Speaking of the myriad of San Francisco buyers who bought with no money down:

Supervisor Malia Cohen has joined the ranks of the foreclosed, having lost her $581,178 condo to the bank.

The 33-year-old Cohen was a community organizer and ran a social-media business before her election in November from District 10. She says she was the victim of a predatory bank loan on the two-bedroom condo she bought with no money down in 2006 at 501 Crescent Way just west of Candlestick Park.

Cohen said before the election that the foreclosure was being “rescinded.” However, efforts to renegotiate the loan failed, and she moved out Jan. 4, four days before she was sworn in.

“It was underwater, so I let it go,” Cohen said.

While the Chronicle reports Cohen’s January move, we’ll note the bank had actually foreclosed on the condo this past August, a few months before her election. And the first notice of default on the property was filed in January 2010 with $11,190 then past due.
The condo which Cohen purchased for $581,500 in December 2006 has been on the market for the past nine days listed for $314,900.
Oakland Mayor Jean Quan slashing salary 25% [SFGate]
∙ Listing: 501 Crescent Way #5410 (2/2) 872 sqft – $314,900 [MLS]

Recent Articles

Comments from “Plugged-In” Readers

  1. Posted by Denis

    I saw her comment this morning and wondered if it would end up here… I sincerely hope she didn’t actually use the word “victim.” The sfgate comments are pretty harsh, but not inaccurate. I find it a little troubling that most future SF development is going to be in the hands of a young woman that bought a 600k CONDO in Bayview for no money down.

  2. Posted by Brahma (incensed renter)

    Cohen should resign. This is a highly-educated 33-year-old woman with a Master’s degree, and she “was the victim of a predatory bank loan”? Seriously? With no money down she was preyed upon?
    The only ones being preyed upon are the tax-paying renters like myself who are going to have to pick up the tab via taxes for her loan when Wells Fargo writes it off because she decided that it was inconvenient to keep paying on the loan she promised to pay off.

  3. Posted by Sarah

    “The victim of a predatory loan”? “It was underwater, so I let it go”? The lack of personal responsibility reflected in these combined statements is somewhat horrifying, particularly coming from a public official.

  4. Posted by jose

    wonder what the BMR units go for in that complex
    [Editor's Note: A Market Rate Resale Below Its BMR Compatriot At Candlestick Point.]

  5. Posted by shill

    “no money down”
    congratulations, ms cohen. nicely played.
    “It was underwater, so I let it go,” Cohen said.”
    well played again.
    now let’s stick it to the greedy landlords of the city.

  6. Posted by Rillion

    “because she decided that it was inconvenient to keep paying on the loan she promised to pay off.”
    And she also promised to give the condo to the bank if she did not make the payments. Good for her for abiding by the terms of her loan contract. There is no shame in using the contractually provided “outs” available. Seems some people like to demean people when they act irrationally (buying a $600,000 condo in bayview) and then also like to demean them when they act rationally (letting the bank have it back).

  7. Posted by lol

    Love it! It was a “predatory bank loan”. The type that almost everyone was doing at the time. 0-down, all profits in up-years and walk-away in down years.
    This almost beats the hypocritical Chris Daly family move to the suburbs!

  8. Posted by Fishchum

    Rillion – I wouldn’t demean her for walking away – but it does make me worry that the city’s budget and fiscal responsibilities and actions will be decided by someone who made such a purchase.
    I’m not sure if the “predatory loan” was her words or the Chron’s.

  9. Posted by Pat

    “predatory bank loan”. Alas should read predatory city entitlement and was guaranteed to fail from day 1. A city entitlement process gone mad all in the name of “housen” as per Willie Brown. Look in the mirror planning commission and see what you have created, but it is easier to blame anybody but ourselves. Rest assured this problem was caused by the city’s housing policy and process, all well intentioned, but flawed, which continues, and so it goes…???

  10. Posted by A.T.

    Not so well-played.
    Assuming she was not a total crook and actually made contractual payments, she paid about $5000/mo for four or five years to “own” a 2BR condo in the Bayview! And at the end she had nothing to show for it but a destroyed credit rating. She could have rented a knock-out place in Pac Heights for that or a similar place in the Bayview while banking $3000+ every single month. But at least she didn’t “throw her money away on rent.” She is a victim of her own greed and stupidity. And there are lots more like her in SF and elsewhere.

  11. Posted by bubblesurfer

    Well, I don’t think this comes anywhere close to “predatory lending”, but I understand why she’s spinning it that way.
    This might though be an example of Wall Street’s pressure on banks to originate mortgages – so they could then package them as CDO’s….then somehow get S&P to give them triple A…..then get the overworked and under educated regulators to go along…..then sell them to pension fund managers in Montana…. and Iceland, and well, you get the picture…..and then make Gazillions and Gazillions on transaction fees…….
    Or, maybe maybe it started with Cohen, who “pulled a fast one” on the poor, unsuspecting banks.
    Or maybe it was real estate agents with all of that “buy now or be forever shut out” talk – why, if it hadn’t been for them, then all of this wouldn’t have happened – damn those agents! (btw I’m not an agent – never have been and never will be).

  12. Posted by Phongpei

    And to think–you all voted her into office. Glad she’s not representing my District…..Go Weiner…..

  13. Posted by Rillion

    Fishchum – my comment wasn’t direct at you but at brahma who seemed to be repeating a variant of the canard that it is immoral to strategically default on a mortgage.
    I do agree that if she indeed said she was a victim of a predatory loan that I would question her fitness for making decisions on the city’s finances since I would not want someone in office that was so easy to victimize. But in reading the article that line was not in quotes so I’m going to refain from holding her responsible for the word choice.

  14. Posted by shill

    “Not so well-played.”
    She could have paid all cash like, as we’re told, so many in the city do.
    And, she could be paying the $5000 for another 10-15 years, and still have nothing to show for it.
    And lest you forget, she did, or could have, painted any color she wanted.

  15. Posted by Rillion

    “she paid about $5000/mo for four or five years to “own” a 2BR condo in the Bayview!”
    how are you coming up with $5,000 a month? Even using a high estimate for her interest rate (6%) I’m only coming up with around $2,750 monthly after-tax payment (assuming 30% combined fed/state discount on interest/re taxes) and a $324 HOA (as indicated on the mls listing). Most people that bought at this time, particularly with 0 down, had interest only loans, so that’s why I am assuming no principal payment.
    Insurance on a condo is about a wash with renter’s insurance (speaking from experience on this), so that just leaves some maintenance which is again minor on a condo.

  16. Posted by tipster

    Glad she’s not representing my District
    Bingo.
    Look at the district she IS representing.
    Now consider how the “it’s the big bad bank’s fault” talk, and the walk away, will go over to the people she IS representing.
    Light bulb, anyone?

  17. Posted by A.T.

    “It was underwater, so I let it go”
    This part is a quote. And it makes perfect financial sense (victimhood claims aside). With the continuing slump and widespread price declines in SF, I suspect a growing number of 2002-2009 buyers (and more who maxed out the home ATM) are going to come to the same rational conclusion Ms. Cohen did and “let it go.” Whether the result of loan re-casts, changed financial circumstances, or a simple unwillingness to continue to pay far more than one’s place is now worth, this “let it go” phenomenon will continue and spread here for a while. Watch the supply data.

  18. Posted by ChinaNob

    I’ve stopped getting upset at home-”owners” who bought for 0% down and now are walking away from loans with outstanding principal balances almost double the value of the property. Maybe when Lloyd Blankfein, Jamie Dimon, and the rest of Wall Street’s fat cats have their heads on a pike, then maybe I’ll be able to raise my ire at the run of the mill deadbeats.

  19. Posted by Po Hill Jeff

    It will be very interesting to hear whether the “victim” and “predatory” words were hers or not. As others noted, they were not given in quotation marks in the M&R piece, although other statements from her were.

  20. Posted by SFMichael

    She ‘bought’ a condo with no money down and she’s the victim?

  21. Posted by galling

    In this interview with the Chronicle when she was running for Supervisor, she boasts about being a homeowner (in answer to the question about tenant and landlord rights). The article isn’t dated, but according to the Socketsite timeline, she was already in default or maybe even in foreclosure! What a hypocrite– glad she doesn’t represent my district.
    http://www.sfgate.com/district10-malia-cohen/

  22. Posted by resp

    what’s all the hubbub? everyone in D10 is a victim.

  23. Posted by A.T.

    Rillion, 7% was a more likely rate for her profile in 2006, so that is what I used. She probably had PMI too, but I did not include that. And no way did she see a 30% tax break with her apparent income. She also had property taxes and insurance, which you cannot exclude b/c I was talking total costs.
    It is true that she may have had a neg-am deal, or simply did not pay. So she may have “played” it better than I am assuming. But she also may have recast/reset to some really high rate (and thus the perceived victimhood).

  24. Posted by sfrenegade

    She’s not a victim, but she did exercise her contractual rights. Good for her! However, it sounds like she’s terrible at making financial decisions, so it’s bad for our city. As long as we keep bailing out failed banks where management deserves to get fired and shareholders deserve to lose money, it’s bad for us too, although that’s not specifically her fault.

  25. Posted by Sunny Jim

    2 bed and 2 bath in 800 sq ft?

  26. Posted by NewBuyer

    Supervisor Cohen is *supposedly* favorable to TIC owners, at least based on some of her historic commentary. She is definitely better for us than Sophie Maxwell was.
    Given that this has been underway for six months, hopefully it has no major impact on her perspective or on her voting plans.

  27. Posted by EBGuy

    She probably had PMI too…
    Doubtful. No money down is the headline. The Tan Man (aka Countrywide) had her back with a second. PS is indicating her parents were on the Deed, though I have a hard time tying them to the property from the SF Recorders site.

  28. Posted by tc_sf

    “Good for her for abiding by the terms of her loan contract.”
    Hmm, has anyone actually seen this provision of a mortgage contract that allows you to stop paying whenever you want?
    Having contract provisions and/or laws that specify penalties for breach of a contract is not the same as having a “contractual right”.
    There are laws which specify the penalties for robbing someone. So if I rob someone am I just exercising my legal right? If I estimate that my take from the robbery is worth more then the penalty for getting caught scaled by the probability of getting caught am I committing a “Strategic robbery”?
    “This might though be an example of Wall Street’s pressure on banks to originate mortgages – so they could then package them as CDO’s….then somehow get S&P to give them triple A.”
    I’ve seen quite a volume of specious arguments on this blog, but I have never once seen someone attempt to justify a property value by how the loan on that property would be packaged. Did Lloyd Blankfein appraise this house? It would seem that this woman made the final decision as to how much to pay for this piece of property. Were she and everyone like her to actually pay their mortgages would the aforementioned CDO’s still be AAA rated?

  29. Posted by sfrenegade

    “Hmm, has anyone actually seen this provision of a mortgage contract that allows you to stop paying whenever you want?”
    Purchase money loans are non-recourse in California, so whether or not it’s actually written into the contract, it’s a contractual right through benefit of California law. The loan in this case was priced by banksters who knew that the loan would be non-recourse and that walking away could be an appropriate remedy for the “buyer,” even if the banksters were pricing loans incompetently. The buyer allowed the bank to exercise this remedy. What’s the problem here?
    Making a comparison to criminal law doesn’t seem relevant.

  30. Posted by A.T.

    I don’t have a problem with her walking away and exercising her legal right to breach (it’s very rare that a court will force a party to specifically perform a contract). But it is not true that she “abided by the terms of her contract.” The terms of her contract called for her to pay. She breached. It just so happens that the lender’s remedy upon her breach is very limited.

  31. Posted by tc_sf

    “Purchase money loans are non-recourse in California, so whether or not it’s actually written into the contract, it’s a contractual right through benefit of California law.”
    A law that limits one party’s recourse in event of a breach is not the same as providing a “right” to breach.

  32. Posted by sfrenegade

    A law that limits one party’s recourse in event of a breach is not the same as providing a “right” to breach.
    Well, let’s be clear, your choices under a mortgage are to pay the mortgage or give back the house. She did the latter. To argue otherwise is form over substance.

  33. Posted by ex SF-er

    Hmm, has anyone actually seen this provision of a mortgage contract that allows you to stop paying whenever you want?
    sounds like people may be caught in semantics. Real Estate law is quite established. A mortgage is an asset backed loan with provisions that have been clear for eons.
    The provision is as follows:
    Pay the agreed upon amount otherwise the lender gets the asset. enough said.
    She chose not to pay, and thus the lender gets the asset, as per the agreed upon contract.
    we can quibble if this is “breach” or “default” or a “right” or whatever. that’s all semantics though. the contract is and was clear. Banks all knew this when they lent her the money.
    by the way, this happens ALL the time in the business world across all sorts of products. Many RE investors including one of the most famous of our time (Donald Trump) do this sort of thing constantly.
    the bank could have renegotiated the deal with her but they chose not to. Deals are renegotiated all the time. How many times has the US Govt renegotiated their initial “investment” in AIG again now???
    =======
    I’ve seen quite a volume of specious arguments on this blog, but I have never once seen someone attempt to justify a property value by how the loan on that property would be packaged. Did Lloyd Blankfein appraise this house?
    actually, many financial dorks like me DO believe that the housing bubble was created in LARGE (not minor) part by Wall Street’s need to have low quality mortgages with which to feed their derivative business.
    Wall street SPECIFICALLY needed high risk loans that were designed to fail so that they could create various securities.
    For more Info I highly recommend the books “Econned” by Yves Smith and also “The Big Short” by Michael Lewis.
    Econned is dense but well worth the read for anybody who wants to really understand why we just went through the biggest heist in the history of Earth, and how the perps will all walk away richer than our wildest imagination. It is dense and technical, but it really helps one understand the history of financial deregulation which led to the various derivative instruments and how they were abused and misunderstood. Best economics book I’ve read in a very long time.
    The Big Short is a more fun book and easy to read… more of like a story.. but will give some idea about this as well.

  34. Posted by Brahma (incensed renter)

    EBGuy, why is it “Doubtful” that she had PMI? I’m genuinely asking, I was under the impression that if you didn’t put twenty percent down, you were going to pay PMI.

  35. Posted by tc_sf

    As above, you also have the choice to rob someone or not, yet no one would argue a “right” to rob.
    As far as substance, consider a stock option contract where you actually do have a right to either pay some amount or let the contract expire. If you choose to exercise or not, does this choice appear on your credit report? Would a potential employer see or care that you chose to let an option contract expire? A business supplier? Would this affect your chances of getting a security clearance? Would this show up to the state bar if you were attempting to gain admission?
    Contrast this to walking away from your mortgage.

  36. Posted by sfrenegade

    The security interest in the property is written into the mortgage. If you breach, then the lender can act upon the security. This is in no way the same as criminal law.

  37. Posted by ex SF-er

    EBGuy, why is it “Doubtful” that she had PMI? I’m genuinely asking, I was under the impression that if you didn’t put twenty percent down, you were going to pay PMI.
    80/20 loans were a way of getting around PMI rules. I once did an 80/20 loan and did not have to pay PMI. (I did it because I could make far more investing than the cost of the 20% piggyback loan).
    =====
    tc_sf: your analogy to “robbing” someone doesn’t work well at all. Robbing someone is illegal and you go to jail for it. Part of the reason is that you are taking something from someone else without their consent.
    when one takes out a mortgage, a lender willingly gives you money with the intent that you should pay it back with interest, otherwise they get the asset. this is why it is called an ASSET BACKED LOAN.
    This happens across all types of lending. Mortgages, cars, corporations, etc.
    similar to a Pawn Shop. You drop off your wedding ring. They give you money. You pay back money plus interest or they keep the ring.
    Or the same as Donald Trump. He got a loan and bought some casinos. HE didn’t pay his loans so the banks renegotiated with him. Or the investors of Stufyesant who didn’t pay their loans so the bank took back the asset.
    it is up to the lending party to evaluate the borrower’s credit quality and the quality of the asset to guard against loss. there is no “robbery”.
    it goes on one’s credit report because that is pertinent to a future lender’s decision.
    on a side note, the same thing happens with international debt markets. The US is AAA, whereas Argentine debt is ranked lower (I think B). Why? because Argentina defaulted on its debt.
    did anybody think Argentina “stole” any money? no.
    so like I said, you can argue semantics if walking away is being a “deadbeat” or “financially prudent” or “evil” or “fat” or whatever, but the contract was clear when it was signed by the bank. Pay or the bank gets the asset. She chose not to pay. Real Estate law is clear, the bank gets the asset.
    It’s all legal.

  38. Posted by SFHawkguy

    In the broader picture, these loans were indeed predatory. They were fraudulent on many different levels. Seems probable even smart people fell for the scam–especially on the ground at the micro level. Indeed, the banks and the government helped steer people into the scam. They are ultimately responsible for the housing bubble–not the people that fell for it.
    So I would rather have a politician that is representative of average people. Today in America that increasingly means getting foreclosed upon or at least feeling burned by the American Dream.
    I would much rather have someone that walks away from their underwater home than someone like Nancy Pelosi who owns dozens of properties and will never have to face a foreclosure or even the frustration of the Byzantine clustersuck known as Obama’s Hope for Suckers Program (wherein bureaucrats spend months building paper origami middle fingers to finally present to you at the end).

  39. Posted by lol

    predatory?
    Idiot politicians deregulated lending. Sure banks went out of their way to push for this deregulation, but if you give the keys of the chicken coop to the fox, guess what happens?
    Banks reacted as they should: without regulation they created more ways to fleece the sheep. this time going through the skin and flesh.
    But let’s not forget the core of the problem here: Uncontrolled idiotic Reaganomics that claimed that “Government is not the solution, Government is the problem”. They got what they wanted, deregulated and got our laws back to the 1920s with the result that was expected.

  40. Posted by apropos

    I try to avoid the Socketsite threads because I don’t find that too many who are on here have much worthy to say, but I was very curious as to what people would have to say about Malia Cohen and her foreclosure situation. Per the comments on here, I am most in agreement with tc_sf, but I have to ask, beyond this discussion about what is “legal” and what is not, shouldn’t there also be consideration of what is “moral” and what is not? Or are San Franciscan’s truly of the belief that there are no moral implications to this, or that the idea of morals is something of a bygone era? I personally don’t believe that we will see an end to the housing crisis that we are in until there is some clarity of the moral implications of the actions of ALL parties involved when it comes to these under water properties. Call me old fashioned (or worse, to some of you I’m sure)… but is it really OK for people to just walk away from these situations, especially our political leaders?

  41. Posted by Rillion

    AT – I did include property tax in my calculation. Not sure what “her profile” is but I do know as someone that bought a $500,000 condo in 2007 that 6% wasn’t too hard to qualify for, and that in that profile, 30% (~25% for fed & 8% state reduced a bit filing in the standard deduction) is not out of the question.
    As for PMI, again I’m not sure of exactly what her financing terms were, but that can be avoided by using a second.
    Speaking from personal experience as someone that bought a condo in early 2007 for $485k, my costs started at $2565 a month after taxes for mortgage/property taxes/hoa. My condo insurance is $100 more a year then my renter’s insurance was so I guess you can add another $8 a month for insurance in the rent v own catagory. But overall, I’m just not seeing where the additional $100,000 would have cost her an extra $1,500 a month to bring her costs up to $5,000 a month.
    Now if she was actually paying $5,000 a month after taxes for that place, well perhaps she was a victim of a predatory loan cause regardless of the rent v buy calculation, she was just getting robbed if she was paying that much.

  42. Posted by Ryan

    For all of you interested in property rights, you should be very thankful we have Supervisor Cohen.

  43. Posted by tc_sf

    @sfre — The point is not that a civil breach of contract is a criminal act, but rather that a law that limits the recourse/penalties for an act does not transform that act into a “right”.
    @ex-SF — “. Real Estate law is quite established. A mortgage is an asset backed loan with provisions that have been clear for eons.
    The provision is as follows:
    Pay the agreed upon amount otherwise the lender gets the asset. enough said..”
    Not all states are non-recourse states, and CA lenders are certainly attempting to feel out the boundaries of CA’s non-recourse laws.
    See here about lenders attempting to go after people for second mortgage debt after foreclosure.
    http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/04/19/MN3C1CQGOC.DTL
    They may or may not succeed but the matter is hardly fully settled. Note that even for a 2nd taken on at the time of purchase, I’ve read that some lenders are adopting the position that after a foreclosure by the 1st they no longer have a security interest and therefore have an unsecured promissory note with the borrower not subject to the anti-deficency laws.
    Regarding the cause of the bubble, I’d agree that there were many causes, but I met no one during the boom that cited anything put out by a wall st. bank or anything regarding the derivatives market as a rational for buying a house or paying a particular price. Uniformly people who paid a certain price thought that the house would be worth much more in the future.
    There was a Tulip bubble without Collateralized Tulip Obligations.
    I’ll check out Econned, but I did read The Big Short and my recollection was that the book did not indicate that Wall St. created these securities knowing they’d fail. In fact the group of protagonists in the book, those doing the shorting (i.e. betting against the securities) had at first to beg the Wall St. banks to set up trades allowing them to do so. And eventually all the banks but Goldman eventually failed partly because of these bad assets. Not what you’d expect to happen if you knew the assets to be bad.

  44. Posted by Rillion

    Sorry typo in the second to last paragraph, should be “would have cost her an extra ~$2,500 a month”.

  45. Posted by Louis

    This person is responsible for the financial management of the City of San Francisco. She must have the financial skills and judgement to get the City out of a very deep fiscal hole. She has to make hard decisions and be responsible and be right.
    I think that is the main issue here.

  46. Posted by Brahma (incensed renter)

    Rillion wrote:

    my comment wasn’t direct at you but at Brahma who seemed to be repeating a variant of the canard that it is immoral to strategically default on a mortgage.

    Point taken, Rillion, but my umbrage is taken specifically because this is an elected official and an highly-educated person who shouldn’t be a “victim” of a predatory loan. I don’t believe, given the evidence at hand, that she was.
    The elected official part takes on even more relevance when you consider that innocent taxpayers are going to be reamed because of her decision to strategically default, and an elected official should be in the position of serving the public instead of trying to take advantage of them as if they (we) are all marks in the hands of an expert grifter. Someone strategically defaulting is shifting their responsibilities to the public instead of fulfilling them themselves; I don’t dispute the fact that she was within her contractual rights, however, an elected official shouldn’t be in the position of doing this. And what reason does she give for doing this? Oh. Not “I couldn’t make the payments due to X, Y and Z extenuating circumstances.” “It was underwater, so I let it go.” Well.
    I mean, who is really the victim here? I’d say the taxpayers who are ultimately going to have to make good on the amount of her mortgage(s). The Supervisor in question was basically a PR flack before she managed to get elected to office. From her Facebook page (‘About Me’, first ‘graph):

    Malia Cohen elected in November 2010 and previously was a Managing Partner with Power Forward Consulting, a public affairs, media and policy consulting firm. Over the years, she has gained an outstanding reputation for her expertise in policy, public affairs, media relations, grassroots and political campaigns.

    Emphasis added. This is someone who’s spent their career trying to manipulate others via use of rhetoric and as such everything out of her mouth should be taken with an entire shaker of salt. If she did indeed say that she was the victim of a predatory lender, she’s trying to play the sympathy card. Hopefully it won’t work and her political career will come to an end shortly.

  47. Posted by A.T.

    Rillion, here is everything I’m using:
    7% interest — you say lower; I say I doubt it if you look at prevailing 2006 rates and her relatively low (assumed) income and $0 down.
    1.5% property tax — some years it was a bit higher, some a bit lower.
    No PMI.
    You get $4741/mo of which $3500/mo is interest.
    Add in $250/mo insurance and $324/mo HOA and you’re at $5300. I’m assuming a $50,000 year gross income based on her employment profile and 12% (420/mo) mortgage deduction. Just under $5000/mo, and that’s assuming not a penny in upkeep. You don’t knock off the portion that went to principal because she ate that by walking away. Even if I accept a $1000/mo deduction, you’re still at $4300/mo for a small Bayview 2BR.

  48. Posted by ex SF-er

    apropos:
    what is moral is not always legal
    what is legal is not always moral.
    what the supervisor did is clearly legal.
    morality is difficult to tell from afar.
    The problem I have with the “moral” arguments is that the morality seems to be one sided. Few to nobody cares about the “moral” responsibility of these banks.
    Was it “moral” for the bank to originate this 80/20 loan in the first place, knowing how horrible these types of loans perform? Was it “moral” for the banks to fight to abolish Glass Steagall? is it “moral” for the banks to start people in the HAMP program while simultaneously starting foreclosure proceedings? Is it moral for banks to levy the service charges and late fees on borrowers who are faithfully trying to get a HAMP modification?
    The banks have acted in bad faith from the get go. They are held to no moral standards. Therefore, I have a difficult time analyzing the actions of a borrower in this situation.
    should she just become a debt slave forever because of the decision that she made however many years ago? is that “moral” to her family?
    I have no idea.
    after all that, to answer your question to the best of my ability:
    If a person entered into a contract in good faith and did intend to make payments, but then found themselves unable to make the payments, then they ARE indeed acting in a moral and responsible way by walking away.
    if a person entered into the contract with the intent to never make a payment but instead live in foreclosure limbo until getting kicked out, then I guess they are acting immorally.
    if a person LIED on their application forms (said they were going to live in property when it was investment, etc) then they were acting immorally (and illegally by the way)
    Listen, things change in life. We do what we can. Law understands this. This is the reason why mortgages are asset backed loans, and this is exactly why we got rid of debtor’s prisons.
    Our economy IS MORE EFFICIENT and WORKS BETTER when individuals and institutions are allowed to make a mistake and recover. without this protection few to no entrepreneurs would ever come forward (think how many people traditionally have gotten seed money for their business ideas with credit card advances and signature loans and auto title loans and second mortgages!)
    This is the essence of why “walking away” and bankruptcy exist. it was past leaders and also business leaders that understood this.
    it is no different now.

  49. Posted by Rillion

    apropos – when banks, wall street, credit card companies, etc, start evaluating their lending decisions using morals instead of risk/reward, then I will change my opinion on the morality of strategic defaults and bankruptcy.

  50. Posted by Delancey

    tc_sf & apropos,
    Just yesterday there was a posting on the foreclosure of the One Rincon Hill phase II partnerships. I’m curious why you’re all hot and bothered about an individual excersizing their legal right to walk away, yet you had nothing to say when it’s a corporation doing it?
    http://www.socketsite.com/archives/2011/02/one_rincon_hill_phase_ii_partnership_interests_schedule.html#comments
    BTW, California law is part of the mortgage contracts. It even says so in the mortgage contract where it specifies what state’s laws and courts shall apply.

  51. Posted by ex SF-er

    tc_sf:
    read Econned.
    the banks needed certain types of loans to feed investor demand for Collateralized Debt Obligations.
    part of the problem is that there were no more borrowers to feed the CDO and CDS and synthetic CDS squared investors.
    Therefore the banks put pressure on the mortgage originators to do specific types of loans, including the NINJA loans.
    by the end of the bubble, it was those bad loans that were the most in demand, because John Paulson et al needed them with which to create a CDO so that they could short a specific tranche.
    the big banks knew this stuff was crap, but they were able to get insurers to back it including AIG by the way. this converted the crap to gold (AAA) and the banks could offload the crap. there are HORDES of emails and communications where traders/bankers talk about the absolute crap that these things were.
    it’s not that the banks thought the assets were good. It’s that
    1) they thought they’d get the crap off their balance sheet before it imploded (Chuck Prince’s infamous line: “As long as the music is playing, you’ve got to get up and dance. We’re still dancing.”)
    2) they could get MBIA and AMBAC and AIG to insure the loans turning them from crap to AAA
    3) a lot of the people doing these deals didn’t care if it imploded the company or not. Regardless they already booked their record bonuses.
    all the big banks thought they could get out before the party ended. But they found that the music stopped suddenly and then they couldn’t get rid of the toxic assets that were on their sheets.
    lastly: in the end it worked out just fine for the banks, because the US Govt and the Fed tricked the US taxpayer into buying all this toxic crap for inflated levels, saving the banks. the “assets” that remain on the banks are held at artificial marks due to accounting changes that were allowed specifically to do this. And then Fannie, Freddie, and FHA were liberalized specifically to unload the crap from the banks, again at inflated levels.
    There was never a “bailout” of AIG. The bailout was for Goldman Sachs et al
    There was never a “homeowner” support program. It was all a mechanism again to save the banks.
    Same with all the Fed programs, the Zero Interest Rate Policy, and all that.
    I’ve said this before, it was the biggest heist in the history of Earth.
    and EVERY guilty party will get off with record bonuses. Every one.
    but this stuff is esoteric and boring for regular people. It is PURPOSEFULLY complex and opaque so that the regular people can go around not understanding, and debating whether or not a no-name supervisor in SF is immoral or not.
    Kabuki theater, bread and circuses, pitting faction against faction so that entrenched interests become richer and richer.
    For god’s sake: we have people who think there is a CLASS WAR against the rich in America, all the while the rich are becoming richer than they’ve ever been in the history of America, at an ever-faster pace.

  52. Posted by Rillion

    AT-
    Fine 7% interest, was likely interest only though and an 80/20. The 20% would have started higher but come down with interest rates so for ease I’ll just keep it flat and call the whole thing 7%. $3,389 a month.
    Taxes
    I use 1.17% cause that’s what might end up being after all the various adjustments. Also she likley got the 7,000 exemption for living in it. $560 a month.
    Not sure about her income so I’ll compromise and use just 25% combined state and fed on those two expenses above. According to you though if she only made $50,000 a year then I find it impossible that she was actually paying $60,000 a year to live there. But whatever, I’ll reduce the tax benefit.
    So mortgage/re is $2,961 a month after the governments pays the other 25%.
    HOA is $324. $200 a month in insurance? To insure what, the paint on the walls??? I have a 2bd/1ba condo and I only pay $350 a year! I’ll say her’s cost a bit more and go to $400 a year (again condo insurance is basically renter’s insurance plus payment to replace the floors/drywall).
    So using those figures its $3,318 a month, still a lot closer to my original estimate then your $5,000 a month. It was a new condo that likely included the cost of appliances in the sale price and she would have had very minor maintence issues in that time that would not have been out of her pocket.

  53. Posted by apropos

    ex SF-er,
    People or institutions give loans to other people or institutions with the intention that the principal will be paid back, with interest, per the agreed terms of the loan. Collateral is usually crafted into the agreement so that in the event that the borrower can’t repay the loan according to agreed upon terms, the lender isn’t left empty handed, and thus provides further incentive for the borrower to pay the loan in full. Lender’s lend money because they believe in the great likelihood that they will be repaid. The decision of increasingly large numbers of borrower’s to no longer pay their lenders destroys confidence in the system, and thus makes potential future lenders less likely to lend (why is it so difficult for many to get loans today?) and if they do agree to lend, it will be under increasingly stricter terms, eliminating the ability of many to get loans. This does not, as you say, make our economy “MORE EFFICIENT and WORK(s)BETTER”, it actually has the OPPOSITE effect. It may not be the reason that our economist and politicians give to our dismal economic state, but in fact credit crises like the one that we are in are caused by a lack of faith and confidence in the system. That is why people walking away from their debt obligations is indeed a moral issue, and why our economy is unlikely to make a full recovery until this is addressed. It’s plain and simple, though so many refuse to believe so.

  54. Posted by SFHawkguy

    Morality? Ha.
    If we want to talk about morality it begins with the political and corporate ruling class.
    As far as the average person . . .
    It’s more moral to unburden oneself of an unsustainable debt and debt slavery. This is entirely legal and consistent with American capitalism. This is only immoral to crony capitalists that want one set or rules for the little guy and another for the rich.
    @tc_sf
    You have a double standard. You want to cast doubt on a perfectly legal activity and yet when another groups’ actions have the appearance of actual illegality, you proclaim nothing to see here, because Goldman sure suffered, or something (it did? They seem to be doing just fine). And with Wall Street’s actions we don’t need to resort to arguments that their behavior was illegal in other jurisdictions or engage in semantic arguments about “rights” versus “remedies” to try to cast doubt on otherwise perfectly legal behavior.
    And re your defense of the criminal class on Wall St. . . .
    Sure, the bankers securitizing the loans didn’t have to deal directly with their small victims. They had mortgage brokers and local bankers and real estate agents and government officials acting as their intermediaries. The fraud manifested itself to average people as a mortgage broker telling them that everyone lies on the stated income application and the local banker looking the other way despite red flags, and the real estate agent that greased the wheels, and so on up the chain.
    Sure. People got suckered into thinking they would get rich. But if we’re talking about moral culpability I fault the snake oil salesman far more than the rube that bought the oil.

  55. Posted by apropos

    Delancey,
    As I said in the beginning of my original post, I rarely read the comment threads on this site, and thus I rarely comment on this site as well.
    It is just as wrong for corporations to walk away from debt obligations as it is for individuals to do so. My silence in no way should be interpreted as agreement. My interest in commenting on this thread is because we are talking about one of our political leaders, which I personally think adds a little gravitas to the nature of the offense.

  56. Posted by SFHawkguy

    And tc_sf,
    It’s a bit ironic that you claim we should be suspicious of average people exercising perfectly legal options to walk from their underwater home yet you approvingly cite the quasi-legal debt collection practices that most people would consider shady.
    The debt collectors in the article you link to are trying to collect on a debt that the Spanish-speaking and scared debtor does not have to legally pay. They cannot make him pay and cannot sue him on this debt. He can walk from that debt, but the collectors are trying to coerce and trick him into paying. This is simply another aspect of a predatory system that preys upon the least sophisticated. And this is a lot of people. If you want to talk immoral, yet legal, these debt collection practices come much closer to immoral behavior than someone walking from an underwater house where they can be underwater by multiples of their yearly income.

  57. Posted by sfrenegade

    The point is not that a civil breach of contract is a criminal act, but rather that a law that limits the recourse/penalties for an act does not transform that act into a “right”.
    Under a security interest scenario, you always have the legal right to give up the security in exchange for not paying. That’s what she did here.
    The fact that it’s non-recourse is an added bonus. At any time, you can give the security to the lender instead of paying, and there might be additional consequences, but you still have the legal right to do so.
    (I say legal right to differentiate from the word “right,” because some libertarians get uppity about that word)
    “Note that even for a 2nd taken on at the time of purchase, I’ve read that some lenders are adopting the position that after a foreclosure by the 1st they no longer have a security interest and therefore have an unsecured promissory note with the borrower not subject to the anti-deficency laws.”
    That’s likely a frivolous claim that will be decided against them in court. The 2nd is still a purchase money mortgage whether or not it’s currently secured.

  58. Posted by SFHawkguy

    It’s funny that those that claim to be so concerned with contractual obligations always want to start with the little guy’s obligations.
    Where is the outrage about corporate executives purposely underfunding and breaching pension obligations? Where is the outrage that unions are being asked to renegotiate their contractual rights? Where is the outrage that the government is going to breach its most essential promise the working class in this country: Social Security? These are all solemn promises that most of those preaching the morality of contract seem to overlook.
    The truth is the crony capitalist system is rigged and there is no true sanctity of contract. Maybe the real heroes are people like this guy:
    http://motherjones.com/politics/2011/01/steven-katz-credit-card-debt

  59. Posted by tc_sf

    @Delancey — Regarding corporations breaching contracts, I don’t believe I ever expressed admiration for this and in fact would try and avoid doing business with a company that habitually breached its contracts or other obligations.
    “California law is part of the mortgage contracts”
    CA law does apply to these contracts and this law:
    “580b. No deficiency judgment shall lie in any event after a sale of
    real property or an estate for years therein for failure of the
    purchaser to complete his or her contract of sale,…”
    Bars a certain type of remedy for breach (or “failure to complete”) of these contracts. It does not create a “right”.
    @ex-SF –
    “Listen, things change in life. We do what we can. Law understands this. This is the reason why mortgages are asset backed loans, and this is exactly why we got rid of debtor’s prisons.”
    While I disagree that breaching a mortgage contract is a “right”, I do think that it serves little purpose in making penalties for this breach too draconian. My druthers would be to make the loans recourse but still single action so that a court review would be needed for a deficiency judgement and the lender couldn’t pop up years after a foreclosure and seek restitution. I’d also bar walk-aways from public loan guarantees for at least 10 years.
    And it’s this last point that makes it seem important to me to clarify what a right is. It would justifiably be extremely dubious to bar someone from a public service, such as a government backed loan, for exercising a true right such as asking for a jury trial or refusing to testify against oneself in court. It would seem similarly dubious to allow assertion of these true rights to affect employment or lending decisions. While willfully breaching a mortgage contract shouldn’t land you in debtor’s prison, neither should it be given the same protections as these types of true rights.
    Regarding the banks, I’d certainly believe that the some bankers caught onto the problems far before the general public. And were probably incentivized not to change their behavior once they caught on. But there have been manias far before there were mega-banks.
    “Was it “moral” for the bank to originate this 80/20 loan in the first place, knowing how horrible these types of loans perform? ”
    One issue here is that these types of creative loans like 80/20 and NINJA actually were performing well for a while. In a sharply rising market, there is little reason to default. In 2005 you could probably look at a loan pool from 2000 and see pre-payments as a bigger risk then actual default.
    Consider on this blog where people will jump on a 1-2% change in some data vs the month prior to assert that the market is “back on track” or “falling off a cliff”. Consider the weight people would give to good looking 5-year trailing default rates vs some historical data from the 80′s or 90′s.
    Now given how much they get paid, it does seem reasonable to hold bankers to a much higher standard then some people on a blog. But it’s easy to see how a healthy dose of incompetence could go alongside some actual malice.

  60. Posted by apropos

    SFHawkguy -
    Morality does not begin with the political and ruling class. Morality begins with the individual self. If the individual self can’t get it right, what hope is there for any larger collective body?
    You need to stop blaming businesses and politicians for every body else’s problems. It takes 2 to tango. Judging from your comments, it doesn’t appear that you believe in personal responsibility.

  61. Posted by apropos

    SFHawkguy -
    You think Steven Katz is a hero? I certainly wouldn’t call him a hero, but the fact that you would tells me that you most definitely do not have your head screwed on straight!

  62. Posted by ex SF-er

    People or institutions give loans to other people or institutions with the intention that the principal will be paid back
    apropos:
    your argument made sense about 15 or more years ago. this was no longer the case by the mid 2000′s.
    I have written a post to you many times, but it is difficult to do concisely.
    Therefore, please forgive the following rambling:
    in the past a bank (often local) lent to a borrower. it was important that the borrower pay the bank back, because the bank was betting along with the borrower that the borrower could pay the loan back. we’ll call this THE OLD WAY.
    this changed in the 2000′s.
    by 2005-2007, there were 2 predominant types of investors in the mortgage market
    1) investors chasing yield… thus they wanted to lend for a mortgage for 7% instead of 5%. That of course means a more risky loan.
    and
    2) investors who were going to short the market. (like John Paulson). these investors would invest in securities and then SHORT them, so that if the mortgages failed they would make more money than if they succeeded.
    Thus, the “yield chasers” and the “shorters” both wanted crappier loans, but for different reasons.
    The big banks then went to the originators and said “find me loans with these characteristics”. The loans they wanted were crappy loans, because that is what the above investors wanted.
    Therefore the originators (like Countrywide) found those loans for the banks.
    But the scenario is different than THE OLD WAY.
    in THE OLD WAY the bank and the borrower both wanted the borrower to succeed. If the borrower succeeded then the bank got paid back with interest and the borrower got the home.
    But THE NEW WAY is not like this.
    in THE NEW WAY:
    -Countrywide originated the loan, but then sold the loan right away to the Big Bank, so it didn’t matter to Countrywide if the borrower pays the loan or not.
    -the Big Bank is packaging up this loan and selling it to the investors. So they too don’t care if the borrower pays the loan back.
    -Some of the investors make MORE money if the borrower doesn’t pay. In fact that’s why they invested in the first place. thus, they WANT the borrower to fail.
    -some of the investors were chasing yield. Thus they often knew they were getting crappy loans, but they didn’t care because they often found someone to INSURE them in case the loan failed. (like AIG).
    thus, nobody worried about the borrower failing, because everybody either wanted the borrower to fail, or thought they had unloaded the loan, or thought that they were insured.
    (there were some investors who were not insured who did actually want the borrower to repay, but they weren’t buying the toxic loans of 2005-2007).
    at a certain point, the music stopped.
    then you started getting loan losses. The shorts walked away with BIG money. (John Paulson got $1B JUST FOR HIMSELF and his form netted around $20 billion from this trade).
    the big banks thought they were insured and thought they would have time to get the crap off their balance sheet, but WHOOPS it hit faster than they thought and their insurers collapsed. Thus, the big banks went to mama govt who then covered the losses for them at taxpayer expense.
    the investors chasing yield all got burned.
    SO NOW:
    we are back to tighter loans because the above groups now don’t trust one another.
    The investors don’t trust wall street. Thus, everything has to be Fannie/Freddie insured, because the investors only trust the US Govt.
    So you see, your rationale worked a long time ago… but no longer.
    Wall Street has morphed. They often make more if their products fail than when they do well. And they act accordingly.

  63. Posted by tc_sf

    “It’s a bit ironic that you claim we should be suspicious of average people exercising perfectly legal options to walk from their underwater home yet you approvingly cite the quasi-legal debt collection practices that most people would consider shady.”
    I was not approving these practices. ex-SFer asserted that all these issues with mortgage law were settled eons ago and that link showed that there is very much an ongoing exploration of the laws boundaries. The same goes for the attempt to treat post-forclosure seconds as unsecured debt.
    As I mentioned above, I think that it would be best for any deficiency judgments to be handled by a judge and single action so that debtors could be represented by an attorney and not be surprised with a submarine claim years later.
    “Under a security interest scenario, you always have the legal right to give up the security in exchange for not paying.”
    A security interest gives the *creditor* certain rights not the debtor.

  64. Posted by ex SF-er

    On a side note:
    I agree with you that it all is a confidence game.
    This is why it’s so sad that our government allowed the big banks to ruin the confidence of the Mortgage Market, a market that worked well for generations until financial deregulation was allowed to poison all trust.
    ===
    and lastly:
    I don’t disagree or agree that this Supe was moral or immoral.
    again: I think I elucidated my point well above.
    If a person acted in good faith and was truthful when they entered the agreement, and then found themselves unable to pay, then I think it is MORAL for them to “walk away”
    if a person lied or was not acting in good faith when they entered the agreement, then they are IMMORAL.
    try figuring out who is who.
    but all that is beside the point. The big banks make the rules through our captured government. It was the big banks who fought for the laws that we have, and they WON the laws that we have.
    Therefore the big banks can follow the laws that they themselves made.
    but see, they don’t want to.
    Tough.
    If we want to restore confidence to the system? easy. Enforce the rules in a clear and concise way. Make the market more transparent.
    but see… the big banks don’t want that. thus, more obfuscation and accounting gimmicks and covert bailouts.
    and then we wonder why the investors are afraid to re-invest in mortgages. ROFL.
    maybe it’s because the big banks lied and lied and lied some more. And then invested AGAINST their clients using inside information (like Goldman’s proprietary trading desk that used inside info to trade against their clients)
    naah….
    it’s because some schlup in SF walked away from her mortgage.
    ====
    One issue here is that these types of creative loans like 80/20 and NINJA actually were performing well for a while. In a sharply rising market, there is little reason to default.
    tc_sf:
    You can’t be serious. So I am to believe that things were fine because these NINJA loans performed well for a few years during the biggest RE runup in the history of America? Don’t forget that all the loss estimates were based on Real Estate NEVER depreciating ever.
    we pay these guys how much for what again?

  65. Posted by Happy in SF

    One more permutation to ex SF-er’s 2:19 post: A person enters into the contract in good faith and did intend to make the payments, but later decides to stop making the payments after a significant decline in the property’s value, although still able to do so.
    Our unwillingness to follow a moral compass, chiefly because we can point to so many others who aren’t, is childish and sending us down into a cesspool.

  66. Posted by ex SF-er

    last thing to sf_tc:
    I didn’t see anywhere in your post about RE law not being settled. it is quite settled.
    If the borrower walks the lender gets the house.
    Now there is a SECOND issue regarding second mortgages and whether or not they are recourse or non-recourse. And that aspect is a state by state issue.
    in the past it hasn’t really been an issue because you can’t get blood from a turnip, thus the banks rarely go after the “deadbeat” borrowers.
    but in this downturn some banks are deciding to pursue their option if their loan is recourse. but even here the law is settled.
    If a borrower doesn’t pay, the lender on the first mortgage gets the asset.
    settled.
    if a borrower doesn’t pay, the lender on non-first mortgages has the right to take the borrower to court for compensation depending on the State.
    again, settled.
    nothing new here.
    I’m not sure why you’re hung up on this word “right”. it seems to be confusing you.
    There was a contract. The borrower and lender(s) entered into a contract. The borrower is not living up to their end of the contract. Therefore an effect is triggered.
    end of story. settled. legal. there is and never was confusion.

  67. Posted by sfrenegade

    “Judging from your comments, it doesn’t appear that you believe in personal responsibility. ”
    I don’t understand why this is about personal responsibility as such.
    The bankster in this case made the loan knowing that it was non-recourse. The reason the bankster did that is that it thought it could sell the crap security to some other guy or that it would get paid because of significant appreciation. This was a business decision, and the bankster was wrong.
    The buyer thought that she would have substantially higher income at this point, would be able to refinance to a lower monthly payment, or would have sold the house by now with a substantial profit. This was a business decision, and she was wrong too.
    The point stands that when it’s Tishman Speyer doing this (or one of the One Rincon Hill partners for that matter), it’s somehow magically ratified by the moralists as a good business decision. When it’s Joe/Jane Homebuyer, it’s not. Why the double standard? Is it really better for society to keep paying exorbitant amounts for non-performing assets or to pay their loans because “a deal is a deal”?

  68. Posted by tc_sf

    “The provision is as follows:
    Pay the agreed upon amount otherwise the lender gets the asset. enough said.”
    But clearly as you show below, in certain cases the creditor on a “asset backed loan’ can go after more then the asset:
    “if a borrower doesn’t pay, the lender on non-first mortgages has the right to take the borrower to court for compensation depending on the State.”
    Refi’s used to be a grey area, but I believe that SB 1178 passed the legislature but was veto’ed would make purchase money refi’s after June non-recourse. Any cash-out amount would be recourse. SB931 I believe just passed and will prohibit deficiency judgments after short sales. Forgiven recourse debt was made non-taxable just a few year ago, but this will sunset next year. It seems reasonable that some of the practices mentioned in the sfgate article will be litigated and some case law created.
    What about how the Vendor rule applies to loans that were packaged up and sold off?
    “You can’t be serious. So I am to believe that things were fine because these NINJA loans performed well for a few years during the biggest RE runup in the history of America?”
    Not that things were fine, rather that I can at least understand a bias towards years of recent data vs much older historical data. This is a low bar though and I would agree that I’d expect better for people so well paid.
    “2) investors who were going to short the market. (like John Paulson). these investors would invest in securities and then SHORT them, so that if the mortgages failed they would make more money than if they succeeded.”
    Consider a fraudulent company. Shorts may take an interest in and benefit when the company finally goes down, but they do not cause the fraud. In fact since shorts push down the share price, more shorts means a lower stock price and less money for the other investors to lose.
    Paulson made so much money precisely because so few other people were in short positions. The whole raison-d’etre of mania’s is that so many people are in long positions. While it’s possible, and would be fraudulent and immoral in my view, for a short to use fear to directly cause the failure of an otherwise healthy company, someone making money short on a fraud or bubble that others have not picked up on seems to be doing more good then harm.

  69. Posted by apropos

    ex SF-er, sfrenegade, et.al,
    I believe your arguments fall into what I would term moral relativism. Two wrongs do not make a right. Because the banks behaved badly doesn’t excuse the behavior of the borrower. The banks didn’t force the borrower’s to take the money. I do not buy the argument that my line of thinking made sense 15 years ago. Banking and lending is fundamentally the same then as now. I understand well the issues with mortgage securities, credit default swaps, short selling, etc. The banks are not blameless, and it angers me that the government continues to bail out the banks. The fundamentals, however, are still the same. Banks, while they are still working through the problems in the system, are slowly reforming. It’s not something that will happen over night. I am tired of people who took these loans acting like they have no responsibilities or obligations in the matter. Every person who walks away from their debt adds to the severity of the crisis we are in. Until these actions stop, economic recovery will remain elusive. I know you think that I am over-simplifying the matter, but at it’s essence that is what it is, it is really that plain and simple. The more people see this, the sooner things will turn around. Unless our own governments start defaulting on their debts, of course. Then we will be in an entirely new mess. I hope that is a fate we will choose to avoid. But I digress, other than to point out that the repayment of debt, regardless of the person, organization, or entity holding the debt, is, and always will be, a moral issue. And when it ceases to be, so too will civilization as we know it.

  70. Posted by A.T.

    apropos, I agree with you that people should pay their debts. I always have.
    But what are people like Ms. Cohen supposed to do? Her place is now worth a quarter million less than she paid. Yes, she was stupid to pay so much. But what if she now simply cannot pay the loan back and she cannot sell because she can’t bring a massive check to the closing? What do you suggest? Bring back debtors’ prisons? Bankruptcy? The latter is quite common and arguably a necessary tool to permit people to again be productive, but it also results in stiffed creditors. So is that also a no-no?
    The home value is gone. Walking away is one way to deal with it. If not that, then what?

  71. Posted by Rillion

    sfrenegade – because businesses get to magically wash away personal responsibility. The ceo/president/manager of a business has the responsibility to do what it is the best interests of the owners of the business. So when a business defaults its because the leaders of that business are now acting out of a sense of responsibility to do the right thing. But individuals that owe money to a business, yeah, they aren’t taking any personal responbility when they act in the best interests of themselves, they are just being greedy. (sacrasm off)

  72. Posted by Dede

    Aside from all of the discussion about victimhood and her business decision to give her condo back to the back, I would really like to understand if she met her obligations to the HOA she was a member of.
    ——
    Did she pay her assessments or did she screw her immediate neighbors?
    ——
    If she paid neither her mortgage, nor her HOA assessments, then I am very concerned about her being a representative of ANY district in San Francisco.

  73. Posted by J

    Individuals have a moral responsibility to act in the best interest of their family.

  74. Posted by sfrenegade

    “A security interest gives the *creditor* certain rights not the debtor.”
    Once again, form over substance.
    If you get a bail bond where you put your house up as collateral, you can either pay the bond or give your house up.

  75. Posted by sfrenegade

    “But I digress, other than to point out that the repayment of debt, regardless of the person, organization, or entity holding the debt, is, and always will be, a moral issue.”
    Well, you should move to a country that has debtor’s prisons then. We abolished them here.
    Debt is a business issue. It’s a business decision whether or not to extend credit and a business decision whether or not to accept it. It is also a business decision on how to deal with a contract that isn’t performing.

  76. Posted by apropos

    A.T.-
    If Ms.Cohen hasn’t the financial resources to pay the mortgage, then that is one issue. If you can’t pay, you can’t pay. But the whole situation, at least to me, reflects extremely poor judgment on her part. Is not good judgment a valued, if not a necessary quality, that one expects of their elected leaders?
    And to that matter, if she did have the money to pay her mortgage, then yes, I do think she should have stayed in the place and continued to pay the mortgage. Yes, she would be upside down right now, and probably would be for a while, but at some point the value of the property will begin to rise, and as time goes on, she will continue to pay down the principal on the loan. So what if it’s 10 years until she’s above water again. It’s what most of our grandparents, and their parents and grandparents, would have done in the situation. Walking away is the easy thing to do, and perhaps it makes sense financially, but at one time many more of us knew that it wasn’t the right thing to do. You got yourself in the mess, you get yourself out it, even if it takes years to do. Having gotten herself elected to office in San Francisco, I have the feeling that Ms. Cohen is certainly resourceful enough to have been able to work this situation out by a means other than walking away. Lot’s of other people in this city are staying put and not walking away, I know that for sure.
    Ms. Cohen is certainly entitled to walk away, but that is not a quality I want in one of my leaders.

  77. Posted by sfrenegade

    apropos said: People or institutions give loans to other people or institutions with the intention that the principal will be paid back.
    ex SF-er said: your argument made sense about 15 or more years ago. this was no longer the case by the mid 2000′s.
    I agree with ex SF-er here. Banksters didn’t care about performing loans any more during the housing boom. During the housing boom, the banksters were more concerned about making fees from making and selling loans than having performing loans. They didn’t care about performance because they were passing the loans on to other people through securitization. A loan originator only needed the loan to perform for a limited amount of time before securitizing it, so they had no incentive to make sure a loan would perform.

  78. Posted by apropos

    sfrenegade -
    I am trying my best to be civil in this discussion, but I must say that I don’t find you to be a “thinking” person. My assertion that payment of one’s debt is a moral issue does not in any way mean that I support the idea of having a debtor’s prison. I do not, although people who “think” like you make me think twice about that.

  79. Posted by A.T.

    “Ms. Cohen is certainly entitled to walk away, but that is not a quality I want in one of my leaders.”
    I am in total agreement.
    However, as tipster noted, I suspect that the vast majority of Ms. Cohen’s constituents will favor this particular quality.

  80. Posted by Delancey

    “Ms. Cohen is certainly entitled to walk away, but that is not a quality I want in one of my leaders.”
    Hmm, acknowledgement of a sunk cost, understanding of basic math, and willingness to move on with life? Those are all pluses in my book. Puts her ahead of many congresscritters and national politicians I can think of.
    apropos, be careful who you tar with that brush. Every single property purchaser since 2004 is substantially underwater, and some will never break even, or even able to pay off the debt. The only way to avoid losing was not to play, and societal pressures make it hard to stay out of the RE game.

  81. Posted by tc_sf

    “”A security interest gives the *creditor* certain rights not the debtor.”
    Once again, form over substance.
    If you get a bail bond where you put your house up as collateral, you can either pay the bond or give your house up.

    As with mortgages, there may be specific laws regarding bail bonds, but in general the presence of a security interest gives the *creditor* certain rights but does not relieve the debtor from the original obligation. If the security interest is repossessed and insufficient to satisfy the original obligation a deficiency can be sought. Additionally reliance damages could be sought. In some cases a creditor could act to preempt you from impairing the collateral…
    Back to mortgages, from the sfgate article:
    “”Depending on what the holder of that note wants to do, it can make their (the borrowers’) life miserable,” he said. “Most of the (lenders) do an asset test to see if there’s anything there. They can run credit reports, use investigative services, get their hands on the applications they used when they applied for a loan.””
    If banks making borrower’s lives miserable is just “form” then a great deal of your outrage would seem to be unjustified.

  82. Posted by SFwatcher

    Did she pay mortgage till her stay in the home? Or did she freeloaded for a year not paying the mortgage and hoping that she will negotiate with bank or bank will take its own time to foreclose??

  83. Posted by apropos

    Delancey.
    I do not tar people with a brush. Again, I have encountered someone who does not know how to “think”. The discussion at hand is about Ms. Cohen, and not about anyone else specifically. Generally, I am speaking about those who have choices, and there are many, many who do. I realize that for some walking away is the only option. I do not believe this to be the case with Ms. Cohen.
    And to your comment about societal pressures making it too hard for some stay out of the RE game, I say b***s***. Please. Get a spine. Or more importantly, grow up. This is not high school.

  84. Posted by sfrenegade

    apropos — don’t appreciate the ad hominem. I’ve tried to respond to you in good faith here. Just because you disagree with the argument doesn’t mean that I don’t “think.” You’ve yet to explain why this should be a moral issue when an unsophisticated consumer is making an arms-length deal with a highly sophisticated large corporation.
    I also take issue with the following statement:
    Every person who walks away from their debt adds to the severity of the crisis we are in. Until these actions stop, economic recovery will remain elusive. I know you think that I am over-simplifying the matter, but at it’s essence that is what it is, it is really that plain and simple. The more people see this, the sooner things will turn around.
    This attitude is exactly why we engage in bailouts. We think of this as a “crisis” when a bank might fail. It’s not a crisis — it’s just a business failure.
    Banks fail because of bad business decisions all the time, and generally the shareholders take a haircut, the depositors are fine because of the FDIC, and the management gets fired for gross incompetence. There’s nothing here to indicate that the normal course of business would have actually created a “crisis.”
    Is it hard to unwind complex transactions? Yes, it’s very difficult. But does it create a “crisis”? Probably not. Lots of those complex transactions offset each other, so if you unwind one, you unwind another one.
    The real “moral” question to me is why we should reward people for failure. Why should we bail out failed banks and give their management bigger bonuses?

  85. Posted by sfrenegade

    Point of Information: For the people who think walking away is immoral, what if California law made all home loans recourse? Would you still think walking away was immoral if someone faced a deficiency judgment when doing so? Please explain why, when giving your answer.

  86. Posted by sidelined

    apropos: Societal pressure and peer pressure for real estate are undeniable–especially among certain demographics that are quite common in this area. During the bubble years, it was difficult to avoid withering critique of why you hadn’t bought anything yet.
    “Because I’m not a massive idiot” is not something that you’d generally tell your friends as an answer. That is, if you actually liked your friends. You got good at changing the subject, but you also got really tired of changing the subject.

  87. Posted by tc_sf

    @A.T. — “Bring back debtors’ prisons? Bankruptcy? The latter is quite common and arguably a necessary tool to permit people to again be productive, but it also results in stiffed creditors. So is that also a no-no?
    The home value is gone. Walking away is one way to deal with it. If not that, then what?”
    Again, I don’t advocate debtor’s prison and non-recourse loans are what they are. But for loans that are recourse, if the assets are there then it seems like Bankruptcy is a way for all creditors to be handled in a somewhat equitable fashion.
    What I feel most strongly about is that going forward, people with a FC or BK should be barred from government guaranteed loans for quite a while. Stuff does happen in life, and there is no point in making pariah’s out of people who have bad financial skills, judgement or luck. But there is also no reason that taxpayer money should be put at the disposal of these people for a repeat performance.
    Regarding banks now and then. I don’t think it’s inherently bad that banks have moved from a fully vertically integrated loan model ( i.e. get savings, underwrite the loan, provide the money, service the loan,…) into a more specialized model performing securitization and trading. It’s not bad either that loans are pooled together and chopped up so that credit risk can be bought and handled by specialized entities. The problem lies in the incompetence of the entities that bought and/or insured the risk (i.e. AIG). If entities were truly deceived by banks as to what they were buying then that seems fraudulent and immoral. But at least according to the tone in “The Big Short” AIG at least seemed to know exactly what it wanted to buy (or insure). They just weren’t very good at it.
    From a public policy point of view, the issue then becomes one of preventing all of the credit insurance business going to the least competent entity. i.e. The one willing to bid the lowest on insurance may be willing to do so not because they have the best way to analyze risk, but because they are too dumb to know any better.
    This is similar to a winners curse situation when bidding for an individual house where people can get zero down NINJA loans. In order to “win” you need to bid more then the next dumbest guy who can bid any amount with nothing to lose.

  88. Posted by sfrenegade

    “As with mortgages, there may be specific laws regarding bail bonds, but in general the presence of a security interest gives the *creditor* certain rights but does not relieve the debtor from the original obligation. If the security interest is repossessed and insufficient to satisfy the original obligation a deficiency can be sought. Additionally reliance damages could be sought. In some cases a creditor could act to preempt you from impairing the collateral…”
    When you enter a contract, you enter a set of mutual obligations. Certain obligations can cut both ways, and when you negotiate a contract, you can set up remedies that are in effect options for performance or alternatives for performance. Good contract drafting uses remedies and the other party’s rights to the drafter’s advantage.

  89. Posted by Brahma (incensed renter)

    Above, at 5:29 PM, apropos wrote:

    So what if it’s 10 years until she’s above water again. It’s what most of our grandparents, and their parents and grandparents, would have done in the situation. Walking away is the easy thing to do, and perhaps it makes sense financially, but at one time many more of us knew that it wasn’t the right thing to do.

    It makes sense financially if you’re only thinking about what’s right for you and ignoring the impact on everyone else, like the higher interest rates that will be demanded of future mortgage borrowers in the near-to-medium-term future because lenders and the ultimate bond buyers will have to “price in” the likelihood that the borrower will strategically default, in addition to the ‘normal’ likelihood of legitimate default due to job loss, catastrophic health event, etc.
    A bank with access to the Fed discount window isn’t going to be “hurt” by your strategic default, and trying to justify strategic default as “getting even with the big, bad, banks” would be funny if the consequences weren’t so serious. And I say this as someone who bows to no one in my class-war fantasizing (Pitchforks, tar, feathers, tumbrils that sort of thing). The notorious Joe Cassano, late of AIG, should be locked in a pillory somewhere in public for several weeks so average American taxpayers can come by and spit on him, and similar things should be done to the bank CEOs who brought the crisis to us and are still in their positions.

  90. Posted by ex SF-er

    I believe your arguments fall into what I would term moral relativism. Two wrongs do not make a right
    apropros:
    I have claimed nothing of the sort
    I neither find Ms. Cohen’s actions moral or immoral. I don’t have enough information to make a judgment. I told you the criteria that I would use for morality above, and I don’t have that information for Ms. Cohen. Neither it seems do you.
    Regardless, I don’t even care if she was moral or not.
    why don’t I care? Because it is easier to regulate the behavior of a handful of financially sophisticated entities (i.e. the big financial houses) than it is to regulate millions of unsophisticated actors.
    I could waste my time trying to modify the behavior of millions of people… or I could simply modify the behavior of a small number of interconnected entities. If I ban NINJA loans and 80/20 loans and Option ARMs then I don’t have to worry about the Ms. Cohens in the first place. She won’t have the opportunity to be immoral.
    I can restore sanity to the mortgage market simply by returning the rules to the way they were back in the early 1990′s (and enforcing them). No need for a moral transfusion for the masses.
    Thus, I leave it to you to be outraged over Ms. Cohen’s lack of moral fiber.
    The banks sure hope you focus on her. This way they can dream up even more esoteric loan products and market them to the dumbest and most illiterate of people and crash the economy again. And then we can debate if the morality of the impoverished person with an IQ of 75, all the while the big banker brings home an even bigger bonus.
    This isn’t moral relativism… it’s moral apathy. I have no moral judgment in the first place because I simply. don’t. care. at least not about her.
    I’m sure that in your opinion my above statement is even worse than moral relativism… but c’est la vie.
    I refuse to spend much time on the 3 ounce mouse when the 100 ton elephant is stinking up the room.

  91. Posted by apropos

    sfrenegade -
    People walking away from their debt obligations IS increasing the severity of the crisis. But what does that have to do with bailing out banks?
    My position on the banks is to let them fail. I am against government bailouts of any kind, and I am especially against “too big to fail”. Some definitely deserve too. But that has nothing to do with borrowers paying debt obligations. I’m not talking about the banks. Don’t don’t read things into what I say.
    What I AM saying is that bad behavior by the lending banks is not an excuse for the bad behavior of their borrowers.
    sidelined -
    I said it once, I’ll say it again. The societal pressure excuse is b***s***. Grow up, seriously. One of the biggest problems we have in our society today is the too many adults have the mindset of adolescence.

  92. Posted by apropos

    Brahma -
    Point well taken. That is why I said that it “perhaps” makes financial sense, but I would agree in the long term for everyone as a whole, it does not.
    ex SF-er -
    There are a hell of a lot more 3 ounce mice in the room than 100 lb elephants, and those mice create quite a stink of their own. I’ll leave it at that because it’s clear we have different understandings of what morality is.

  93. Posted by Delancey

    apropos, you said:
    What I AM saying is that bad behavior by the lending banks is not an excuse for the bad behavior of their borrowers.
    What you’re not getting is that the banks caused the bubble (with cheerleading from the republican party–nothing like a fake economic boom and spending future generations’ wealth now to help your electoral prospects). The banks flooded the real estate market with cheap loans, such that to buy property you had to either be a chump or cynically understand the downside outcome (jinglemail). Like I said, the only way not to lose was not to play.
    In short, the banks caused the bubble. Without the bubble you don’t have the walk-aways.
    Also, I will take issue with your claim that walk-aways are adding to the current economic stasis. I think the opposite–those people doggedly paying on deeply underwater properties are prolonging the deadlock. Those loans are crap. I know it, you know it, my neighbor’s dog knows it. Yet the zombie banks are permitted to keep the loans on the book at a notional value, and the banksters in charge get to keep their jobs and award themselves bonuses. It is only when jinglemail occurs that the loans are marked to market, which post-foreclosure is typically 20 to 50% of the loan amount.
    To repeat–those people still paying on deeply underwater loans are aiding in maintaining the fiction that our banks are solvent.
    We need a massive financial bloodletting. Flush out the crap and let a natural market emerge again.
    PS. Apparently you’ve never had a wife.

  94. Posted by FormerAptBroker

    Louis wrote:
    > This person is responsible for the financial
    > management of the City of San Francisco. She
    > must have the financial skills and judgement
    > to get the City out of a very deep fiscal hole.
    Anyone who has the “the financial skills and judgement to get the City out of a very deep fiscal hole” would have the judgement not to run for office in SF…

  95. Posted by anonanon

    @apropos
    If a friend lends you money and you don’t pay it back even though you could, that’s a moral issue. But banks don’t lend you money out of friendship. And they won’t hesitate to kick you out on the street if you default. To the bank, your mortgage is just a business transaction and it will act in whatever way it feels is best based on its own business interest. Why shouldn’t the person on the other end of the transaction do the same?

  96. Posted by ex SF-er

    good night apropos. we are clearly talking past one another. I’m not sure how we can “clearly” disagree about what morality is since for the most part I’ve been mum on the morality question.
    but we can make this simple. I did leave three guidelines for moral vs immoral “walking away”. Please elucidate where we clearly disagree.
    Quoted from above: (and you will note, this is the only statement I made about the morality of walking away from a debt commitment all day):
    1)
    If a person entered into a contract in good faith and did intend to make payments, but then found themselves unable to make the payments, then they ARE indeed acting in a moral and responsible way by walking away.
    (so as example, let’s say you get a mortgage and then die. Were you immoral for not fulfilling the contract before your death? what if you got cancer and lost everything including your job etc? were you immoral?)
    2)
    if a person entered into the contract with the intent to never make a payment but instead live in foreclosure limbo until getting kicked out, then I guess they are acting immorally.
    (I’m guessing you agree with me here, right?)
    3)
    if a person LIED on their application forms (said they were going to live in property when it was investment, etc) then they were acting immorally (and illegally by the way)
    (I’m assuming you don’t disagree here, right? you don’t think a person who lies on their loan application is acting morally, do you?)
    so you’ll have to help me out, because I really don’t see our different understandings of morality. (unless of course you disagree with my only statements on morality).
    =========
    now we clearly do disagree about the importance of morality in resolving our current fiasco. I take it that you think that restoring morality to the common borrower would be most important to resolving this crisis.
    I believe it to be more important for our leaders to restore transparency and sound regulation to our financial markets, which I believe would prevent immoral borrowers from being able to do what they did in the first place.
    Yes, 300 million 3 oz mice can and did cause a lot of problems. I simply believe my approach of dealing with the 20 or so biggest elephants is easier than changing the behavior of 300 million mice.

  97. Posted by apropos

    ex SF-er:
    You are due a fair response from me, which will be forthcoming, but not before tomorrow. Until then, good night.
    Delancey:
    What is it that I said that makes you think I am of the male persuasion? Just curious….

  98. Posted by Delancey

    apropos,
    You are correct in that I should not assume gender. Where I was coming from is that in my anecdotal experience the pressure to be a homeowner comes most frequently from the female half of hetero couples, often as a result of parental pressure to get on the child-bearing path.
    As sideline put it earlier, it is very difficult to tell a friend they are massively screwing up financially and retain that friend. I had better luck explaining the case-shiller graph and leverage to my direct reports.

  99. Posted by The Milkshake of Despair

    “It is just as wrong for corporations to walk away from debt obligations as it is for individuals to do so.”
    No these are not equal wrongs and there are magnitudes (literally) of difference in impact and responsibility. There should be equally magnitudes of difference in the way society responds.
    Corporations are mega-beings afforded similar legal legal protections as individuals. Where a person might step on a bug a corporation might step on an entire town. Each gets to say “Oops ! I won’t do it again, be lenient please”.
    Even worse most individuals will be the same person for life : Edith J. Sittingduck 445-04-9306. Corporations are amorphous, opaque shape changing entities. What was Vantage Global Partners IV yesterday could become Hoardem Enskrewum Occidental Holdings, Inc. tomorrow. Climb past our wall of lawyers first. There’s little personal embarrassment or exposure and the vast magnitudes of booty make it the charade worthwhile even if your face appears on the front page.
    Responsibility should be proportional to potential harm. This is why airline pilots adhere to much more stringent regulations and are exposed to higher penalties compared to truck drivers who in turn are held to higher standards than car drivers. All can cause harm and should exercise caution. But those in a position to cause greater harm should bear greater responsibility.
    Ex-SFer’s approach is the most pragmatic. Why try to herd a bunch of idiot mice when you can simply school a few very sophisticated but greedy elephants ?

  100. Posted by Alai

    Honestly I find all this arguing over whether or not it’s moral to walk away from your mortgage a bit tedious. The damage has already been done, and it had already been done in 2007. Maybe the people who are walking away are a bit guilty, but they’ve also paid for it quite a bit, in general. The really guilty are those who set up and profited from the house of cards, and they are the ones who got away with it, too. Save your rage for them.

  101. Posted by ex SF-er

    apropos:
    I am on call now, and thus have time to elucidate to you why I think your approach (of improving the morality of the common man) is flawed.
    I want start by stating that I understand the strength of your emotion, AND I understand that you want “morality” to be improved across everybody, common man AND also corporate morality. I know you want morality to improve across BOTH groups. Unfortunately, I disagree with you because I don’t think it is possible to bring back “morality” to the big businesses, for reasons below.
    Here is a partial and selective history of one credit law change that in theory tried to address the immorality of the borrower class, and then the results:
    back in the mid 1990s Financial firms wanted to expand revolving credit (like credit cards). But there was a catch. If they did it poorly, or if there was “bad luck” the borrower could file for Bankruptcy. Either Chapter 7 or Chapter 13. In Chapter 7, all creditors line up and get whatever assets the borrower has AT THAT TIME. (this could lead to big losses for a creditor!) Under Chapter 13 (often called restructuring) a borrower must continue paying creditors for 6 years, and couldn’t file for BK again for 6 years. (thus, much less chance for loss to a creditor)
    The Financial Firms didn’t like that, because the “immoral” borrower could do “fraudulent” or “opportunistic” bankruptcy. How Immoral! It made lending more risky and brought down potential profits. Worse, the Financial firms need to ALWAYS GROW and they had already extended credit to all the good credit risks… so they “needed” more customers.
    (on a side note: evidence surfaced from backwards places like Harvard that over half of bankruptcies occurred due to medical emergencies… but that doesn’t fit the meme of “morality” and “personal responsibility” and “Deadbeat opportunistic bankruptcy-claimers”)
    So our Financial firms lobbied hard (HUNDREDS OF MILLIONS OF DOLLARS) and the Republican party took up the banner of Personal Responsibility (a moral issue), and in 2005 passed the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005″. (on a side note, don’t think that the Democrat party is any better here).
    see the name? it’s going to PREVENT BANKRUPTCY ABUSE! It will PROTECT CONSUMERS! who can argue with that except for moral relativists?
    (wait a minute???!!!! who is this bill really protecting? is it consumers or creditors??? why isn’t it the BK abuse and creditor protection act??? But I digress).
    see: it’s going to reduce all this “abuse” and it will “protect consumers”. it basically made it harder to file bankruptcy, and even when a borrower can jump the extra BK hurdles, it converted many people to Chapter 13 (restructuring) as opposed to Chapter 7 (liquidation). in other words, it makes it harder for an immoral opportunistic person seeking bankruptcy to stiff their creditors.
    (a side note again: did you know that in essence with this law, ANYBODY with an income above the median who tries to file for BK is AUTOMATICALLY declared an “abuser” and thus denied Chapter 7 bankrutpcy? So let’s say your spouse makes $80k/year which is above SF Median income, and you have Cancer and your insurance won’t pay and the medical bills are $200k this year… you are automatically defined a “bankruptcy abuser” and cannot automatically file Chapter 7)
    Credit card and other companies were thrilled! Do you know what happened?
    1) there was a massive peak of Bankruptcies just before the bill as “immoral” deadbeats tried to beat the rule. followed by a sharp drop right afterwards.
    but then
    2)Credit skyrocketed!
    but did it skyrocket to moral and responsible people??? NO.
    Credit cards and other revolving debt was extended to the WORST of the WORST consumers. Why is that? Easy. Because in the past those consumers could have simply filed Chapter 7 bankruptcy (so they were risky to lend to), but now they will be pushed into Chapter 13. Not only that, it was made much more difficult to declare BK in the first place, and durations of BK non-allowance were extended. Immoral deadbeats will now BE FORCED BY THE GOVERNMENT to be “moral” and “responsible” and pay their debts.
    It’s a Jubilee for the Financial Firms. And they did exactly what they were expected to do. they pushed credit hard to people who had no business having it.
    they ESPECIALLY pushed tons of credit to people who just went through BK. Why is that? Because:
    1) they could charge sky high rates (20-30%+)
    2) the new borrowers are FORBIDDEN from declaring bankruptcy for 8 years (used to be 6). Thus, the bank is legally protected!
    3) these people are obviously unsophisticated so are easy marks.
    4) they already tapped out the responsible borrower. Not many more left who didn’t already have credit.
    So the banks went on a massive ill-advised lending spree because they were protected from loss from the “immoral” masses. this of course all ended poorly because the lending got SO bad that people are now going through wave after wave of Chapter 13 despite the BK abuse bill.
    See, the Pig-men Financial Firms aren’t happy with Multi-Billion dollar bonus pools… and need to suck every last cent out of every last one of us. So they couldn’t control themselves, even with (or shall I say especially with) the new law.
    So paradoxically your approach (legislate morality into the common man) is exactly what the most Scum-baggish of all the Predator banks want. They have spent hundreds of millions of dollars in order to get exactly that. It is douche-baggery to the extreme, all facilitated by our Leaders (who themselves get sweet kickbacks and awesome corporate jobs after leaving office).
    To the Parasite class it is awesome if we can unilaterally force the common man to “honor” his debts while allowing corporations to do whatever they please under the protection of the captured government.
    The Parasite Class and the Politicians have developed fantastic propaganda to attack us all the while we think they are helping us. It is perfected. And most people can’t or don’t want to see it. They have mastered the art of peeing on our heads while telling us it’s a beautiful spring rain, and then convincing us that it’s a drought and that we need more pee.
    (this is BOTH parties by the way. This is EXACTLY what HAMP was. It was NOT to help borrowers, it was to help the balance sheet of the banks. Same with TARP. And Zero Interest Rate Policy. And QE2.)
    Now I understand that the above is NOT what YOU want. I know that you want morality for the big businesses. Morality for all. But again, from a practical standpoint how likely is this to happen????? Our system isn’t set up to legislate corporate morality. It has been hostage to big business for some time now.
    Thus:
    I do not disagree with you.
    All humans should try their hardest to be as moral as they can their entire lives.
    However: we are dealing with a Parasite class that is maliciously and purposefully changing our laws a very certain way with intended consequences that then led to a global financial meltdown.
    legislating their morality is nigh impossible. Thus, we must attack them with the Law, and reverse the gains that they have gotten.
    ======
    housing specific: one of the reasons we are here today is because the Financial Firms were successful a long time ago at getting Housing Debt EXCLUDED from Cram-Downs. Other types of debt can be crammed down in bankruptcy. But not Housing Debt.
    This “protection” for creditors is one of the reasons why they lent NINJA loans like crazy. Because they knew no cramdowns would be forthcoming.
    Legislating common man morality without MANDATING the same from the big corporations is a recipe for disaster.
    I refuse to consider the first (morality of common man in debt transactions) without FIRST seeing the second. (morality of financial firms/creditors in debt transactions). And the latter isn’t going to happen.
    so am I irritated when I dutifully pay my mortgage every month when I hear about the scumbag who bought a condo, refinanced it and pulled out $750k over 3 years, and then walked away?
    sure. irritating to the extreme.
    but it pales in comparison to my irritation that Goldman Sachs and BofA and JPMorgan get to do what they do AND get accolades by the president and invited to be part of the Govt.

  102. Posted by Kurt Brown

    It’s plain and simple
    Apropos knows who’s moral
    Haiku might not be

  103. Posted by anonanon

    @ex-SFer
    I think your are making the fundamental argument about the morality of defaulting on a mortgage a lot more long-winding than it needs to be.
    To me, betraying someone’s personal trust in you would be a moral issue, like not paying back a loan to a friend.
    But if there is a business transaction between two entities that fully understand the contractual and legal ramifications of the transaction — including the possibility that one party might walk away from debt — why is there a problem if one party decides on a course of action that the other party fully knew could happen? It’s not like banks were unaware of the concept of credit risk or that loans could go bad.
    There probably was a time when getting a loan from a bank was based on trust and a long-time relationship with local banker. I doubt, however, that most of the problematic loans we have seen in recent years fall into that category. More likely, they were subject to some computer algorithm that looked at FICO scores, income, etc., and decided whether you were an acceptable credit risk. Some loan officer than signed off on the loan and that’s it. If you default on the loan, are you betraying any persons personal trust in you? If not, think of it as a business transaction, same as the bank thinks of it.

  104. Posted by nanonanon

    A different bent: in later 2006, I was looking at a Cow hollow condo that was listed a little over 1.6mm. My then-realtor encouraged me to overbid and “guaranteed” me that I would double my money within five or six years. (I did not buy it for other reasons as I found out the realtor lied to me about some other things.) If I had listened to my realtor at that time and purchased the place, would I have any moral responsibility to keep making the payments even though I still could right now? I was misled by my realtor and the bank lent me the money so its their fault. (And it’s funny to me that everyone comes down on lenders, but never the NAR.)
    Perhaps this is a strange hypothetical but based on a real situation. But the question is about where personal responsibility starts- if anywhere. e.g. I know people who have bought spec properties not only in SF, but Phoenix, and LV thinking they could easily double their money. I know people who lied on their loan docs for this. Is there any individual responsibility? Or is it all strictly a business contract? And is it all always the fault of others. . . .

  105. Posted by A.T.

    There is no dishonor among thieves.

  106. Posted by kathleen

    If you build it they will buy. This wild and crazy city has been hypnotized into believing building all this excessive multi-family housing will be great for the city.
    2/2 in 800 sq ft. Exactly.
    Most of the multi-”family” housing is not family friendly, too small, no storage, limited parking, no closets (it’s a loft!) no space for a broom or vaccuum cleaner, or a stroller, or a dog bed.
    It’s too bad for Bayview, and it too bad for South of Market.. now they want to bring that same bad game to a neighborhood near you.
    Housing is more than property tax revenue, it’s about neighborhoods.

  107. Posted by lol

    2/2 in 800sf is small-ish, I agree. But what do you want? 2/2 in 2000sf? And how much is this going to cost?
    Building anything in this city costs way more than 400/sf. Even at that low price, new construction of a 2/2 would be more than a Million.
    This is beyond reach for 90% of SF. Building smaller places makes perfect sense. And if you like space but cannot shell a million bucks, well… they invented this great alternative called the Suburbs. You’ll have room for your family there.
    SF has become relatively cheap compared to many high-end European cities.
    In Euros/m2, SF is around 3,500-4,500/m2 for the median. Paris has zoomed past 6,000/m2 a while ago almost everywhere. London is more than 10,000/m2. In these cities, you either accept less space or you move where space is more affordable.

  108. Posted by nnona

    “I try to avoid the Socketsite threads because I don’t find that too many who are on here have much worthy to say”
    “Again, I have encountered someone who does not know how to “think””
    ————————
    Quite a condescending attitude from apropos, wouldn’t one agree?
    Although intuiting from the way she considers herself the Philosopher Queen of Socketsite, SF, and likely the entire universe; that attitude is to be expected.
    It is in the nature of the hardcore moral absolutist to consider himself as the arbiter of what is right and wrong for all of humanity.
    Nothing will change the mind of the hardcore moral absolutist. Certainly not a reasoned and nuanced argument (nor 2 nor 3 nor 47).
    Even so, it is irritating to observe the arrogance of this particular moral absolutist given her generally low intellectual capabilities.

  109. Posted by tc_sf

    @ex-SF –
    Brama– “The elected official part takes on even more relevance when you consider that innocent taxpayers are going to be reamed because of her decision to strategically default, and an elected official should be in the position of serving the public instead of trying to take advantage of them as if they (we) are all marks in the hands of an expert grifter. Someone strategically defaulting is shifting their responsibilities to the public instead of fulfilling them themselves;”
    ex-SF — “This isn’t moral relativism… it’s moral apathy. I have no moral judgment in the first place because I simply. don’t. care. at least not about her.”
    These are dots which are begging to be connected. Call it morality or character or a history of picking bad “alternatives for performance” or whatnot. But consider this, were you or sfrenegade the head of AIG would you approve the promotion of this person to the head of the mortgage bond insurance buisness?
    If all her “alternative choices for performance” have been A-OK, then why not put her in that position?
    I can’t speak for apropos, but part of what I’ve been driving at is not just semantics, but the fact that her type of behavior should reflect badly on her suitability for certain positions and receipt of future credit. Fortunately a SF Sup will have no where near the impact on the national market as the head of AIGFP, but the SF BOS has a heavier hand in local RE/land use than most.

  110. Posted by El Bombero

    Morality has nothing to do with anything here. The rights and responsibilities of the borrower and lender are set by statute and the contract itself as informed by statutory and judge-made law.
    If posters insist on trying to insert morality considerations into this contractual arrangement, then I’d argue defaulting actually is the moral thing to do. Housing prices are too high, which hurts society as a whole. This default, however small and ultimately inconsequential in itself, contributes towards lowering prices and restricting future availablity of credit for overpriced houses – all good and dare I say “moral” things. Brava to Ms. Cohen.

  111. Posted by ex SF-er

    I think your are making the fundamental argument about the morality of defaulting on a mortgage a lot more long-winding than it needs to be.
    No. as I’ve said in many long winded posts, I’m not making any argument about the morality of defaulting on a mortgage. Although interesting to many people here, the morality question doesn’t interest me because I don’t believe that is the solution to our mess. Changing lender/creditor behavior is the solution.
    Moral discussions are difficult at best. You want to hear a moral argument about this situation???
    Simple. Debt Jubilee. All debtors get off scott-free.
    Don’t like that? Well, after doing some morality research I think it’s the only holy thing to do. It is clearly what Jesus would do.
    the 3 major world religions all agree. one should not lend money with interest. Period. end of story.
    in olden days, usury was lending money with interest. Usury was NOT lending with high/exorbitant interest. Usury was lending with ANY interest. We changed the definition as the moneychangers infiltrated the temple, you see.
    The bible states many times that one should NEVER lend money with interest. For instance “If you lend money to my people, to the poor among you, you shall not deal with them as a creditor; you shall not exact interest from them.” (Ex 22:25)
    hmm…
    Islam is also against lending with Interest.
    as is Judaism.
    (you can do the work of pulling the quotes from the Torah/Koran)
    it was so strong a belief in the Christian/Jewish world that traditionally there were Debt Jubilees for all debtors. Every 7-49 years depending on location/religion. Slaves set free, all debts FORGIVEN.
    Thus, if you want to argue morality (as I DO NOT), then I’m all in.
    no more lending with interest. Ever. It is clearly against God, and therefore immoral (and a sin).
    debt jubilee now. it has been over 50 years since we have had a Western Civilisation Debt Jubilee. It has been far too long.
    Don’t like that idea? Tough. Morality can be a difficult mistress.
    (disclaimer: I am not saying that I agree or disagree with this particular post. I use this post to discuss why I think the “morality” argument is counterproductive at best. That said, one will have difficulty defending Western Capitalism from a theologic standpoint. I just thought I’d throw a wrench in the people who think that they have a lock on “morality”)

  112. Posted by sfrenegade

    “Refi’s used to be a grey area, but I believe that SB 1178 passed the legislature but was veto’ed would make purchase money refi’s after June non-recourse. Any cash-out amount would be recourse.”
    Yes and no on the gray area. If you consult a real estate professor or attorney, what they would probably tell you is that SB 1178 would have codified what is commonly believed to be California law.
    There is old case law that says that all refis are recourse. However, the modern belief, based on the cases subsequent to that old case law, suggests that refis would be non-recourse up to the amount of the original mortgage.
    Cash-outs being recourse makes sense when put in the context of California’s rationale for anti-deficiency statutes. The statutes are meant to encourage home buying and with that prudent borrowing. Cash-outs have nothing to do with either.

  113. Posted by sfrenegade

    “If a friend lends you money and you don’t pay it back even though you could, that’s a moral issue. But banks don’t lend you money out of friendship. And they won’t hesitate to kick you out on the street if you default. To the bank, your mortgage is just a business transaction and it will act in whatever way it feels is best based on its own business interest.”
    Right, this is exactly why a business transaction with a bankster is not a moral issue; it’s a business issue. Borrowing money from a friend becomes a moral issue, but a business transaction is not, absent bad faith, fraud, misrepresentation, etc. This is the problem with saying a mortgage is a moral issue — it’s not. It’s a business transaction, and a highly sophisticated party drafted the contract and determined the risks that it was willing to take.

  114. Posted by sfrenegade

    “People walking away from their debt obligations IS increasing the severity of the crisis. But what does that have to do with bailing out banks?”
    It’s actually not increasing the severity of the crisis because there is no true crisis. A bank going under is not a crisis. If a bank’s losses increase a certain threshold, it will go under and will fail, but will not destroy our financial system.
    The true crisis is that we have overleveraged. In order to solve this crisis, we need to de-leverage. In order to de-leverage, some of that debt must be written down. In order to do that, banks must take the appropriate haircut, their management needs to take the credibility hit, and their stockholders need to feel the pain. This is not a one-way street.
    We will not get out of a crisis by forcing people to pay non-performing loans. Eventually, a large percentage of those loans will fail anyway, and we are just deferring the losses to later.

  115. Posted by sfrenegade

    These are dots which are begging to be connected. Call it morality or character or a history of picking bad “alternatives for performance” or whatnot. But consider this, were you or sfrenegade the head of AIG would you approve the promotion of this person to the head of the mortgage bond insurance buisness?
    If all her “alternative choices for performance” have been A-OK, then why not put her in that position?
    But I can flip the question on its head. Say AIG is in the position of Tishman Speyer and it has a project that is not economical. If the SVP in charge of that project chooses not to walk away from that project, I would fire his/her ass in a second.
    Again, this has nothing to do with morality. It has to do with making a bad business decision in the first place. Cohen made an incredibly bad and incredibly stupid business decision by taking that loan in the first place. So did a lot of people. Was it immoral? No. Was it irresponsible? Yes. I think she’s not suitable because she made the bad decision in the first place, not because of what she did after the fact.

  116. Posted by tc_sf

    @ apropos — “My position on the banks is to let them fail. I am against government bailouts of any kind, and I am especially against “too big to fail”. ”
    I’d make a slight distinction here between bailouts of a temporary/liquidity nature and those of a more permanent/solvency nature.
    Although it could be taken too far, in general I think that it was net positive for the government to step in and provide liquidity to help prevent institutions from failing merely from a “run on the bank” type situation or some transitory effect of the crisis. I’m skeptical of the accounting and don’t think the crisis has fully run it’s course, but were the accounting good, a TARP like investment that came back at break even or a profit to the taxpayer would be a good example of a successful government liquidity intervention.
    Note also that the government was not an impartial regulator of the mortgage market, but rather a quite significant participant. I believe that Fannie/Freddie is $150B in the hole and going up. I’m not a fan of the government quasi-guarentee of the mortgage market, but any amount of “bailout” related to toxic Fannie/Freddie assets in my mind reflects more poorly on the government then on the banks.

    “Also, I will take issue with your claim that walk-aways are adding to the current economic stasis. I think the opposite–those people doggedly paying on deeply underwater properties are prolonging the deadlock.”
    On this, I’ll quasi-agree. Will I will point out that non-payment is the most proximate cause of the current crisis. i.e. Were everyone to have kept paying their mortgages, then any bonds would not have been reduced in value, so no bank/other assets would be impaired…
    The reality is that many people have gotten themselves into an impossible situation whereby they will never be able to keep up their obligations. While in my view they definatly bear responsibility for this, a slow financial death is not an appropriate outcome for the individual or society. As with the banks I’m all for liquidity help for the individual, no point having someone lose their home over a temporary illness or job loss. But if its a real never to be fixed solvency problem, then the quicker a BK/FC/move to a rental, can sort it out the better.

    “{on a side note: evidence surfaced from backwards places like Harvard that over half of bankruptcies occurred due to medical emergencies… but that doesn’t fit the meme of “morality” and “personal responsibility” and “Deadbeat opportunistic bankruptcy-claimers”)”
    If you are referring to Elizibeth Warren’s “work” consider this:
    “In her (in)famous paper on medical bankruptcies in 2001, Warren and her co-authors defined anyone with $1000 worth of medical bills as having a medical bankruptcy, and used that figure to imply that rising medical bills were pushing people over the financial edge. Now maybe they are, but you sure couldn’t prove it with that metric. I hope to hell that no lawyer (Warren is a law professor) would advise a client with no debt but $1,000 worth of medical bills to declare bankruptcy, because doing so would be malpractice*.
    If $1,000 worth of medical bills can push you into bankruptcy, you already had a major problem, either on the spending side or on the income side. There is simply no reason for using this metric as a proxy for anything. ”
    http://www.theatlantic.com/business/archive/2010/07/considering-elizabeth-warren-the-scholar/60211/

  117. Posted by sfrenegade

    ^typo above, should say:
    “It’s actually not increasing the severity of the crisis because there is no true crisis in banks going under.”

  118. Posted by ex SF-er

    If you are referring to Elizibeth Warren’s “work” consider this:
    I eagerly withdraw that part of my post, since it is by far the least important aspect of the post and not material to the real thrust of my argument, which is that enshrining “borrower morality” into law emboldened creditors to make even worse loans to risky borrowers than before the law was passed.

  119. Posted by Delancey

    tc_sf said: I will point out that non-payment is the most proximate cause of the current crisis.
    No. The most proximate cause is that property values stopped rising. One could no longer pay off a loan by selling the property, and most of the bubble loans had no hope of being paid based on the buyer’s income. In any pool of properties in any year some percentage will have to be sold–death, family growth, job relocation, etc. When you can’t sell because the bubble popped and you have no cash to bring to closing, well, guess what plan B is.
    The crap loans fueled the bubble, but the moment the bubble stopped expanding the loans became untenable. The crash was inevitable, it was just a matter of when. Of course, the temporal dislocation (5 year bubble expansion vs. 1 year bonus evaluation periods) allowed various players to book fictitious profits and “earn” obscene performance bonuses.

  120. Posted by SFHawkguy

    Oh Good Grief tc_sf, Megan McArdle?
    She’s a shill for crony capitalists and a propagandist and is not telling the whole story.
    Do you dispute the general fact that medical illness is a large contributor to bankruptcies?
    Here’s Elizabeth Warren and describing the data:
    “We also reconsidered the question of how
    large out-of-pocket medical expenses should be before those debts should be considered contributors to the family’s bankruptcy. Although we needed to use the threshold of $1000 in out-of-pocket medical bills for consistency in the time trend analyses, we adopted a more conservative threshold—$5000 or 10% of household income—for all
    other analyses. Adopting these more conservative criteria reduced the estimate of the proportion of bankruptcies due to illness or medical bills by 7 percentage points.”
    http://download.journals.elsevierhealth.com/pdfs/journals/0002-9343/PIIS0002934309004045.pdf
    And here are the:
    “RESULTS: Using a conservative definition, 62.1% of all bankruptcies in 2007 were medical; 92% of these medical debtors had medical debts over $5000, or 10% of pretax family income. The rest met criteria for medical bankruptcy because they had lost significant income due to illness or mortgaged a home to pay medical bills. Most medical debtors were well educated, owned homes, and had middle-class occupations. Three
    quarters had health insurance.”
    McArdle’s complaints about are simply designed to throw dust in the air about these realities. It’s not easy to study bankruptcies and the causes thereof but McArdle is dishonest when she insinuates that Warren is hiding the ball (for e.g., by including more than those that self-identify medical causes for their bankruptcies–but Warren delineates this data and accounts for the different ways to count “medical cause of bankruptcy”.
    The fact is our abysmal for profit medical system and our fraudulent mortgage system are responsible for a great number of bankruptcies and financial stress with regular people. The supervisor should be applauded for using the law to her advantage and protecting her family and making a smart economic decision.

  121. Posted by sfrenegade

    “If $1,000 worth of medical bills can push you into bankruptcy, you already had a major problem, either on the spending side or on the income side. There is simply no reason for using this metric as a proxy for anything.”
    Not to make this about Warren, but the criticism from Megan McCardle doesn’t quite work. In order for this to be a valid criticism, there must be a strongly positive skew in the data. There’s no indication that’s the case.
    Here is a quote from Warren’s article:
    In the year prior to bankruptcy, out-of-pocket costs (excluding insurance premiums) averaged $3,686 (95 percent CI = $2,693, $4,679) (Exhibit 5). Presumably, such costs were often ruinous because of concomitant income loss or because the need for costly care persisted over several years. Out-of-pocket costs since the onset of illness/injury averaged $11,854 (95 percent CI = $8,532, $15,175). Those with continuous insurance coverage paid $734 annually in premiums on average, over and above the expenditures detailed above. Debtors with private insurance at the onset of their illnesses had even higher out-of-pocket costs than those with no insurance (Exhibit 5). This paradox is explained by the very high costs—$18,005—incurred by patients who initially had private insurance but lost it.
    $12K-18K average in medical costs is quite a different story, especially when median household income for 2005 (when this was published) was still less than $45K.
    It’s quite possible that people had problems on the expenses side or the income side in addition, but this particular criticism doesn’t seem to work across the data sample.

  122. Posted by tc_sf

    @sfrenegade – “Yes and no on the gray area.”
    If you have to say “yes and no” about something and the legislature has to pass a law to clarify it then it is a grey area.
    Regarding the hypothetical SVP, were someone in-charge of a number of projects that ended disastrously I would be inclined to fire/move them. That number could be as low as one disaster if the person put no real thought into getting into the bad situation and made no effort to get out of it.
    @Delancey — “Proximate” means closest. If you stop paying on your loan it becomes non-performing. If your property value stops rising it does not directly cause the loan to be non-performing.
    @ex-SF — I will agree with you that from a regulatory efficiency point of view it make sense to concentrate effort where risk/control is concentrated. Although I think that government’s large presence as a player in the mortgage market actually compromises their ability to regulate.
    On that note, to all the people who assume that the loses are going to the banks, note again that so far Fannie/Freddie is down ~$150B so far. So at least a decent chuck of the losses are being put onto the average taxpayer.

  123. Posted by Delancey

    tc_sf, I think you’re being deliberately obtuse in failing to acknowledge that NINJA, balloon, and teaser rate loans were never plausibly intended to be paid off via monthly payments from the buyer’s income. The only way they could be paid off was through refinancing or property sale. Those avenues were closed when the bubble stopped expanding.
    To harp on the buyer not paying is akin to claiming the proximate cause of human death is always heart failure. Well, yesssssss, but that requires one to refuse to consider the myriad of reasons the old ticker stops doing its thing.

  124. Posted by tc_sf

    @SFHawkGuy –
    Not sure which paper that ex-SFer was referring to, but Elizibeth Warren’s 2001 paper was the one that made the initial splash. And ex-SFer summery of it:
    “(on a side note: evidence surfaced from backwards places like Harvard that over half of bankruptcies occurred due to medical emergencies… but that doesn’t fit the meme of “morality” and “personal responsibility” and “Deadbeat opportunistic bankruptcy-claimers”)”
    Is in accord with how I saw it portrayed in the mainstream media and by “average joes”.
    The reality of how she defined the “medically bankrupt” in the 2001 paper and for all time trend analysis in the 2007 paper is :
    “The questionnaires were the basis for our 2001-2007 time trend analysis. For this analysis, we replicated the most conservative definition employed in the 2001 study, which designated as “medically bankrupt” debtors citing illness or medical bills as a specific
    reason for bankruptcy;
    OR reporting uncovered medical bill $1000 in the past 2 years ; OR who lost at least 2 weeks of work-related income due to illness/injury; OR who mortgaged a home to pay medical bills. Debtors who gave no answers regarding reasons for
    their bankruptcy were excluded from analyses.

    This is a much broader definition of medical bankruptcy then most people would have. Additionally as Megan Mcardle points out, this is self reported and people have a strong bias towards self-reporting themselves in a positive light. (Note that the SF supervisor that is the original subject of this post self reported that “Predatory lending” was a cause of her FC. In fact look at the comments on this post, I’m sure a lot of surveys would report that 64% of people said that stuff wasn’t their fault!)
    While not picked up in the mainstream media, Ms. Warren’s did receive a great deal of criticism for the $1000 over two years criteria. $500 per year is pretty thin gruel for indicting the entire health care system. So for the 2007 paper she raised the limit to $5000 or 10% of household income for non time-trend analysis. But the data is still self-reported, all the other “OR”‘s still apply and I believe the “10% of household income” would include un-employed people with even small medical debts.
    If someone wants to sell houses by talking up the fact that Noe is full of millionaires and then points to a survey where only 4% of people self-identify as millionaires, my opinion is that this is a somewhat deceptive/inaccurate portrayal of the data. It is still possible that notwithstanding this misrepresentation, Noe prices will still skyrocket, i.e. weak evidence for something doesn’t necessarily prove the converse.
    Similarly, there may well be problems with our health care system, but when this was a hot topic after the 2001 paper nearly everyone I’d mentioned the self-reported $500/year threshold to seemed to feel deceived that this was being used to imply that over half of all BK’s were medically caused. I doubt that the 2007 change to $5000 (presumable also over 2 years, but the paper is not explicit) or 10% of income would change peoples opinion much.

  125. Posted by tc_sf

    One more point, while again reiterating that dubious behavior by an advocate need not necessarily tarnish the cause it does indeed tarnish the advocate.
    A choice gem from Ms. Warren’s 2001 paper:
    “Our more inclusive category, “Any Medical Bankruptcy,” included debtors who cited any of the above, or addiction, or uncontrolled gambling, or birth, or the death of a family member.”
    To me this is a sign of someone wanting to cast an extremely wide net.

  126. Posted by sfrenegade

    If you have to say “yes and no” about something and the legislature has to pass a law to clarify it then it is a grey area.
    It’s mostly a gray area to people who aren’t familiar with real estate law or people who read statutes literally and read nothing else. You can certainly make a good judgment what a court would decide based on prior precedent and what courts have determined is public policy as a matter of California law.
    In California, the legislature has a habit of short-cutting the common law process by codifying things, and that’s what was happening here. The number of things that would be considered “common law” in other states that are codified here in California is unbelievable.
    Regarding the hypothetical SVP, were someone in-charge of a number of projects that ended disastrously I would be inclined to fire/move them. That number could be as low as one disaster if the person put no real thought into getting into the bad situation and made no effort to get out of it.
    Sure, I fully agree with that. That’s why “alternatives for performance” matter. It’s perfectly reasonable and good business practice to make a contract based on available knowledge and have a fallback in case it doesn’t work out. In contract drafting, you’re generally trying to make things predictable so that a court doesn’t have to answer unresolved questions. Here the actions for the mortgagor are simple: pay or give up the security.

  127. Posted by tc_sf

    @sfrenegade –
    If only the Governor had your familiarity with real estate law:
    “GOVERNOR’S VETO MESSAGE:
    “I am returning Senate Bill 1178 without my signature.
    This bill, by extending anti-deficiency protection to refinancing, would fundamentally alter and impair the nature of pre-existing, previously negotiated mortgage loan contracts. ”
    Or even the original author of the bill :
    “ARGUMENTS IN SUPPORT: The author writes: “Most borrowers are generally unaware that refinancing their home mortgage causes them to lose the anti-deficiency protection of existing law. ”
    http://www.aroundthecapitol.com/billtrack/analysis.html?aid=46505

  128. Posted by EBGuy

    Oh, come on folks. At least she didn’t try to buy a ‘primary residence’ in Arizona (like Ed Jew). I’m going to live there… really.

  129. Posted by sfrenegade

    Yes, I’ve read the legislative analysis, but it construes the law wrong and essentially admits that it construes the law wrong. It refers to an overriding principle in the Commercial Code as a rationale for amending 580(b), but doesn’t give that provision due weight and says that the Commercial Code provision is likely already binding. It also hedges on the chief case to the contrary.
    The chief case to the contrary itself has a number of problems: 1) fatal flaw: it interpreted the pre-1963 version of Section 580(b), even though the case itself was based on 1967 loans and was itself in 1976; 2) it involved a cash-out third; 3) it only mentioned 580(b) in dicta — the case interpreted 580(d), not 580(b); 4) it was a plurality decision, not a majority decision, and while the 2nd judge concurred with the result, that judge didn’t agree with the reasoning of the presiding judge (and the third judge dissented); and 5) it’s not binding in all districts of California.
    To avoid rehashing some of this, since it has already been written, please read this lawyer’s actual experience with the Court of Appeal and the briefs he wrote:
    http://www.okeefelc.com/articles/Home-Equity-Loans-CA-Anti-Deficiency-Laws.php
    Legislative intent can be very important when interpreting a statute. The author’s argument in support should be given some wait, although the veto message should not at all (the Bush administration similarly should not be given weight as to its signing statements).
    Other intent can come from various places, for example, even the US Bankruptcy Court for the Northern District (http://www.canb.uscourts.gov/node/1038), because the legislature could have reversed that decision if they chose, but chose not to do so. This is less persuasive of course.
    Roseleaf v. Chierighino (California Supreme Court 1963) gives a pretty clear view of California’s anti-deficiency statutes:
    Section 580b places the risk of inadequate security on the purchase money mortgagee. A vendor is thus discouraged from overvaluing the security. Precarious land promotion schemes are discouraged, for the security value of the land gives purchasers a clue as to its true market value. [Citations omitted]. If inadequacy of the security results, not from overvaluing, but from a decline in property values during a general or local depression, section 580b prevents the aggravation of the downturn that would result if defaulting purchasers were burdened with large personal liability. Section 580b thus serves as a stabilizing factor in land sales.
    My interpretation is that the refi portion of SB 1178 as it applies to 580(b) clarifies but does not change California common law, but I am happy to agree to disagree. In practice, of course, all of this is academic, because banks usually use power of sale, not judicial foreclosures.

  130. Posted by sfrenegade

    ^weight, not wait

  131. Posted by tc_sf

    Given that you believe that the Governor, legislative analyses and even the author of the bill got it wrong. How does that fact that there is an actual court decision that you also believe is wrong help your case that this area is not a grey area (or “Settled”)? The fact that it was a plurality decision with differing concurring opinions makes it seem even more un-setteled.
    And even the lawyer from the link you provided wrote:
    “The bank clearly did not want to risk an adverse ruling on what is now a critical issue in California. Although this was a favorable result for my client, it leaves the law of California unclear on a very important issue, at least in my humble assessment. Worse, it leaves what I consider to be the erroneous ruling in Union Bank v. Wendland, (1976) 54 Cal.App.3d 393, now three decades old, as a reference point for lenders seeking recourse on sold-out junior home loans.”
    And consider the case in the link *you* provided where the bank appears to have been acting as I mentioned reading about above:

    “Note that even for a 2nd taken on at the time of purchase, I’ve read that some lenders are adopting the position that after a foreclosure by the 1st they no longer have a security interest and therefore have an unsecured promissory note with the borrower not subject to the anti-deficency laws.”
    That’s likely a frivolous claim that will be decided against them in court. The 2nd is still a purchase money mortgage whether or not it’s currently secured.
    Posted by: sfrenegade at February 9, 2011 3:05 PM

    From your link:
    “This resulted in a foreclosure by the first lienholder. Based upon its sold-out status, the second lienholder contended that it was not bound by California’s anti-deficiency laws, and could seek direct recourse on the note.
    The case was tried on stipulated facts before the Superior Court in a bifurcated trial and the Superior Court rejected my contention that the claim was barred by both Section 580(b) and (d) of the California Code of Civil Procedure.”
    The bank took exactly that tack and far from being dismissed with prejudice as you’d expect for a “frivolous claim” the bank won. The client appealed and the bank dropped the matter on appeal.
    The council for the client may speculate that the bank dropped the appeal due to the power of his legal analysis, but that is speculation and it may just have been a cost benefit decision for the bank.
    Also, even the CAR appears to have “got it wrong” and issued a “RED ALERT” to try and get CA 1178 passed:
    “Current law doesn’t apply to loans used to refinance the original purchase debt, even if the refinance was only to gain a lower interest rate. Recent years of low interest rates have induced tens of thousands of homeowners to refinance their mortgages. During those years, almost no one realized that refinancing their mortgage to obtain a lower rate, they were forfeiting their protections and were becoming personally liable on the new note.”
    http://www.car.org/tools/smart/archive/redalertsb1178/
    I wouldn’t go so far as appropos to imply that only one style of thought is worthwhile. Creative thought brings a lot of value to the world. But in certain areas of life, an analytical style of thought is really the only way to go.
    Being too pedantic is clearly not of much value (i.e. going off about “it’s” vs “its”), but conversely if you can completely redefine words and concepts to mean whatever you like then they quickly lose all meaning. Call it “intellectual relativism”.
    If you or ex-SF were my lawyer and responded “Settled. Not a grey area” when I asked about this issue, then later I got taken to court, lost and found that however erroneous you may believe it to be there is a standing ruling opposite to what you consider “Settled”, that would quite clearly be malpractice.
    Bringing this back around to the topic at hand as with the moral/character judgments of a fictitious candidate for head of AIG-FP, you can see that “intellectual relativism” would be a poor trait for someone in that position as well. If Ms. Warren can re-define “Medical Bankruptcy” to include people gambling their way to the poorhouse, what’s wrong with the head of AIG-FP redefining “careful credit analysis” to include pure gambling?
    If you and ex-SF, can consider a topic with a pile of controversy and an actual adverse court ruling to be “Settled” why can’t the head of risk management at Fannie Mae consider something “perfectly hedged” even when there are piles of analysis questioning the validity of the hedging and even actual data from the past showing failure of that hedge?
    When I wrote this above: “Consider the weight people would give to good looking 5-year trailing default rates vs some historical data from the 80′s or 90′s.” I wasn’t attempting to lionize this behavior, but rather to illustrate how poor thought could play into the situation.
    Look at how the CAR describes the law in their “Red Alert”:
    “The law has worked well since the 1930s to protect borrowers, ensure the quality of loan underwriting and allow borrowers brought down by financial crisis to get back on their feet.
    Unfortunately, the 1930s law hasn’t kept up with current times. ”
    And the lawyer you linked to :
    “…the erroneous ruling in Union Bank v. Wendland, (1976) 54 Cal.App.3d 393, now three decades old, …”

  132. Posted by sfrenegade

    You and ex SF-er used the word “settled,” and I did not. Second, what I’m giving is not legal advice, but rather academic commentary, so the reference to malpractice is irrelevant. On a side note, you don’t understand malpractice if you think that pointing out the contrary case law and then saying why it doesn’t apply is malpractice, assuming proper information about risks and costs to an actual client and proper disclosure of things like legislative intent (where I admitted that some of what you said weighs against my thoughts).
    I said the Wendland decision was wrong and wasn’t based on then-current law. I also said that the legislative analysis hedged quite a bit on whether this law was even necessary, but if you understand drafting legislation and the general desire to codify things in California, you understand the impetus for this. I said that a challenge to this belief would likely be successful given current case law and current statutory language. If your problem is that I’m more strident about this than you are, that’s arguable, but I’ll concede that.
    I think that this is a great challenge what some people believe is the current law and is a good case. I don’t think the statutory language is all that gray, given the case law — “a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser” — which, again, Wendland did not use in its decision, a clear error. The fact that the main case people believe is on point isn’t actually on point is huge! The fact that it’s based on a concurrence (i.e. not binding) and a very good dissent is just gravy.
    The law is also clear on the purchase money scenario that you mentioned:
    “Note that even for a 2nd taken on at the time of purchase [emphasis added], I’ve read that some lenders are adopting the position that after a foreclosure by the 1st they no longer have a security interest and therefore have an unsecured promissory note with the borrower not subject to the anti-deficency laws.”
    This lawyer’s case is not on point to your fact summary. His client had a refinanced second, but you’re talking about a clear purchase money second. On a purchase money second, the anti-deficiency statute applies.
    I won’t even address CAR because I’m afraid I’ll say something unkind and irrelevant. Trying to conflate this with the morality/bad decision discussion is not helpful, and I can respond separately to that if you have a substantive thought there.

  133. Posted by tc_sf

    “It’s mostly a gray area to people who aren’t familiar with real estate law or people who read statutes literally and read nothing else. ”
    Contrast this with all the opinions above of all those with direct ties to the legal system and who should have the intellect to properly interpret statutes.
    “Second, what I’m giving is not legal advice, but rather academic commentary, so the reference to malpractice is irrelevant. ”
    I was not implying that you were a lawyer, merely that your style of though would not be appropriate in a legal context. Hence :
    If you or ex-SF were my lawyer…”
    ” you don’t understand malpractice if you think that pointing out the contrary case law and then saying why it doesn’t apply is malpractice,”
    If you advise your client that something is “Settled” or not a grey area, they get taken to court, lose and then on appeal you finally discover that there is contrary case law, then yes, that is malpractice.
    Or if you define malpractice otherwise, if in 2011 the former head of AIG-FP announces that he has determined that there were signs of housing overvaluation and loan underwriting problems during the 2000-2007 period, does this indicate that he performed his job well?
    Regarding the case you linked to,
    “This resulted in a foreclosure by the first lienholder. Based upon its sold-out status, the second lienholder contended that it was not bound by California’s anti-deficiency laws, and could seek direct recourse on the note.”
    The summary you provided clearly states what I mentioned before. That lenders are taking the tack that after a foreclosure by a non-related party their liens are no longer secured mortgage notes that fall under the anti-deficiency laws. i.e. They claim that being “sold-out” is the relevant factor. In the case you brought up the trial court agreed with the bank’s argument.
    I wasn’t commenting on how this would fair on appeal nor if courts could or couldn’t consider other factors to decide a particular case.

  134. Posted by sfrenegade

    “If you advise your client that something is “Settled” or not a grey area, they get taken to court, lose and then on appeal you finally discover that there is contrary case law, then yes, that is malpractice.”
    Again, this is academic discussion, not client advice. In any case, I already distinguished from the existing case law. We were talking casually in the comments section of a blog, and I made a strident comment. Then you asked for clarification, and I gave very good clarification.
    If you similarly told a client, “this is a settled area of law. You are f**ked and have absolutely no recourse [pun intended],” one could easily say that’s ineffective assistance of counsel, but that is also irrelevant to our discussion here.
    I’m not sure why you’re harping on the hypothetical you gave about both loans being original purchase money loans (see bolding above). In the case that I brought up, the loan was refi, not quite obviously original purchase money as you said in your hypothetical. It’s simply not on point to what you said.
    This doesn’t seem like a very productive discussion any more. You are making arguments about the form of my response, not substance. If you want to have an academic discussion, tell me why the Wendland decision is right or something else similar.

  135. Posted by sfrenegade

    If you advise your client that something is “Settled” or not a grey area, they get taken to court, lose and then on appeal you finally discover that there is contrary case law, then yes, that is malpractice.
    Again, this is academic discussion, not client advice. In any case, I already distinguished from the existing case law. We were talking casually in the comments section of a blog, and I made a strident and incomplete comment. Then you asked for clarification, and I gave very good clarification.
    If you similarly told a client, “this is a settled area of law. You are f**ked and have absolutely no recourse [pun intended],” one could easily say that’s ineffective assistance of counsel, but that is also irrelevant to our discussion here.
    I’m not sure why you’re harping on the hypothetical you gave about both loans being original purchase money loans (see bolding above). In the case that I brought up, the loan was refi, not quite obviously original purchase money as you said in your hypothetical. It’s simply not on point to what you said.
    This doesn’t seem like a very productive discussion any more. You are making arguments about the form of my response, not substance. If you want to have an academic discussion, tell me why the Wendland decision is right or something else similar.

  136. Posted by tc_sf

    A form which allows for overly expansive definitions and eschews reason has no substance.
    If you want to see the final destination of your style of intellectual relativism you need only go to a tax court and watch some pro se tax protestor attempt to argue his case.
    “Judge, I’ve got Rights under the Fifth Amendment to the Constitution to choose not to file my taxes as alternative to performance! And beyond that since the government has a security interest in my 500 cats, I have two options: Pax the tax or give up the cats. If you can’t find the cats you can’t get the tax!
    Judge, why do you keep harping on these prior cases where people who didn’t have 500 cats went to jail for tax evasion? It’s simply not on point as I have 500 cats. If you can’t find the cats you can’t get the tax!”
    You’ll either see a cautionary tale or a kindred spirit.
    You can lead a horse to water, but you can’t make him drink.

  137. Posted by sfrenegade

    I said nothing like that, and I think you’re still pissed about the rights vs. obligations discussion and are letting it bleed through to here. The case I cited is still not on point to your hypo, and no amount of exaggeration will fix that. If you can make an argument for why a loan “at the time of purchase” is not a purchase money loan, I would love to hear the explanation.

  138. Posted by tc_sf

    I was not arguing that you actually are a lawyer who, along with feline co-council, is attempting to illegally evade taxes. Rather one of the points of the analogy was that two cases need not be exactly identical for them to be relevant to each other.
    i.e. If a court has rules that a certain tax argument is frivolous, then this decision is relevant to another party using the same argument even if he lives with 500 cats.
    Similarly *were* a court to rule definitively that loss of the underlying property turned a mortgage obligation into an unsecured debt not subject to section 580, then the purchase money status (or feline cohabitation status) of the borrower would not be relevant.
    i.e. the mortgage obligation part is being attacked not the purchase money part. I assume they’re doing this because there has been some traction from people arguing that re-fianance loans which merely pay off purchase loans, then inherit the purchase money status.
    Attempting to add some new info rather then just re-hash, I just saw this in the WSJ which seems to be an example of how even long standing case law can be re-interpreted (and is actually relevant to RE!)
    “A New York court ruled last month that all income earned by a New Canaan, Conn., couple is subject to New York state taxes because they own a summer home on Long Island they used only a few times a year. They have been hit with an additional tax bill of $1.06 million.”
    [...]
    “In defining a “permanent place of abode,” New York tax code specifically excludes “a mere camp or cottage, which is suitable and used only for vacations.” New York tax experts say the new ruling is the first they recall that counts summer homes as permanent residences.
    “This is going to open up a Pandora’s box,” says Eric Kramer, a tax attorney in Uniondale, N.Y. “I don’t think anyone previously thought vacation homes would count as a permanent residence.”
    Income that now could be taxed by New York includes capital gains, dividends and securities, attorneys said. In the event of an audit, these homeowners would also be responsible for back taxes, plus interest and penalties, as a result of their New York property.”
    [...]
    “Mr. Pinto ruled that the couple’s Long Island vacation home qualifies under the law as a permanent abode because it was suitable for living year-round—whether or not the couple actually stayed in the home wasn’t relevant. Under the ruling, if an owner doesn’t spend a single a day in a home it could still count toward a permanent residence.”
    http://online.wsj.com/article/SB10001424052748703745704576136671394373928.html
    This would seem to kill the market for vacation homes in NY!
    Note that the article mentions something about this only applying to people spending more then 183 days in NY, but in the next paragraph says that the new law will change that. Then finally specifically says that owning a house in NY will make it a permanent residence even if you don’t spend a single day there. So I’m assuming its a typo and the intent is that commuters who earn their income in NY and spend more then 183 days are *un*-affected since they already pay NY taxes.

  139. Posted by sfrenegade

    “Similarly *were* a court to rule definitively that loss of the underlying property turned a mortgage obligation into an unsecured debt not subject to section 580, then the purchase money status (or feline cohabitation status) of the borrower would not be relevant.”
    I’d disagree here and find this incredibly unlikely. The purchase money mortgage factor is the most important in California law. Even if foreclosure somehow turned the mortgage into an unsecured debt (which it doesn’t, because the mortgage is extinguished), the mortgage started as a purchase money mortgage, and there is strong case law that it can’t be transmuted or waived.
    The words “in any event” in Section 580b are very important, as stated in this 1999 decision: DeBerard Properties, Ltd. v. Lim, 976 P. 2d 843. In that case, the mortgagor even explicitly waived Section 580b, and the court still didn’t allow the 2nd mortgagee to collect on the note. There are also other facts that make this case even stronger — e.g. the 2nd mortgagee was seller-financed (which generally has greater protections than lender-financed), and the 2nd mortgage was modified before the 1st was foreclosed.

  140. Posted by tc_sf

    “I’d disagree here and find this incredibly unlikely.”
    Again, from the case summary *you* provided:
    Based upon its sold-out status, the second lienholder contended that it was not bound by California’s anti-deficiency laws, and could seek direct recourse on the note.
    The case was tried on stipulated facts before the Superior Court in a bifurcated trial and the Superior Court rejected my contention that the claim was barred by both Section 580(b) and (d) of the California Code of Civil Procedure. ”
    Where is the purchase money aspect mentioned in the above?
    “The purchase money mortgage factor is the most important in California law.”
    Note agin, that my understanding is that some borrowers have found some traction in arguing that refi money that merely pays off a actual purchase money loan assumes the protections of an actual purchase money loan. Making the actual purchase money status less important, though this makes the situation more favorable to the borrower. Presumably this is why banks have attempted other tacks.
    ” (which it doesn’t, because the mortgage is extinguished)” the foreclosing mortgage is extinguished. This is dealing with an un-related second. i.e. the mortgage that was foreclosed was different, and had different ownership, from the one where direct recourse was sought.
    I will agree with you that my understanding is that “voluntary” waivers of anti-defeciency protections are generally void.

  141. Posted by Jimmy C

    My god… stop with the legal language.
    Someone bought an overpriced condo they couldn’t afford because someone was dumb enough to give them a loan.
    Stupid lender, stupid buyer and stupid voters who will now spend the next 4 years being represented by a tard. This is why this city is and will be a mess for a long time coming.

  142. Posted by sfrenegade

    “”Note that even for a 2nd taken on at the time of purchase [emphasis added], I’ve read that some lenders are adopting the position that after a foreclosure by the 1st they no longer have a security interest and therefore have an unsecured promissory note with the borrower not subject to the anti-deficency laws.”
    I’ve quoted your original hypothetical. You claimed lenders are pursuing purchase money 2nds because they are “sold out.”
    In the case that I cited, the 2nd mortgage was refinanced and then “sold out”:
    “Here, the replacement second loan at issue was granted to the same lender as the original second loan; it was secured by the same property; and it was granted by the same borrower, and it had the same priority.”

  143. Posted by StockBoySF

    I don’t even know if it’s worth commenting on…. She doesn’t take responsibility for this, she was unable to make her payments, she claims she was a victim (I would imagine to get people to sympathize with her). And it appears she lied about the date of foreclosure (or when the proceedings started). At any rate, her actions are not what I would expect of a community leader and elected public official. I think a leader who cares about his/her community make sacrifices for the good of that community and that person certainly does not lie or misrepresent things to the people who put their trust in electing that person to look after the community’s interest. I think the nation’s founding fathers and community leaders would be rolling over in their graves if they knew how spoiled many elected American officials are these days and at how “uncommitted” these officials are towards the betterment of their communities.

Add a Comment

Your email address will not be published. Required fields are marked *