I had the pleasure of talking to some smart business guys today; they had a few businesses that were good, and some real estate investments that weren't so good.
And they were giving thought to "just walking away from the investment, because if we don't pay, what's the bank going to do anyway?"
I was mesmerized. I've been an Arizona bankruptcy lawyer for a good long while, but I'm still surprised from time to time. It's like that New Yorker cartoon of a patient on the couch calmly saying, "But I'm sure you hear that all the time", while the psychiatrist behind her is staring out in bug-eyed, standup-hair terror, his notepad and pen limp in his nerveless hands.
I know perfectly well that I'm involved in insolvency work day in and day out, but the idea that otherwise smart business guys could consider "not sending good money after bad" was breathtaking in it's simplicity!
And I did the wrong thing. I told them the truth.
I should have said, "Follow your heart! Be brave! Stand up to that mean old bank! File a lender liability lawsuit and bring the bank to its knees!" Then after two years I could have filed their bankruptcy cases for 'em.
What I said was, "Lawsuits are for dummies and guys who expect to win in Vegas. The only winner in Vegas is the Casino. The only winner in commercial lawsuits is the litigator, because if he's smart enough to fight with the bank and give you the CHANCE of winning, he's smart enough to get paid as he goes".
Note: sometimes you have to sue; but you need a fair amount of white hair before you can make good decisions on when that is; and when to settle.
And I told them that if the bank was willing to give them an extension for x months for y dollars, and the dirt was worth somewhere between half and four-fifths of the amount of the loan, and they were collectable, they probably didn't want to be locked in a suit with a bank for two or three years.
If the market recovers, how cooperative will the bank be in helping to facilitate selling the property during a lawsuit? You know?
And when will dirt in Arizona go back up in value?
If I knew the answer to that question, I wouldn't be working for a living.
But I do know the answer to this question: will the value of real estate in Arizona go up? And that answer is yes. The only question is how long it will take.
I also know what happens when you just walk away from a real estate investment with that bank, because that particular bank has inadvertently sent me a lot of business.
They run a trustee's sale and then sue for the deficiency.
Or they accept a short sale with a paragraph that says they aren't waiving the deficiency.
Then they sue on the deficiency.
Or they waive their security and sue on the note.
But walking away virtually guarantees that the borrower gets to spend some time in debtor's exams, which are unpleasant in the extreme.
But not as unpleasant as the garnishment of accounts, swiping of the boats and cars, liening of the house, garnishment of wages, and all the rest of the festivities that follow a judgment entered against you.
Or the subsequent opportunity to get to know an Arizona bankruptcy attorney better than you ever wanted.
