Million-dollar foreclosures: Who's to blame?

Mar 06, 2012

When a couple moves into a million-dollar house and isn't able to make a mortgage payment for over five years, who's to blame? That's what Post commenters have been debating after reading Annys Shin's piece A million-dollar mortgage goes unpaid for years while couple fights foreclosure.

Live chat with Shin at 11 a.m. ET about her story, and weigh in on who you think is to blame, what should be done, and more.

Hi everyone. Thanks for your patience. I am ready to take your questions about the saga of the Ritters and the approach Maryland has taken in response to the foreclosure crisis. Please try to keep things civil. Thanks!

What is the difference between a couple losing a million dollar home in foreclosure as compared to someone losing a $100,000 home in foreclosure?

Thanks for this question. There is not a difference, although I will say we didn't intend to present the Ritters as a typical case. They are NOT a typical case. The idea was more to raise questions about the state's approach to the foreclosure crisis. It has benefits but it also has downsides, namely dragging out the process slows a price rebound which ultimately could help people stay out of foreclosure.

Just where do these two entitled peas in a pod think that multiple bankruptcies will get them? The only thing their credit reports are good for is toilet paper.

This is one of the things I also wondered about. Then i realized their credit is already in pretty bad shape. As you can imagine, they owe a lot more creditors. So in a way, I guess they don't have much more to lose. Thanks for your question.

Unless the owners of million dollar homes that are foreclosed on were once multimillionairs that hit a terrible string of bad luck (loss of jobs, medical bills, etc) and family losses- I blame the home owners, and it may be cruel, but I don't feel the tiniest ounce of sympathy. I grew up in western Fairfax, where you can still buy homes that EASILY hold 6-7 people, for $500k. No, it's not a luxury home- but it's a home. If you needed a luxury home, and thus wanted to spend more than a million dollars- it's a sign that you need things to make yourself feel good and happy and feel that you're obligated to keep up with the Joneses. That's the risk you take.

Yes, this is the response of a lot of folks and it's a fair argument that they were investors so for them, and this was a business venture for them. Having the market go sour was a risk they took.

While I get the "shock" value for people to read about million-dollar foreclosures, the fact remains it's happening at ALL price-points and for the SAME reasons. The builders, sales reps, realtors, appraisors, lenders, and buyers are ALL to blame. I've seen in it my own San Antonio neighborhood. People who never should have qualified for anything, let alone a HOME. People with no jobs, savings, down payments, credit, etc. were allowed to magically qualify for houses- even those who are not here legally!! Fast forward five years and they have all walked away or are squatting... leaving me too underwater to sell! When are we going to stop rewarding those who walk?? What's the incentive to do the "right thing" for those of us underwater??

Well this is the crux of the problem, isn't it? There were a lot of parties to blame for this mess, and folks like yourself who didn't take part are now suffering the consequences as well. How do we try to clean up the mess while still being fair? If the government forces the banks to reduce what people owe, for example, that doesn't seem fair to folks like yourself. One argument is that allowing foreclosures to go through as quickly as possible and allowing prices to rebound as quickly as possible is the fairer. But then you run the risk of pushing people out of their homes by mistake. Or people who have a shot at a sustainable solution. Meanwhile, the banks got a bailout because they would otherwise have tanked the economy...it seems like any solution that fixes one part of the problem causes other problems.

Your article on the Ritters, who are facing foreclosure on a home they have never made a mortgage payment on was interesting, yet it seems the focus was misplaced. The article seemed to focus on the Ritters as a case of foreclosure, situating them within the larger housing crisis. From the facts presented in your story, however, it seems that it would be more appropriate to present their story in the context of scammers and fraudsters. Keith Ritter was convicted for fraud and if the facts in your story are true, it seems that the family was not an innocent one caught up in a spiralling economy, but one where they were engaging in illegal and unethical activities to maintain a standard of living. I'd put their story alongside other fraudsters, like those committing tax scams and Ponzi schemers, not alongside "average" families facing foreclosure.

Well I tried as best I could to be fair to everyone in the story. And at this point, it is debatable whether they have broken any laws. Also, I make the point in the story they are not an "average" case. They are an extreme case of what can happen in a system like Maryland's that does help a lot of homeowners. But it has downsides. And this is an extreme case of the downside.

In retrospect, the advocates were right; we should have permitted mortage bankruptcy. Lenders have never worked out mortages as they promised. Bankruptcy would have forced them to restructure mortgages, and the court would have forced borrowers to prove need. Because this would have been case by case, it would have avoided the wholesale reductions in home values that massively worsened the crisis. We now know that the real moral hazard was not on the borrower, but the mortgage lenders and Wall Street packagers of toxic mortgage MBS. And while we were warned that allowing bankruptcy would make mortgages less available and more expensive, they could hardly be less available than they are now.

Well said!

It was my understanding that bankruptcy can only be applied twice over a lifetime, and that it affects your credit FOREVER! If Mr. Ritter served time for bankruptcy fraud, how would he have qualified for a loan on ANY of these homes, much less a real estate license? I believe the Post may have missed some important questions here, and a bit more research might have been done.

Uh the only person who didn't ask enough questions was the lender! I mean to me this was classic 2006 housing bubble lending at its worst. The Ritters are taking a lot of flack here, but when I see that a lender lent them $1 million without asking too many questions, it's hard to say the lender didn't have a role in this situation.

Has Maryland or the county government responded to this article? Governmental efforts to protect foolish housing speculators have hurt people like me, who made the decision not to buy in the bubble and wish to buy now, but are hesitant to do so, as the market continues to be artificially inflated due to government intervention.

Hey fellow gen xer! well this is the tension raised by the story. Maryland officials know what the potential downsides are of slowing the process. But they have decided it is important as a policy goal to protect homeowners from, shall we say, less than perfect behavior by lenders and servicers. I take no issue with that. That is their choice. As we point out in the story but unfortunately didn't have the space to get into too much, Virginia has taken a hands off approach. And while prices have rebounded, the speed comes at a price, which is a lot of dislocation and in some cases negligence. And for a lot of people, that doesn't seem fair either.

Scam artists. I just closed the wide open door of one these scam artists home left behind homes in my community. The place was stripped including dry wall. They contribute well to the depressed value of homes today. Great Pretenders. They can and some of these scam artists have left these million dollar home in shambles. They help depress value even further in all homes in the community . 1.2 Million To 300-400k U lose. I'm sure the folks in Riverview are real happy! Both Bank & Scam artists hurt those that trying to hold up the housing market on our biggest investments.

wow. are you in the DC area? i'd like to write something on the vacant house problem caused by foreclosures...

What have they been doing with the money that would have gone to pay the mortgage on their million-dollar house? The article mentioned that in the first year the spread the mortgage amount over other properties (to pay those mortgages). Has that continued?

At this point, it's unclear because they have lost a few of those homes to foreclosure. But I did verify what they said. Their other lenders were asking for lump sum payments of tens of thousands of dollars, ostensibly to keep them out of foreclosure. The thing about this case is, as much as people blame them for their own predicament, they were subject to some of the same shenanigans that millions of other homeowners have faced, such as being promised loan modifications, only to have them not materialize, being foreclosed on by entities such as MERS, where it's unclear they even had the right to foreclose, and as I mentioned, being told if they make X lump sum payments, they can stop the foreclosure, only to do that, and still lose the house. I am not saying they could have made better choices. They say that too. But there were some things they were not responsible for as well.

Why don't the Ritters sell those designer shoes, their fine furniture and fancy art? Then they can take the money and apply it toward renting a one bedroom apartment that they might be able to afford. I get that nothing is black and white but their story made me feel queasy.

Right. Well, they could do that. Maybe they still will.

Will this couple ever have to pay anything on the mortgage?

Great question! Possibly. Maryland is a "recourse" state which means the lender can still go after the homeowner for the difference between what the lender got for the property at a foreclosure sale, and the loan. There are rules on how lenders can go about this, but in theory it's possible.

These people are deadbeats and giving people who are actually struggling to hold on to their homes a bad rap. Look at their history, they are criminals and should be treated as such.

Yeah, I'm of the view that if you have paid your debt to society, you're not a criminal for life. Course if you break the law again, that's a different story.

Your article said that critics say the long foreclosure process means the market isn't cleared of foreclosures homes, so prices don't rebound and communities can't recover. But isn't it true that in areas where there a lot of foreclosed homes they aren't selling, because no one can buy, and then you have a lot of vacant homes with squatters and that are being ransacked. Which do you think is the worse condition? Thanks for the great article!

You are right that there are areas with lots of foreclosures where prices and sales have not recovered. It varies across the country. What makes our area special is the Virginia and Maryland suburbs of Washington have a similar make up in terms of income, racial and ethnic diversity. Also, we are in one regional economy and our job market, relative to the nation, is pretty good. The major difference between the two markets is the policy approach to foreclosures. Northern Virginia's home sales and prices are doing much better than suburban Maryland's. In Prince William, for ex, the prices are back 41 percent from the trough in 2009. In PG, they are still falling.

How did you come to write an article about this, and what opinions did you form as a result?

I have been writing about foreclosures for the past few months, after I realized that at least in terms of the D.C. metro area, we had kind of stopped. I was interested in this issue of VA v. MD's approach to the crisis. The idea was first raised in a story from January 2011 by my co worker Dina Elboghdady. I just happened to be in foreclosure court the day the Ritters had their last hearing. So it was partly dumb luck.

The article stated that Mr. Ritter is doing house cleaning. Is there any other income coming in? Have they heard from the Sheriff's office as of yet?

He is cleaning foreclosed homes! They do have income coming in. Janet is working as a real estate agent. The sheriff tried to evict them yesterday, but Janet filed for bankruptcy and may have stopped it for now.

The couple in the article were experienced real estate investors. They knew what they were getting into, and they understood the risks. I see them as folks who were abusing the system. They were looking for "all reward, no risk". They are, frankly, as bad as the banks. The worst part is that their abuse of the system marginalizes the folks that really were taken advantage of by the system & the banks. Whatever happened to personal responsibility? Me, me, me. Greed knows no bounds. Ultimately, it's folks like me - I pay my bills, I act responsibly, I know how to avoid excessive LTV ratios on properties - that get hurt.

Well, this is an argument that other people have made. This was a business to them. I do think, though, they are outraged at how the banks have acted, and that has made it harder to just let it all go.

The banks, regulators, and government officials (Alan Greenspan, Pres. Clinton, Barney Frank, et. al.) rode the housing boom to power, wealth, and position, so why aren't they questioned in your article? The homeowners are simply making the rational & intelligent decision to screw over the figures who allowed them to bury themselves!

I don't disagree with you! With this story,  I took up about as much space as one humanly can in a newspaper these days.  But as you point out, lots of fodder for more stories.

My brother is a real estate agent and had his best year in a long time last year. Have the Ritters, particularly Mrs. Ritter, had any better luck with income because of this uptick in sales, and, if so, is it too late to save their house?

Well she has. One thing that I'm not quite sure people appreciate it, they had all their eggs in one basket: the real estate market. When it tanked, every source of income tanked simultaneously. The market has since improved, and she's been doing better, but obviously, not as well as she was in the boom days.

Although the couple strategic defaulted on their mortgage, did they continue to pay their other unsecured lines of credit, such as credit cards or cay payments, mobile phone bills, internet? or did they default across all payments ?

Maybe not all, but close.

Because of this type of abuse of the system, do you foresee MD revising it's foreclosure laws anytime soon?

Maryland is considering a revision to speed up the process for vacant homes, cases where the homeowner has clearly walked away. Some of the delays in the process have also been on the lender/servicing side. The robosigning moratorium, for example. I think they will otherwise stick to their guns. And they have good arguments to do so. The recent Fed white paper on the housing market endorsed an approach very much like Maryland's, which is to focus on keeping people from being foreclosed. Another aspect of Maryland's system that didn't come into play in the Ritters's case is the state has funded a network of housing counselors and there is also a network of pro bono attorneys to help homeowners. Studies have shown housing counseling an be very successful in getting loan modifications that work. Like I said, there are benefits to Maryland's system They come with costs and my sense is the policy makers believe the benefits outweigh the costs.

Just how often do foreclosures exist in such egregious circumstances? Yes, I know you acknowledge that this isn't a typical foreclosure, but I think so much focus on such an unusual case allows people to target shady homeowners like these, and that contempt extends to the more typical foreclosed upon family. This allows people to let the banks, mortgage brokers, and wall street off the hook by blaming a relatively few shady folks who gamed the system for the housing crisis.

They are not typical. But they are not sooo far off, for reasons that don't entirely have to do with them. The average number of days it takes for a foreclosure in MD is up to 634 days. In NY state it's more than 1,000. Five years sound less crazy than you think. As for whether they give homeowners a bad name, I don't totally agree with that. I think there is something to be said for Keith's argument that when banks that do anything to save themselves, they are lauded, at least by Wall Street, but homeowners who fight like hell are not given that benefit. I'm not sure why people should be held more morally responsible than banks or other institutions.

I guess what really struck me was the photograph of the couple in their home. It looks like they've put a lot of effort (and money they don't have) into making the place look nice. If I were in their situation, I wouldn't have even unpacked my boxes. I'd be sleeping on a mattress and waiting for the eviction notice. While reading, I had a lot of sympathy -- they're essentially stuck in the home -- but then I kept going back to the picture and thinking that they're gaming the system.

Yeah, I can't argue with that.  Course a friend of mine griped yesterday that the CEOs of Chase and Bank of America haven't exactly had to hawk anything on Craigslist either.

They had to know they would elicit zero sympathy and more than likely expose themselves to a lot of negativity. What was their motivation?

Great question! They are a bit of a paradox. I can tell you that Keith especially understood what the reaction would be. And yet, he chose to open up. So remember that people as you lambast them for not having a conscience. People might think their faith is bogus, but I don't think it is. He told me many times that they made mistakes and they are not trying to hide from them. You can't say that about Madoff.

I think this raises the question of those who prescribe to the evangelical religious philosophy that "God wants me to be wealthy" and some cases live greatly beyond one's means a la Joel Osteen. So they are still living in this million dollar home, buying designer shoes and expensive artwork, basically milking the system and hurting the rest of the country because of their so called faith (which is actually a front for their greed). It's disgusting, and I think a lot of others took to the same faith-based-greed during the Bush years which, I believe, played a large role in the economy's downfall. Has this been talked about at all?

Wow, that is way beyond my ability to answer. I defer to those of you out there who are better theologians than myself.

Reason being it was easier for the bank to have them care for the upkeep rather than take the house back... when it is seriously under-water because of the down market. is it possible the bank actaully didn't press as hard as they could have to evict this couple?

Part of the reason this has taken so long is the banks and servicers are overwhelmed. They are taking their time too because they have so many foreclosures to deal with.

I have to wonder: When is the Bankruptcy court going to tire of these folks? I thought one was unable to file multiple bankruptcies. The most recent one should have staved off the foreclosure process.

Well there is an office in the Justice department that is supposed to police this type of thing. I'll leave it at that!

Seems to me that there are no likable characters in your story. Every actor has culpability.

That is funny that you say that. I have asked friends if anyone seemed likeable. They all agreed with you.

 

 

Okay folks, thanks so much for the thoughtful questions. I have to go now and take my licks from the Maryland officials! My honest hope is that this story enlivens the debate over responses to the foreclosure crisis, cuz it ain't over yet by a long shot. Thanks for reading the Post!

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Annys Shin
Annys Shin is a staff reporter at The Washington Post.
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