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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 t

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.

deleted 8y ago
[deleted]
delecti 8y ago
How could someone with delinquent debt (presumably someone unable to pay their obligations) be able to afford buying their own delinquent debt?
- maxxxxx 8y ago
  You could probably use somebody else buying the loan.
- ghshephard 8y ago
  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...
  - dmurray 8y ago
    "Nothing more than the original principal loaned" is a much less attractive deal than "pennies on the dollar"!
    - ghshephard 8y ago
      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.
  - ThrustVectoring 8y ago
    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.
- mcherm 8y ago
  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.
  - delecti 8y ago
    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.
- MichaelApproved 8y ago
  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.
- skh 8y ago
  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.
  - jklein11 8y ago
    In retrospect was it worth the impact to your credit score?
    - skh 8y ago
      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.
      - tempestn 8y ago
        I'm extremely surprised that defaulting on a major loan had that little impact on your credit score!
        michaelt 8y ago
        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.
        tempestn 8y ago
        I agree, but it doesn't affect my surprise.
- URSpider94 8y ago
  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
maxxxxx 8y ago
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.
- dmurray 8y ago
  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.
  - rhizome 8y ago
    Is jinglemail uncontestable if the bank finds out the borrower has money to pay?
    - Something1234 8y ago
      jinglemail is a very interesting term. Where did you come across that?
      - techsupporter 8y ago
        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.
        deleted 8y ago
        [deleted]
      - rhizome 8y ago
        I forget, some blog during the 2008 US real estate shitshow.
  - 8y ago
timavr 8y ago
Why is it a scam?
clairity 8y ago
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.
- toyg 8y ago
  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).
  - nostrademons 8y ago
    Doesn't having debt get sold off to collections have many of those same problems?
  - ThrustVectoring 8y ago
    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.
anongraddebt 8y ago
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.
mherdeg 8y ago
Yeah whatever happened with the Rolling Jubilee organization, which deliberately bought and forgave people's delinquent student loan debts? [ http://rollingjubilee.org/ 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?
rdl 8y ago
Why not set up a small collective to do this for all of the members, rather than just yourself?
cylinder 8y ago
That's not a scam.
bernardlunn 8y ago
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?
erikb 8y ago
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.
whack 8y ago
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.

deleted 8y ago

[deleted]

delecti 8y ago

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

maxxxxx 8y ago
You could probably use somebody else buying the loan.
ghshephard 8y ago
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...
- dmurray 8y ago
  "Nothing more than the original principal loaned" is a much less attractive deal than "pennies on the dollar"!
  - ghshephard 8y ago
    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.
- ThrustVectoring 8y ago
  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.
mcherm 8y ago
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.
- delecti 8y ago
  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.
MichaelApproved 8y ago
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.
skh 8y ago
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.
- jklein11 8y ago
  In retrospect was it worth the impact to your credit score?
  - skh 8y ago
    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.
    - tempestn 8y ago
      I'm extremely surprised that defaulting on a major loan had that little impact on your credit score!
      - michaelt 8y ago
        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.
        tempestn 8y ago
        I agree, but it doesn't affect my surprise.
URSpider94 8y ago
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

maxxxxx 8y ago

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.

dmurray 8y ago
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.
- rhizome 8y ago
  Is jinglemail uncontestable if the bank finds out the borrower has money to pay?
  - Something1234 8y ago
    jinglemail is a very interesting term. Where did you come across that?
    - techsupporter 8y ago
      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.
      - deleted 8y ago
        [deleted]
    - rhizome 8y ago
      I forget, some blog during the 2008 US real estate shitshow.
- 8y ago

timavr 8y ago

Why is it a scam?

clairity 8y ago

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.

toyg 8y ago
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).
- nostrademons 8y ago
  Doesn't having debt get sold off to collections have many of those same problems?
- ThrustVectoring 8y ago
  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.

anongraddebt 8y ago

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.

mherdeg 8y ago

Yeah whatever happened with the Rolling Jubilee organization, which deliberately bought and forgave people's delinquent student loan debts? [ http://rollingjubilee.org/ 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?

rdl 8y ago

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

cylinder 8y ago

That's not a scam.

bernardlunn 8y ago

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?

erikb 8y ago

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.

whack 8y ago

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.