One way to use your tractor?

[2manyrocks]

Off topic, but we used to have a saying that when two guys go into partnership with one guy having the experience and the other guy having the assets (or borrowing them), it will end up with the other guy then having the "experience."

I knew the owner of a very successful business who was once quoted in the newspaper as saying, "you've got to protect yourself at all times." I used to think he was being overcautious, but now I see the wisdom in what he said.

Or as my pastor said earlier this year, "we're all one bad decision away from wishing we could get back to where we were before that decision."

 

[kidr]

Looks like this guy leveraged 100% of the cost of his house. He wouldn't bulldoze it otherwise. The bank can only take what it's owed, the rest goes back to the owner or other creditors who may have a lein on the property.

 

[2manyrocks]

Please keep in mind that I don't know what the real numbers are or the lien positions, etc. This is just to explain how foreclosure bidding typically works in Tennessee and isn't intended to explain what was going to happen in this specific situation or how they do things in Ohio.

Assume that a borrower has a house worth $350,000 and has liens in this priority: 1) $160,000 creditor A; 2) $40,000 for state tax liens and 3) $50,000 for federal tax liens.

Ignoring the foreclosure expenses that would have to be paid first, Creditor A only wants to bid $160,000 in the hopes someone else will bid higher and then creditor A will be paid off. (Creditor A being a lender that deals in cash and not a realtor who deals in property who actually wants the property.)

If Creditor A bids $200,000, then Creditor A would have to pay $40,000 in cash to the state. Around here, neither the state nore the feds normally bid at foreclosure sales so it would be foolish for Creditor A to bid more than what it is owed. A third party interested in the property would only want to bid enough to get title, and so if the state and the feds don't bid, then the third party will bid enough to clear out creditor A, but will try not to bid enough to actually have to pay the state or feds much of anything unless competitive bidding from other third parties drives the bids to that point. If the correct procedures are followed, the foreclosure sale can pass title free of the tax liens even if the taxes are not paid in full from the proceeds of the foreclosure sale.

It is unlikely that anyone would bid fair market value because they are typically unsure of the condition of the property and also unsure of when they can actually get possession and what will happen to the house in the meantime.

 

[Pops15]

We all end up paying for whatever the bank loses on his loans.

Just an informal question - Would you use your home as collateral for a business loan?
I can understand believing in your dream, but is that a risk a person should take?
Dave.

Those are good questions and there is no one size fits all answer. Those contemplating borrowing against their homes for business purposes need to answer some more questions before deciding to borrow or not. Would the loan be to expand an existing business or start a new one? If you're expanding do you already have contracts lined up or are you speculating that you'll find additional sales?
What's your financial position before taking out the loan?
Do you have an exit strategy if the business doesn't produce as expected?
Do you have sources of income other than the business the loan is for?
How old are you (do you have enough years to recover if the business fails)?

There are instances where it's a perfectly good idea to borrow against a home. There are many more instances where its not a good idea.
If a person doesn't believe in their dream enough to accept some risk (mortgage home) then how can they expect anyone else to bankroll them?

Personally I'm conservative on financial matters. I've never had much debt. I was talking to a friend that's a retired businessman. He told me I was too conservative and that he used to be the same way. He said after talking to his banker he changed his mind about debt but based all borrowing on very sound business principles. By borrowing against his home he was able to expand his business and ended up with his business being far more valuable when he sold it than if he hadn't taken on the debt to expand.

The correct answer to your questions is.....it depends.

 

[dave1949]

Those are good questions and there is no one size fits all answer. Those contemplating borrowing against their homes for business purposes need to answer some more questions before deciding to borrow or not. Would the loan be to expand an existing business or start a new one? If you're expanding do you already have contracts lined up or are you speculating that you'll find additional sales?
What's your financial position before taking out the loan?
Do you have an exit strategy if the business doesn't produce as expected?
Do you have sources of income other than the business the loan is for?
How old are you (do you have enough years to recover if the business fails)?

There are instances where it's a perfectly good idea to borrow against a home. There are many more instances where its not a good idea.
If a person doesn't believe in their dream enough to accept some risk (mortgage home) then how can they expect anyone else to bankroll them?

Personally I'm conservative on financial matters. I've never had much debt. I was talking to a friend that's a retired businessman. He told me I was too conservative and that he used to be the same way. He said after talking to his banker he changed his mind about debt but based all borrowing on very sound business principles. By borrowing against his home he was able to expand his business and ended up with his business being far more valuable when he sold it than if he hadn't taken on the debt to expand.

The correct answer to your questions is.....it depends.

That all sounds logical. Thanks for taking the time to share.

The question was sort of related to the topic of the post. I can understand one needs to invest in a business to grow it, especially one that requires capital equipment. Just don't know that I would ever put my home on the line, I would be more inclined to minimize my housing costs, but not risk my home. That would free up cash flow for the business at least.

Like Archerm3 spoke of a couple pages back, some people want the trappings of wealth before they have wealth. Or as Michelle Singletary said, 'If you want to be a millionaire, stop spending like one'

Small business gets alot of mention for political purposes. I have nothing against that, but when politicians recite the number of jobs created by small business, they neglect to mention how many small business ventures fail. We have to incubate business ventures in some way, but sometimes I wonder if the way it's done is really sane.
Dave.

 

[JB4310]

In my opinion, that's a load of bologna. A business man put his house up for collateral, took a gamble, and lost. People applauding him for poor business decisions, and now possibly criminal actions just never ceases to amaze me.

I made cautious financial decisions all of my life. So did my wife. Her parents, my parents, my siblings, her siblings, most of our friends(but not all) also made cautious financial decisions. This guy appears to be a jerk. A jerk with a bulldozer. I feel no sympathy for him and hope he goes to jail. This kind of stuff just raises the expense of doing business for the rest of us.

Well I"ll play public defender or devils advocate if you will, since no one else will.

I don't feel any sympathy or ill will towards him personally, it was his extreme actions that got my attention, I think what he did is worthy of our attention, there's no way we can know all the details to bring us to condemn him or or for that matter support him outright. Don't know how you can declare him a "jerk" without knowing more about him other than he bulldozed his beautiful home?

He was pushed into a corner and he pushed back, I want to invoke the Boston Tea Party here, at the risk of breaking this limb that I'm out on Isn't it the American way, to stand up to tyrants? Maybe not the best analogy, but I wonder what was thought of those hoodlums destroying property. History has proven it a righteous protest, but at the time they were extremists.

I don't think a guy like that who gets up and goes to work everyday is typically the type that "raises the cost of doing business for the rest of us"
That honor goes to the mega banks (talk about gambling) that had to get bailed out by "US" Who gave them selves huge bonuses while continuing to foreclose on main st, and raise rates through the roof on debtors so egregiously they had to be brought before congress and forced to implement ethical business practices.

I'm not fanatically supporting him, He and I are at opposite ends of the spectrum as far as debt goes, but for now I'm willing to give him the shadow of doubt.

JB

 

[Pops15]

That all sounds logical. Thanks for taking the time to share.

The question was sort of related to the topic of the post. I can understand one needs to invest in a business to grow it, especially one that requires capital equipment. Just don't know that I would ever put my home on the line, I would be more inclined to minimize my housing costs, but not risk my home. That would free up cash flow for the business at least.

Like Archerm3 spoke of a couple pages back, some people want the trappings of wealth before they have wealth. Or as Michelle Singletary said, 'If you want to be a millionaire, stop spending like one'

Small business gets alot of mention for political purposes. I have nothing against that, but when politicians recite the number of jobs created by small business, they neglect to mention how many small business ventures fail. We have to incubate business ventures in some way, but sometimes I wonder if the way it's done is really sane.
Dave.

I know some very wealthy people. Most of them live well below their means. I also know several people that make allot of money, that will never be wealthy. They're just like the guys that live pay check to pay check, only on a bigger scale.
With the way big businesses are retreating creation and growth of small business is our only hope, and you're right, there's often little sanity in the way businesses are "incubated".

 

[2manyrocks]

In my opinion, the news reports may be missiing some critical facts because it doesn't make sense that the bank would turn away an offer of $170K if it was only owed $160k and the deed of trust only secures $160K. If that's the payoff and their deed of trust doesn't secure any other debts, the bank would have to take it in my personal experience.

In most every situation where the borrower has $100K of equity, the borrower is going to find a way to sell the property to keep his equity and pay off the bank. When that doesn't happen, then the question is what kept it from happening. As I recall, the court docket appears to indicate that the foreclosure case started in 2008. In a year's time, a buyer might could been found, but maybe home sales are so bad in his area that he couldn't sell to realize his equity or maybe there was some other reason that prevented him from getting his equity out of the house.

If the deed of trust on the home also secures his business debt and the bank is trying to protect themselves against a loss on the business loan, then it makes more sense that they would turn down the $170k to try to use the equity in the home to protect themselves against a loss on the business assets.

The problem with a bank repossessing a business is that everybody then knows the bank has the business and nobody wants to pay anything except liquidation prices for the inventory and everything else. So while a borrower might be able to sell his inventory at fair market value, a bank is going to get stuck with a discount on the same inventory.

It's been my experience that even if the loan documents say that a home secures a business debt, some borrowers will fight over the lender taking their homes for the business debt even when they signed loan documents saying the bank could do this in order to get the loan.

I mentioned that it is my opinion that some critical facts are missing. I've wondered if the absence of critical facts makes it possible for the media to spin the story to fit what the media wants to say, and the media doesn't want to go looking in the actual court files for reasons of their own. The loan documents and the amounts owed would have to be in the court files, but I don't see any of the 500+ new stories looking in the available documents for the complete story.

But as you pointed out, we don't know the whole story, and it remains to be seen what else will come to light.

 

[MossRoad]

...Isn't it the American way, to stand up to tyrants?...

Lately it seems the American way is to skip out on your obligations.

 

[MossRoad]

In my opinion, the news reports may be missiing some critical facts because it doesn't make sense that the bank would turn away an offer of $170K if it was only owed $160k and the deed of trust only secures $160K. If that's the payoff and their deed of trust doesn't secure any other debts, the bank would have to take it in my personal experience.

Am I still missing something here? From the article it says he used the house for collateral on his business. His TOTAL debt was close to 500K, not 160K. Would you take 170K instead of the 500K you were owed? Again, what am I missing?

P.S. I know my typing may come across as confrontational. I am not trying to argue or anything like that. If we were all sitting in a room face to face this would be a lot easier for me to express that and I'd be happy to buy a round or two.