losing My Home To Foreclosure