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I Can Be the Bank: Individual Investors Buy Busted Mortgages (wsj.com)
107 points by iaskquestions 4 months ago | hide | past | web | favorite | 162 comments

My family has been in commercial property rental for a long time, but never residential.

Residential is seen as an easier path to being a landlord because the capital requirements are lower, but I caution everyone considering buying a rental property to ask a very simple question: "Are you willing to kick someone out of their home?" Would you be prepared to evict a human being not that different from yourself, who may have lost their job, have kids, medical problems, etc?

In addition most jurisdictions stack the laws against residential landlords (I'm in Canada) for both legitimate and populist reasons. It's not quite as blatant with commercial.

Buying delinquent mortgages that are so underwater that lenders will sell them to collection requires a whole new level of commitment. You will need to become one of those people who call at dinner every single day, call employers, stalk online, harrass, even threaten - you're literally trying to squeeze money out of the people who have the least to spare. I'm not going to judge the collectors, debtors or the business model, but it's definitely not for me.

The one exception to this rule is a pretty astounding scam: buying your own delinquent debt. I can't find the citations for a story I read about a guy who did this at the million dollar condo level, but the idea is pretty simple. Bad debt trades at a fraction of the nominal price, so it might be easier to buy the rights to collect on your own debt than pay off the current debt owner.

The hard part, of course, is getting someone to sell it to you without their knowledge.

Securing the ignorance of the seller is a cost issue (registering your debt buying business, purchasing licenses/certificates/etc., website, burner phones/numbers, etc.)

The hard part is likely purchasing your specific debt. Often times, transactions in the consumer debt markets are intermediated by a broker, who may give you very limited information on the debt you're buying. Additionally, consumer debts are often sold in bundles/tranches where it is not uncommon for 50+ debts to be sold as a single portfolio.

In the best case scenario, the firm collecting on your debt wouldn't be using a broker, and they would allow you to look into the details of the debts to asses the risk of the portfolio.

I remember after the 2008 crisis I knew people who defaulted on a $300000 mortgage. The house sold for $130000 at an auction. Back then I wondered if they could have bought the house back.This would have been a pretty sweet deal.

In Las Vegas at that time there was a law on the books that specifically forbade the person on the note, or anyone related to that person, to buy the note in a short sale or at auction. It was written to prevent scams where people could pump up their house value and get refinanced, default, and then buy the house back at a discount and pocket the difference.

It was amended in 2016 I believe to allow some purchases if they met specific criteria.

The "usual" way to getting around these things has been to create a company and have the company buy it. Companies are nominally 'new' people and don't have family or relatives.

There are typically laws that deem a company to be related to a person if that person and their (natural) relatives own some threshold percentage of that company.

I don't see how you call this a scam. The bank should do due diligence before handing out the loan. It's not like the bank is forced to hand out money for bad deals.

I don't disagree, it is always a question of degree. One party sees a 'scam', the other a failure of the first party to do more diligence. Some see separating poorly informed people from their money as a business, other see it as an injustice that needs to be corrected.

The scam part is taking out a loan with the intent of not repaying it.

It sounds like companies might get very lonely at Christmas.

If this was in the US then almost certainly yes, if they had 130k cash or someone willing to lend it to them despite their recent default. You can generally "mail the keys to the bank" and have no further liability. In other jurisdictions, you might have to declare bankruptcy if you default on your mortgage.

>You can generally "mail the keys to the bank" and have no further liability.

No. There is Deed in Lieu of Foreclosure, which sounds like what you are talking about, but that is not a unilateral option you exercise by mailing keys...you need the banks permission, which they usually don’t give, especially when the property is underwater.

If people could unilaterally turn in keys and escape the debt you can be sure the banks would have gone under during the Great Recession. As it was the Federal Bailout essentially covered the legal fees for banks to foreclose on these toxic assets and recover what they could.

Still even then (like parents hypothetical) if a bank foreclosed and $300k was owed and they sold the property for $130k the next step was a separate filing for deficiency judgement (the difference or $170k in this case).

>No. There is Deed in Lieu of Foreclosure, which sounds like what you are talking about, but that is not a unilateral option you exercise by mailing keys...you need the banks permission, which they usually don’t give, especially when the property is underwater.

Like many other things, it depends on the state.

In Washington, for example, the lender can use a simplified process (that gets used over 99% of the time) for a foreclosure that makes it non-recourse.

The other option is to go to court, something that banks will only bother doing if they are fairly certain you have especially large assets that they can seize to make it worthwhile.

>In Washington, for example, the lender can use a simplified process (that gets used over 99% of the time) for a foreclosure that makes it non-recourse.

Yes it’s the difference between judicial and nonjudicial foreclosure.

But reworded: In Washington 100% of Banks can go for deficiency judgements after judicial foreclosure, but the banks have so much data they make the strategic choice of waiving that right in 99% of cases by going the nonjudicial route and foregoing the potential of the deficiency judgement. Further, in 1% of cases the bank has data that suggests the borrower has assets, income or even potential future income/assets that make the added time/cost of judicial foreclosure worthwhile.

In general it makes sense a defiency judgement isn’t worth the paper it’s written on...or he borrower wouldn’t have been foreclosed but in that 1% of (Washington cases) banks see people with income/assets who can pay trying to get out from an underwater property.

I am not a lawyer. I was going to reply to rhizome (sibling post of yours) saying this really differs from jurisdiction to jurisdiction, but in my understanding, in most US jurisdictions the lender has no recourse (either none at all, legally speaking, or tends to get nowhere in practice). Is my understanding really untrue and the banks can go after your other assets in all US states?

Edit: A quick google told me that there are 12 "non-recourse states" for "most residential mortgages": Alaska, Arizona, California, Iowa, Minnesota, Montana, Nevada, North Carolina, North Dakota, Oregon, Washington and Wisconsin. https://www.arklawgroup.com/blog/how-do-i-know-whether-my-mo...

Foreclosure procedures do depend a little on jurisdiction (ie judicial vs nonjudicial foreclosure states or both), but even within those non-recourse states you link to, lenders can in fact come for deficiency judgements between the balance of the loan and the fair market value of the property.

You can find many articles about California, for example, where they will say someththing like “in California, in most foreclosures banks can’t go after borrowers for deficiency judgement”, but it’s misleading. California has both judicial and nonjudicial foreclosure, and judicial foreclosures allow deficiency judgments and nonjudicial foreclosure generally don’t. So why don’t all lenders go for the judicial foreclosure and for the deficiency judgement? Time and Money! It simply takes longer and costs more to go the judicial route and why do that if you ultimately can’t collect from the borrower?

The thing is the banks/borrowers have so much data, their automated systems are pretty good at knowing if they will likely be able to collect enough to cover the extra cost of the judicial foreclosure in which case they go that route and then for the deficiency judgement. Once they have that they can garnish wages, attach accounts, etc...

> You can find many articles about California, for example, where they will say someththing like “in California, in most foreclosures banks can’t go after borrowers for deficiency judgement”, but it’s misleading. California has both judicial and nonjudicial foreclosure, and judicial foreclosures allow deficiency judgments and nonjudicial foreclosure generally don’t.

This is more misleading than what it “corrects”, which is actually entirely correct for the case usually of interest (and which the articles are almost always specifically addressing), owner-occupied residential properties. Its true that California allows deficiency judgements for judicial foreclosures except as barred by the State anti-deficiency statute. But that statute prohibits all deficiency judgements for purchase-money or refinance loans for residential property with up to four units when the owner/borrower resides on the property (and, unlike most anti-deficiency statutes, covers second and subsequent mortgages for that purpose, not just first mortgages.)


In light of the question I was answering:

>Is my understanding really untrue and the banks can go after your other assets in all US states?

My response is not misleading by any means.

Especially when that question came as a direct response to the same person who originally broadly stated you can just mail your house keys to the bank and walk away.

My point is simple and fairly obvious...don’t mail your keys to the bank and think you can walk away, even if you are in a non recourse state.

I used California as a perfect example of a non recourse State that has both judicial/nonjudicial foreclosures and in judicial foreclosures allows...recourse (deficiency judgments).

Yes you included a few rules outlining where deficiencies would not be available, but the fact defiency judgments are available at all - especially in California, which is ultra stringent even amoung non recourse states - is the much bigger point being discussed.

> My point is simple and fairly obvious...don’t mail your keys to the bank and think you can walk away, even if you are in a non recourse state.

Yeah, that's generally a fair point and there are lots of good examples you could have pointed to; California, however, isn't one of them.

> Yes you included a few rules outlining where deficiencies would not be available

A few rules, which happen to encompass the entire category usually discussed with the “mail your keys” thing: any single-family house you own, with one or more purchase or refinance mortgages, and live in.

(And, well, more than that category usually at issue, because it also includes small multifamily units with the same other conditions.)

>A few rules, which happen to encompass the entire category usually discussed with the “mail your keys” thing

No it doesn’t encompass “the entire category”. Even in California deed in lieu of foreclosure cases (eg the bank agrees you can mail your keys in) banks can and do obtain defiency judgments in 5% of such cases.

It reminds me of student loans, where lawyers and layman constantly say student loans are not dischargeable in bankruptcy. But they are. Student loans have a higher standard to discharge than most other debts. I guess people can say it’s misleading to say student loans are discharable -but they are- even if it’s a low percentage. The important part of the discussion is again it’s possible.

> No it doesn’t encompass “the entire category”. Even in California deed in lieu of foreclosure cases (eg the bank agrees you can mail your keys in) banks can and do obtain defiency judgments in 5% of such cases

A deed-in-lieu is an agreement—a contract supplementing the mortgage contract and agreeing it's terms—not a foreclosure, and whether or not a deficiency judgement is available is determined beitherms of the agreement (or the mortgage itself), not the foreclosure rules.

OTOH, the prohibition on foreclosure deficiencies on the whole class of mortgages at issue in California gives borrowers considerable leverage on getting a deed-in-lieu without deficiency permitted (or a short-sale without that), since in a foreclosure the bank won't get a deficiency and will bear additional costs that they don't have with the deed-in-lieu. But, yes, if you agree to give the bank privileges they wouldn't have in foreclosure because you are desperate to avoid foreclosure, you will need to fulfill that agreement.

Also, note that stats that aren't extremely new can be misleading, because the extension of the anti-deficiency statute to refinance mortgages as well as purchase money mortgages only happened in 2012, and cases take time to make it through the legal system. This affects both actual foreclosures and deeds-in-lieu, because without the foreclosure protection, the leverage for deed-in-lieu agreements wasn't there, either.

>A deed-in-lieu is an agreement—a contract supplementing the mortgage contract and agreeing it's terms—not a foreclosure...

A deed in lieu can occur without a foreclosure taking place, but it can also occur during the foreclosure proceeding (ie it’s a type of settlement within the active foreclosure case). But it’s not like the defiency judgment is memorialized in these agreements, the 5% I cite are statistics from the courts, this the 5% are court ordered defiency judgments...not part of the original settlement (deed in lieu).

You are not wrong a savvy borrower who may have potential liability for a defiency can include in the deed in lieu a waiver of the lenders right to pursue the diffidence, if any. But lenders don’t need to agree, and won’t if they believe they could collect. But again these deeds in lieu are negotiated instruments and not triggered by mailing keys to the bank.

>Also, note that stats that aren't extremely new can be misleading, because the extension of the anti-deficiency statute to refinance mortgages as well as purchase money mortgages only happened in 2012

Agreed, and I was actually going to bring this up before, because despite the additional protections against defiency judgments in the Code for 2nd mortgages/HELOCS courts in California are still upholding the lenders right to get a defiency after judicial foreclosure cases where the homeowner took cash out from refinancing 2nd mortgage/HELOC (and to pedantic - still subject to those limitations you added). Eventually this will be clarified through appeals and those protections will either be upheld or those laws won’t have as much teeth as a blanket protection for all such class of notes. I believe the 5% stats are for 2007-2016 for deed in lieu.

All this is so far beyond the pale of the actual discussion. And I think for the benefit of non lawyers, should be left to:

California is a non recourse state. Even amoung non recourse states California is known for having very protective laws for the borrower. Yet, even being a non recourse state and having some of the best protections for borrowers, mailing your keys/deed in lieu (whether during actictive foreclosure litigation or before the filing of any cases) carries risks of a deficiency. Nevertheless the idea of mailing keys wasn’t specific to California, and California was only used to highlight the possibility of a deficiency judgment in non recourse state. More generally the majority of states (38) are recourse states where the banks can come after you for the defiency as a general rule and amoung the 12 non recourse states, defiency judgments are allowed in at least some cases.

Any "forgiven" principal also becones taxable as regular income that year (in the USA).

It would seem that is not always the case: https://www.irs.gov/newsroom/home-foreclosure-and-debt-cance...

That expired in 2016.

> If this was in the US then almost certainly yes, if they had 130k cash or someone willing to lend it to them despite their recent default. You can generally "mail the keys to the bank" and have no further liability.

No, only 15 states generally prohibit mortgage deficiency judgements (and those prohibitions mostly apply only to first mortgages, and some are limited even there), in the rest the creditor can come after you for the unrecovered balance after a foreclosure sale.


Is jinglemail uncontestable if the bank finds out the borrower has money to pay?

jinglemail is a very interesting term. Where did you come across that?

I've heard it for a long time. It refers to the sound that keys make and that you're "mailing the keys" (sometimes literally) to the bank.

I forget, some blog during the 2008 US real estate shitshow.

If they had $130000 cash the house wouldn't be under in the first place though.

I thought your house being under is only defined by you owing more than it's worth, not by your ability to pay the mortgage or not.

Technically yes. But if you are underwater far enough, the bank could lose confidence in your willingness to repay the loan and could demand immediate repayment. So if your house is worth $15k less than the outstanding balance and you've got a history of paying on time, they're probably going to let things ride. But if your house is worth $50k less than the balance and they think you might walk away from the debt, they might demand you pay in full, immediately.

In most cases, a mortgage lender can’t ask for accelerated repayment no matter how far underwater you are, unless you fall behind on payments or otherwise violate the terms of your loan. If you’re making monthly payments, they can’t ask for a balloon repayment.

Additionally, a borrower who is paying on an underwater mortgage is much better than a foreclosure where the bank gets an asset worth less than you owe. Every month that you make a payment improves the bank’s position, since your payment is going to reduce the deficit between loan amount and home value.

> But if your house is worth $50k less than the balance and they think you might walk away from the debt, they might demand you pay in full, immediately.

Sorry, US banks can't issue margin calls on conforming home loans.

That is absolutely not true. Being underwater is having a Loan to Value ratio > 100%.

In theory I could have done it for them or some other front. It feels scammy but I am just curious.

or declare bankruptcy, which is a legal way to bring creditors to the negotiating table when you don't have the personal liquidity to meet your debt obligations.

in bankruptcy, you can buy back your own debt for pennies on the dollar (among other options), intermediated by (and with the approval of) a judge (or mediator). i dimly recollect that in certain cases your primary residence can be retained in exchange for other remedies.

Bankruptcy carries a lot of side-effects though, like losing access to any credit for a period of years (laws differ from country to country, but that’s one of the most common outcomes).

Doesn't having debt get sold off to collections have many of those same problems?

Not any credit, just credit on the best terms. Credit card companies are perfectly willing to lend relatively small amounts of money on their more profitable cards to people with recent bankruptcies. Yes, they have poor money management skills or other issues. But they cannot declare bankruptcy again and have had their debt obligations reduced to a reasonable level, which dramatically improves their credit risk.

Yeah whatever happened with the Rolling Jubilee organization, which deliberately bought and forgave people's delinquent student loan debts? [ http://rollingjubilee.org/ ] Has anyone interviewed any specific person whose debt was abolished by this group? Were those transactions totally anonymous or arms-length or whatever the term is?

How could someone with delinquent debt (presumably someone unable to pay their obligations) be able to afford buying their own delinquent debt?

Most people can't, this is beyond rare.

Everyone telling you it's "pennies on the dollar" are missing your point. Someone so delinquent on their debt that the bank is about to foreclose probably doesn't even have a penny, much less pennies.

This trick may work if you have a relative who has money and is willing to bail you out. Another person this might work for is someone who has protected assets that the bank doesn't know about. Yet another option could be if the house was bought under a corporation/LLC that has gone bankrupt but the owner of the company still has plenty of cash.

Here’s one example. In 2012 my home was worth much less than the mortgage. I live in a no recourse state and strategically defaulted. I paid cash for a condo. I didn’t default because I couldn’t pay, I defaulted because it didn’t make economic sense to keep paying.

In retrospect was it worth the impact to your credit score?

I’ve never cared about my credit score. I think for a lot of people they obsess too much about it. In my case the score went from 800 to 750. At least according to my credit card. If you are able to pay bills on time and otherwise be responsible credit score doesn’t need to be a focus of concern.

I'm extremely surprised that defaulting on a major loan had that little impact on your credit score!

If the guy can lose his home and still pay cash to buy a condo, I'm guessing he's got a reasonable amount of savings.

Credit score doesn't matter if you don't need credit.

I agree, but it doesn't affect my surprise.

Depending on how delinquent it is, Debt can sell for pennies on the dollar. The irony, of course, is the more delinquent you are, the less your debt is worth. Therefore, those who show the least attention to repaying their debt, are the ones who get the best deal on settling.

You just have to deal with Debt Collector harassing you for 2-3 years, and take a pretty big hit to your credit, and you can often settle debt for nothing more than the original principal loaned.

Of course, good luck trying to borrow money for the next 7-8 years...

"Nothing more than the original principal loaned" is a much less attractive deal than "pennies on the dollar"!

Most people are not willing/able to get their debt delinquent enough (ability to pay is a big barrier for most) to get there. But almost everyone, if they are willing to put up with the hassle of a debt collector and a credit-history black mark, can negotiate for the original principal.

Debt collector harassment can be pretty efficiently dealt with. Send them a certified letter asserting your right to only be contacted by mail. Sue them for FDCPA violations if they do anything else afterwards.

You’re assuming that people who are behind on their home payments don’t have the money to make those payments.

In the 2008 mortgage crisis, a lot of speculators just walked away from underwater mortgages, not because they couldn’t pay, but because it made more financial sense for them to give up the asset in return for being released from the loan.

Foreclosure != bankruptcy

You could probably use somebody else buying the loan.

Because it is bought at a significant discount. Selling the debt for 30% or 10% of the value would not be that unusual, from what I hear.

But your debt doesn't go delinquent unless you're not making regular payments, which would imply you don't even have a percent or two of your total debt, let alone 10-30% of it.

This seems like a loophole that one could exploit to make a lot of money. Get a mortgage and buy a million dollar home. Stop making your payments. Wait for the bank to sell your delinquent debt, and buy it for $500k (or whatever the discount happens to be). You now own a million dollar home for a fraction of the price.

Brilliant idea. Not sure if it is legal but assume a legal way can be found. Needs some resources to set up an entity that you own that acquires the mortagage that you also own. Most bankrupt people don’t have the resources to do that. Room for a philanthropic venture?

Let's not ignore the part where the creditor is actually willing to let go of the debt for amount X but not offering X to the debtor. This is at least as immoral if not more than buying your own debt back through indirect channels.

Why is it a scam?

Why not set up a small collective to do this for all of the members, rather than just yourself?

That's not a scam.

It's anecdotal of course but before my wife and I married we negotiated two rules: no going into politics and no being a landlord. The latter was the result of her parents holding commercial properties and having one tenant who upon eviction for non-payment broke into second floor they weren't rented and stealing everything.

Sure enough every few years that particular motorcycle dealership has a going out of business sale and move locations, so it seems like a pattern. But the point is even in commercial real estate you may be completely in the right and still get ripped off by professional scam artists or left spending tens of thousands pursuing justice in the courts as my in laws had to do.

It's understandable that residential property ownership is not for the weak or the squeamish, but portraying landlords as some heartless monsters is not professional (and simply not right).

It is a hard business to be in, no argument. And as long as you are certain that you are running a business and not a charity (different values, income sources, taxes, meetings, relationships etc etc), these "difficult" decisions come quite easily, to be honest. There are people depending on you, yourself (largely undervalued statement), your family, your employees, your employees' families, your contractors, your suppliers. There are a lot of nuances in this business.

It IS hard. There is no such a thing as "easy business". There will be tough moments and difficult decisions, and if you are not ready for that, quite shortly you'll be reporting an apology to your CUSTOMERS live on youtube, holding back tears, just like we saw earlier in one of the posts with the article from Bloomberg.

> portraying landlords as some heartless monsters is not professional (and simply not right)

You wouldn't have done well in Maoist China.

"Landlords" are to Chinese communism as "capitalism" is to the most extreme American leftists, the source of everything evil in the world.

In https://en.wikipedia.org/wiki/To_Live_(1994_film), there's a scene in which a family is publicly executed for the crime of having owned property pre-revolution.

I have a good friend from China, age 67, who has been here since 1982. Her father was doctor to Deng Xiaoping from when they were hiding in the mountains during the revolution. She had a somewhat privileged upbringing, and part of that was a girl's group of "Red Guard" students. On a regular basis, they would go out at night, find a nice house, break in, and drag the occupants out into the street for "re-education". She is still haunted by memories of her group dragging a single old woman into the street and berating her. That old woman subsequently died.

Many states in the American South are very tenant-unfriendly, housing is rented "as-is, where-is" and the only remedy available to the tenant when a landlord does not live up to the requirements in the contract is to move out with 14 days notice. This invites abuse, especially if the judge is "business-friendly", too, and if it's a small town where all the landowners know each other.

It's easy to imagine that the abuses in China were even greater, and it's easy to see why many people wouldn't mind their landowner hanging from a streetlight. You could even argue it was justified.

Great educational note! My comment, generally, was for the civilized west. And as far as China goes, you are so right! And there ARE modern day landlords in China and, thankfully, here, we have contractors, subsidiaries, layers, international commitments, contracts, a SYSTEM that makes sure everyone within the chain gets their share ^_^

Saw that movie decades ago and I still think about it from time to time, especially the steamed buns part.

For others who might be interested: the movie is very good, but "tragedy" doesn't even begin to describe it.

In the steamed buns scene, the protagonist's daughter is giving birth. There are complications, and she requires a doctor, but there are no doctors available because they're all rotting in prison for being educated. The daughter's husband, a Red Guard, is able to have a doctor pulled out of jail to help with the birth. He arrives, but, since humane treatment of class enemies is not a priority, he hasn't eaten in days. The protagonist, appalled, goes out to buy buns for the doctor. He returns with a big bag of buns, and the doctor immediately devours them all, then goes more or less insensate. The daughter dies.

Every part of the movie is like this.

The successful landlords I know told me their number 1 rule was “hold tenants to the contract”.

1 day late on rent with no heads up from the tenant? Start the eviction process.

If you give an inch, they’ll take a mile and pretty quickly you’re running a charity.

Landlords that foster adversarial relationships like that are doomed to be burned even harder by tenants that get fed up with their nonsense, especially when landlords refuse to hold up their end of the contract while expecting tenants to be 100% flawless.

So many of the contracts I've had to sign have been filled with half-assed provisions that the landlord refuses to follow up on. If the landlord tried to hold my feet to the fire over something so banal as rent being slighty late I would lawyer up immediately.

> If the landlord tried to hold my feet to the fire over something so banal as rent being slightly late I would lawyer up immediately.

Really? So you can pay $500+/hr to be told pay your rent....

And I would argue that someone that wants to lawyer up because they dont feel they have to pay their rent on time is a tenant you want out of the house.

The reality is once you send the notices most people will pay their rent and be less likely to be late in future as boundaries are set. And as someone that has tenants, there are people that need this treatment or you become their overdraft account and it will only get bigger and bigger until you send the eviction notice.

And that's not to say there are exceptions. I've told someone to stop paying while they took time off work for cancer treatment, even thought they said they had savings as I know they didn't have much and wanted to take stress on them.

So it's okay for tenants to set similar boundaries, right? Like for example if a landlord is not living up to their end of the contract.

Which is ultimately what I'm getting at. In reality I've never encountered a landlord that actually adheres to their contractual obligations fully, and depending on how they act towards me informs in turn how I act towards them.

And again, at that point I would be both seeking somewhere else to live as well as taking them to court to break out of the lease due to them not fulfilling their obligations. Now if they actually do everything right on their end then I have less of a problem with them being strict to their tenants.

Said as someone who has never run rentals before.

Being nice and kind and understanding and sympathetic with tenants will rapidly drive you into financial ruin.

I’ve owned multiple units for over a decade and it’s definitely given me a different view on the trustworthiness of the average individual. A surprising number of people lie, steal, and cheat without any apparent hesitation or remorse, regardless of how well you’ve treated them.

The only thing that works is being fair but firm. Stay detached and professional and enforce the contract you both agreed to. If you give people much leeway, at least half the time it’ll be worse next month or the month after. Downward spiral and pretty soon you’re out thousands of dollars.

For years I wondered how one of my neighbors was able to get away with paying rent that was almost half of what the rest of us were paying. The neighborhood was slowly gentrifying and while the rest of us were seeing 7-10% lease increases hers was small or none at all. Apparently paying rent on time for over a decade means something.

When we bought our own place our landlord at the time was really sad to see us go and she said we were her best tenants ever. At first I thought she was being cordial but after hearing other renter stories I think she really meant it. 2 years on time and we got 100% of our deposit back.

> something so banal as rent being slighty late

Getting rent from you is the only reason the landlord is doing the whole enterprise in the first place! It’s not a banal side detail of the deal.

And how do you think they pay their bills? Using your rent. If you pay late what do you think they have to do? You could cause them to default on something else.

Why would you lawyer up if they started the eviction process for being late on rent? What legal recourse would you have? In Canada it takes something like 2 months to evict someone, it's not like you would be out on the streets the next day. If you pay a few days later the eviction process would probably be stopped and there would'nt be an issue.

Because there's a clear difference in how they view the responsibility of tenant vs landlord. They're effectively holding a tenant ironclad to the contract while not holding themselves to the same standard.

A great example is that a few years ago I signed an apartment lease that indicated the community was supposed to be gated. Now I didn't particularly care about that fact, but that's how it was advertised and sold to me.

When I arrived, the gates were broken and had been broken for over a year. Two years later when I was moving onto my next job, the gates were still broken despite it being advertised and in the lease.

This never became an issue for me because the location was flexible in other ways but it's an example of where had they been a hardass to me, I would've responded with equal tenor. Flexibiliy can be a two way street.

As a landlord, I can tell you that many tenants do the exact same thing: harangue us over minor stuff that isn't even in the contract, while they're constantly late on payment, disruptive, unresponsive, etc. It's human nature to hold others in an higher standard than ourselves, hence the proverb "Physician, heal thyself".

By the way, your claim that "landlords that foster adversarial relationships like that are doomed to be burned even harder by tenants" is, unfortunately, not been my experience. Being lenient and understanding only got us a year of lost rent and an apartment destroyed. But you're right that landlords should uphold their end of the bargain, too.

> If the landlord tried to hold my feet to the fire over something so banal as rent being slighty late I would lawyer up immediately.

If you were in breach of contract (which is far from "banal") I seriously doubt you would be the first one "lawyering up". You certainly wouldn't win in any case.

Read my other post here. There are degrees to being in breach of contact and immediately jumping to an eviction notice because a tenant is a day late would be absurd.

And as I keep mentioning but it seems to be conveniently ignored landlords are allowed to get away with breach of contract all the time in my experience as a renter. Which gets back to the point I keep belabouring: Tenants are expected to be perfect while landlords are not. Now can you explain why this is the case?

As you said, there are degrees. Paying your rent on time is 90% of being a good tenant. Going back to your other example, yeah, the gate was broken, but as you said, you didn’t actually care. I’m guessing you never complained. So how is that all that relevant? Not saying the landlord shouldn’t fix it, but you’re just making excuses. You don’t actually care.

Suggestion: pay your rent on time and none of this will ever be an issue. And I wouldn’t bother “lawyering up” when you fail to pay your rent and get an official demand to pay what you owe. The law is not on your side and most courts will take a very dim view of the excuse that the gate is broken, especially when you never cared enough to complain.

It's still according to the post I replied to a breach of contract on their end. Which would entitle me to taking a harsh legal view (the equivalent of immediately going to eviction) and take them to court.

Since you seem intent on missing the point people take an absolutist view towards a tenants responsibilities while taking a lax one towards landlords.

You might feel that you're "entitled to take a harsh legal view", but the actual legal system would not agree with you.

I don't think we're going to see eye to eye, and you've also never been a landlord or had any exposure to any of the legal side of this. It's all fine and dandy to claim that you'd "lawyer up" based on some hypothetical, but you wouldn't, and you'd lose quickly and embarrassingly if you did. I've evicted tenants, sadly, and never once did I worry that some minor maintenance issue from months before that they never complained about would even slow the process down, let alone stop it.

You seem keen on calling something that was advertised and sold to me as non-working a 'minor-maintenance' issue so you're right we will probably never see eye to eye. Only landlords believe false advertisement is okay I suppose.

And you've probably never had to deal with shitty landlords judging from your response.

Not sure you’ll see this, but I was calling it minor because you said it was unimportant to you. And I’ve never owned my primary residence other than living in a unit in my first property for 18 months. I’ve rented from a variety of landlords in 5 cities over the last 15 years, all over the spectrum for excellent to terrible.

Landlords like that are the reason (besides financial considerations) that I bought housing as soon as I was able. That adversarial relationship was never fun.

I've heard that advice as well, and I'm guessing it's either from slum-lords or landlords that haven't encountered tenants willing to hire lawyers. Probably a viable strategy for very-low income tenants and college students.

Shady as hell though.

It's not shady at all. He wasn't suggesting breaking the contract, just enforcing it. Good luck winning a court case, although you might be able scare some landlords off with court costs. Many would just fight it out on principle, though.

You've got to remember that the landlord's downside can be both large and happen quickly.

Shady doesn't mean breaking the contract. Moving to legal action for being a single day late is very power-trippy and being power-trippy is shady.

Why do you assume such an action is indicative of a slumlord? Why is it shady? How long should a landlord wait before starting the eviction process (and it is a process, to varying degrees in various places).

What if the mail got lost or delayed? Why would any sane landlord immediately spend the effort to begin eviction process before contacting their tenant, when there are countless reasons that they didn't receive a check for the current month?

MA enforces what I think is a reasonable policy: the landlord must send a written notice to quit to end the tenancy, and may not file an eviction case until a 14-day notice period ends. The tenant cannot be evicted if they pay the owed rent with interest by the end of the notice period.

Usually jurisdictions have some grace period of a few days to account for mail delays around the first, but you can just start the process a couple days after the first. When I first moved to my own apartment, it had a no-nonsense manager. My roommate and I would usually deposit two checks together, but once he couldn't pay his rent on time so it was just my check for half. A couple days later I came home to a "notice of eviction, vacate before date x" on the front door, which is what is meant by "begin the eviction process". That is them contacting the tenant, now it's my turn to contact them and maybe the excuse is "I mailed it already days ago, maybe it got lost, let me mail another and let's set up an autopay system so this doesn't happen again." In my case it was just me hoping my friend would deposit his check soon. I took the notice and another check down to the property manager and explained, and learned a lesson myself on what joint liability really means. I had no ill will for the property manager enforcing the contract.

I'll grant you that "eviction process" was not defined above. I didn't mean going to the sheriff on the 2nd of the month to get them removed (not that that would be legally allowed in most places). Giving written notice that, "I have not received this month's rent, so this is the legally required notice that starts the clock" (with better language, and perhaps with a call beforehand as a heads up) would be starting the eviction process, in the way I was using it. As opposed to waiting a week or two, and then sending the notice, and then having to wait for the legally defined notice period to run.

So I agree with what you're saying; certainly you should contact the tenant beforehand with a friendly, "Hey, I haven't gotten the rent this month yet." But I wouldn't wait long to begin the pre-process, let's call it, of giving written notice. Also, I don't think you would have to start the formal legal process as soon as the notice period ends, so you can be flexible at that end if appropriate; but giving notice early gives you the immediate option to start the process if you deem it appropriate, but with lower latency once the notice period is over.

It’s a not-uncommon position that landlords are morally obligated to give lifetime free rent to any sympathetic case, as lost investment income and a lost home are not really comparable. The “housing should be a human right” camp doesn’t have any specific proposal on how to pay for it; existing landlords are as good as any funding source.

Why is it morally acceptable for a landlord to be able to evict a tenant from their home if their payment was not received for a reason out of the tenant's control, like being lost by the post office or stolen from the landlord's mailbox?

The grandparent comment was responding to starting eviction process one day after rent was due. I don't see how contacting the tenant and waiting a week equates to giving lifetime free rent.

I am having a hard time following your logic. The lease is a contract, and the tenant gets the use of the space in exchange for paying a certain amount on a certain schedule. What possible difference does it make why the payment was not received? If it was really lost in the mail or stolen from the landlord's mailbox (really, now...), then the tenant can prove that to the judge in eviction court. Have you ever been to eviction court? It is a learning experience. The judge is listening very carefully for the answer to the following question: "Did you pay the rent?" If he hears anything other than "I paid the rent.", he signs an eviction order. It is amazing how many words a defendant will say, on and on, and if the judge doesn't hear the magic words, he must evict the tenant. The defense is "I paid the rent". Anything else is pretty much irrelevant. Just like telling the IRS "The check was lost in the mail!" or "It must have been stolen out of your mailbox!"

Why is it morally acceptable for someone to hang out in the landlord's house without paying, even if something really bad happened to the tenant (lost job, medical bills, auto repair bills, whatever)?

Just b/c the eviction process is started doesn't mean the tenant can't resolve the problem before they are forced out. Assuming the tenant pays then waiting a week wouldn't matter. But if the tenant has decided that they won't pay then waiting the week delays the entire eviction process by an extra week - leading to the landlord getting 1 week less of income for every eviction. I have family that had to evict a tenant in California and it was an extremely long and drawn out process.

It's shady to hold people to a contact? Or do you mean it's shady for the tenant to hire a lawyer?

I really appreciate the insight your comment provided me. It does take a certain person to do those things you mentioned. I don't think I have the heart for it, or rather too big of a heart for it. I would not want to evict a person with children or someone who lost their job because of something out of their control. Also, the only experience I have with a rental is my sons mom renting a house out. Constant problems. Finally they gave notice, before the lease was up, which at that point she was just happy to be rid of them and forget the end of the lease. But when she came on the last day they were supposed to be there, they were gone and they had broke the water line to the dishwasher and left it run as a F-you. The insurance company found a flaw in the policy, some fine print that stated she had to be in the house within a certain time period and denied her claim. She was out about 25000$ fixing the water and other damage. Renting is not easy money and definitely not for me.

Or you could buy an underwater mortgage and forgive it, right?


I like the idea of Rolling Jubilee, but I don’t like how misleading their website is in terms of statistics. “77% of households are in debt” and “40% of indebted households use credit cards to pay for basic expenses” are both not particularly indicative of financial health. A household that has both a mortgage and buys groceries with a card they pay off at the end of every month would be included in that statistic.

Indeed. I pay for absolutely everything on my credit card - from my fuel to my lunch, then I pay it off in full every month. The perks are well worth it (I have an AMEX card). It's a habit I picked up from my parents and well worth getting into if you have the discipline to stay within your means.

We also have a mortgage, so I'd fall into that 77% / 40% even though my financial situation is perfectly healthy.

"Are you willing to kick someone out of their home?"

Yes. A tennent's inability to fulfill a contract, even through no fault of their own, will cause me the inability to fulfill contracts* of my own, through fall of my own.

*My bills, my rent, my mortgage, etc.

I feel the same as a landlord, but it still sucks. I can understand someone not wanting to do it.

I don’t have much sympathy for people who portray landlords as greedy assholes for not letting tenants camp out indefinitely for free. If you’ve been a landlord for awhile, you see the situation more clearly.

> You will need to become one of those people who call at dinner every single day, call employers, stalk online, harrass, even threaten

Most, near all of those things are explicitly illegal.

> I'm not going to judge the collectors, debtors or the business model, but it's definitely not for me.

In that case, I would definitely judge them.

Thats what the management company is for.

In that case, that's where most of the profits go, too.

Management companies are usually only 10%, but the real reason they’re necessary is because you simply cannot scale without them. Guys who think like you end up with a small portfolio that has them working 80 hour weeks. It’s better to make a smaller margin on massive volume than to keep all of the revenue. Also, the name of the game here is equity, not NOI.

Why not just enter the property and change the locks? If you have the deed then the cops should assist you if they try to break in?

Maybe some countries are super lax but i would have thought most western countries don't just allow people with no valid agreement to stay somewhere.

In probably every state in the US, it’s illegal to change the locks without legally evicting a tenant. Which usually requires months of court battles, which if they don’t leave voluntarily, culminates in law enforcement forcibly removing them while you pile their stuff on the street. As a landlord, I’ve come within days of that outcome a few times. It’s both sad and infuriating. Sad because I don’t want to put someone on the street regardless of circumstances. Infuriating because we only got to that point after months of lies, broken promises, legal costs, and essentially open theft. At some point you don’t have much choice but it still sucks.

Here in the UK tenants have a lot of protection. It's very difficult to evict someone, and it's illegal for the landlord to enter the property without prior agreement from the tenant whether they're behind on their rent or not.

> Gail Greenberg of suburban Philadelphia embraced the nonperforming-loan trade to build up her retirement savings, which took a hit in 2008. She started in 2016 with a loan in Flint, Mich., she bought for $15,000.

> “I only owned it for nine weeks and the house burned down,” Ms. Greenberg said. Thanks to an insurance payout, though, she said she made a profit of $27,000.

> Ms. Greenberg took that as a sign she should make loan investing her day job. She now owns 58 mortgage notes, as they’re often called, totaling more than $2.4 million in unpaid principal.

I wonder how she's doing now.

Holy crap. I wonder how big this market is? If it’s enough to matter, I’d say this is a sign that people should get the hell out.

Can you imagine what this market looks like when the next recession hits? Banks unload all this bad debt to these non-performing debt buyers and wipe their hands, meanwhile the economy crashes and there's no money getting collected and nobody wants to buy the debt off them.

buy nonperforming-loan, light it on fire, collect insurance, repeat

On the tenth house they might start asking questions :)

Burning questions!

Aren't they basically running collection agencies? I thought there is a whole industry that buys defaulting loans and then tries to get the borrowers to pay.

Yes. Collection agencies normally are used for unsecured debt. Mortgages are secured by real estate.

There has always been a brisk market for real estate paper ("notes"). This might be someone that lent on a second mortgage and now needs his cash back, so he enters the note market and takes a hefty discount to turn his stream of income into a lump sum. Or someone that just sold their house with owner financing, and wants to be free of the hassle of servicing the loan for the next fifteen years, so they sell on the open market. Supply and demand determine the prices, and the discounts are easily 40% off the net present value of that mortgage note's stream of income.

The thing I'm most confused about the whole article is how did some homeowners go years (a decade?) living in their home without paying a mortgage and not get evicted? The article implies this is happening but I didn't realize any lender allowed that amount of time to pass.

I assume the properties were so devalued that it literally wasn't worth the bank's time to foreclose and try to sell, nor to keep hassling the non-paying borrower.

Anyone know the legality of using loan acquisition as a strategy for donation and tax exemption?

- `A` loans $100,000 from `B`.

- `A` cannot pay the loan, and therefore `B` sells to loan to `C` for $10,000.

- `C` then donates money to a charity set up by `C`.

- The charity then offers to pay off `A`s loan, and the money comes back to `C`.

At this point, `C` "donates" (i.e. cycles the money) enough to make their taxes $0 per year. `A` has their mortgage slowly but surely forgiven. Win-Win, but the IRS losses.

While morally grey, what might the legality be?

IIRC under current tax code this results in $100k of taxable income for the original debtor. For C, well, getting paid from the charity counts as taxable income, so things net out. Donate $100k, receive $100k in debt repayments, net change to AGI is $0.

The best scheme I can come up with is this:

Make the note performing again by giving the creditor a small amount of money. Claim that it is now worth significantly more than $10k due to being a performing loan. Donate the loan to a controlled charity, pocket the tax deduction for the "fair market value" of it, and then stop paying to make it be "performing" and have the charity take the losses on it. The IRS will still fault it, probably, but it lets you actually get ahead on your taxes.

NB: this system can be a price support for rare artwork getting sold in distress. If you think you can claim to the IRS that a piece of art is worth $100M later, and you pay a 30% marginal tax rate, then the post-donation after-tax price is essentially $30M less.

> the money comes back to `C`

Does receiving a payment on a loan not count as income? After brief searching, and the usual IANAL disclaimer, it would seem you'd still be liable for interest on the loan as income (so some small percent of your 'donations' cancel out?). Further, you can only claim so much charitable donations per-year (but it can roll over for 5 years).

It's an interesting strategy if it works. I'd love to hear someone more educated on the topic weigh in.

"The charity then offers to pay off `A`s loan, and the money comes back to `C`."

That isn't a charity. It violates the Federal laws about tax exempt organizations.

This sounds a lot like cum-cum and cum-ex dealings. It might not be illegal per-se. But the moment too many people do it, governments will churn in and send some to jail.

How is this possible in the US ? I run a lending startup in India, but you can't own paper until you have a regulatory license from the central bank. Our license took 18 months - including extensive background checks, interviews,etc.

Can any individual buy mortgages and become a lender in the US ?

There is a difference in the U.S. between lending, loan servicing, and simply holding onto debt. All three have different regulations, in decreasing order of regulatory burden. The people in the article are not lenders. They are buying loans and acting as mortgage services (e.g. making sure people pay their debt every month).

TLDR; Apparently there are laws in some states that makes it very hard to foreclose. So these loans linger over for years and now being purchased by some folks trying to restart the payments hoping to take advantage of better economy. It's very high risk business.

The most surprising part of entire article is that it is very hard to enforce foreclosure for missed payments in many states. The delinquent borrowers can stay in homes for months and often years! As mortgages are essentially sponsored by US government, this whole market runs on twisted economy.

The basic question is why more people aren't taking advantages of these laws and twisted economics? For example, you can live in Hawaii, buy a house, just don't pay any mortgages, declare bankruptcy and stay in the house for next 4 years for free. Or even better: buy many houses, put them on AirBnB, collect income and never pay any mortgages!

Everything about this sounds so fucking gross.

> A scrappy breed of independent investor

> During the boom before the bust, lenders made mortgage loans to countless buyers who couldn’t afford them. Lenders later wrote off many of the loans, but borrowers’ obligation to pay remained. Today, in an improved economy, a rag-tag group of individual investors, plus some Wall Street giants, is buying these old loans and trying to tease value out of them.

It's a feel good story of the year! A group of scrappy rag-tag enterpreneurs, with a can-do attitude, hustling by ... going after people who were already fucked at least once.

> Others use loan servicers to try to get mortgage payments restarted so they can feed the loans back into the Wall Street mortgage securitization machine.

Yes, feeding things to a machine definitely sounds like a morally neutral proposition.

There were people who were fucked, but there were also people that were explicitly taking advantage. I know of two cases were individuals bought lots of property, borrowed to the hilt, took the money out of the country, refused to pay the mortgage, collected rent from renters while the foreclosure process was going on, then rode off into the sunset, retiring on OPM.

> going after people who were already fucked at least once.

I'm not sure it's so clear cut. The last anecdote in the article was a civil engineer with savings and a good salary, who thought his entire mortgage was forgiven by PNC and he got a free house. At least in that case, he should be obligated to pay his mortgage.

Here is another example of people I don't feel too sorry for...

When I was house-hunting after the crash, I noticed that the loan history of most of the short sales (underwater mortgages) I looked at followed the same pattern:

- Buy house with minimal down payment. - Over 5-10 years or so as the market climbed, refinance with ever-larger cash-out mortgages. - After the crash, apply for short sale, forcing the bank to take a loss.

So, for example, I might see a house with $750k loan on short sale for $350k. But on closer inspection of the history, find that they put $15k down on a $250k house, then pocketed $500k in cash-outs. Sure, they "lost their home", but at the end of the day it feels more like bank robbery to me.

Now they probably didn't have all that cash sitting in a bank somewhere. It was probably all spent on one thing or another. But they still got the advantage of spending that $500k. (Not necessarily wisely. The one I remember details of lost both his house and his wife because he blew it all on racing toys.)

Yes, there were certainly plenty of people who were legitimately burned in that whole mess. I'm just mentioning that from what I saw, more often than not there were huge cash-outs involved.

wait, can you explain this to me? How does refinancing the home in this example give them a 500k windfall? eli5 plz

Assume his home was worth 1mm at the peak. He got a new loan for $750 k, paid off his old loan of ~$250k, and pocketed the difference.

right, but now he has much bigger monthly payments, and still owes that 500k back... so it seems all he did here was get a big loan....

That is true. But then he stops making the payments. The bank either forecloses and takes the house to settle the loan, or he sells it in a short sale for $350K and the bank writes off the difference. Worst case, he has to file bankruptcy and maybe pay income tax on the amount forgiven. Either way, he still got to spend the $500K on...whatever.

Now that I think about it (and these are pure anecdotes), at the time I heard tales of people using the money from refinancing to buy a smaller home with cash. Then they'd move into that and let the first house get foreclosed on (because their paid-in-full primary residence is protected in bankruptcy).

Yea, I saw several instances of people who milked it for all it was worth, then retired and left everyone else to clean up the mess.

Yes I'm sure that's the majority of cases.

These are people who haven’t paid their mortgages and weren’t foreclosed on. I don’t think they deserve free houses.

These entrepreneurs may use shady tactics but it doesn’t change the fact that they are living for free in a house they don’t own, can’t sell, and don’t have the title to.

I don’t see much wrong in terms of the financial process.

People default on the mortgage but keep living in the property. That’s not the way to go.

The problem is that most likely foreclosure is not profitable for investors, so in order to collect money, they have to make life miserable for people. But this is just messed up, because mental health is as important as physical health. So if someone stresses people out to get their money, why the taxpayer/family had to get stuck with economic externality?

Imagine instead of stressing people out, we cut their limbs if they don’t pay.

How were they already fucked once? They either went bankrupt and this doesnt apply to them or they kept the house and this does.

Nobody is paying for a house twice or losing the house and paying the mortgage.

>people who were already fucked at least once

People who were given money and didn’t repay it. Why should that loan just be forgiven?

It seems most people think that you buy these busted mortgages to make some ROI.

It's far from truth.

I know some guys purchase them to negotiate frequent sex with the Tennant and other favours. You'll be surprized how many people are completely unware of the law and make it seem like they are providing a fair deal.

If you know these people you should report them. Sexual exploitation is no laughing matter.

There’s news documentaries on this. Increasingly popular practice

Yeah, I call bullshit. Link to some of these sources.

Sex for rent is popular in UK too.

This might be interesting if I could read it. Who here wants a closed internet?

Paywalls are annoying, but such comments like this only add noise, so please refrain from injecting that into the thread. This is in the FAQ at https://news.ycombinator.com/newsfaq.html and there's more explanation here:



Are there other forms of copyright infringement HN encourages or is this the only one?

This is such a common phenomenon that you can expect people sharing links to non-blocked websites after a short time. Next time just be patient and read the comments.

man I hate paywalls, I really want to read this one.

I'm loving the ability to buy articles a la carte on Blendle. No relationship with the company.


How does this businesses model work... have they gotten the WSJ as well as all of the other publishers to agree to sell individual articles?

Yes they have. I have had it for over a year. People don't want to subscribe for $10 a month or something but surely they can pay 20 cents for an article. Otherwise we are going to have junk news forever with auto playing videos and ads.

Edit: Also once you pay you can decide to rescind your payment if it is click bait or not good. Also no relationship with them I just want to see a paid web content model succeed.

I'm a Blendle user as well, and I really love the concept - the main thing I would like is integration between Blendle and the original publication site, because people post links to the original newspaper, not to Blendle...

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