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Comment by bmitc | Hacker News Reader

How is that possible? I can’t just buy a house with a mortgage and walk away. He personally owns the company with loans.

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You can, in most states a mortgage is a non-recourse loan, meaning that the bank cannot come after your other assets if you default.

He owns the company that has loans, but the company has the loans -- not him, he hasn't personally guaranteed them. Company folds, creditors have no recourse (generally).

Home mortgage (for first house) is only somewhat non recourse in 12 states, and even then, some of those do not let you just walk away (like Washington):

https://www.financialsamurai.com/non-recourse-states-walk-aw...

https://www.cga.ct.gov/2010/rpt/2010-R-0327.htm

>It is difficult to classify states as strictly recourse or non-recourse. Almost all states allow deficiency judgments under certain conditions, for certain types of property or foreclosure proceedings. However, many states restrict not only the conditions under which deficiency judgments are allowed but the maximum recovery for the creditors.

>he hasn't personally guaranteed them.

Source? I imagine the terms of the loans for the Twitter purchase are not publicly available.

> > he hasn't personally guaranteed them.

> Source? I imagine the terms of the loans for the Twitter purchase are not publicly available.

We can't know this, I suppose -- but it's quite uncommon from my understanding.

1. In a lot of cases you can "just walk away". These are so-called "non-recourse loans". Some states (12) only permit non-recourse loans for residential real-estate.

2. If you own a company and the company goes bankrupt with bonds (loans) outstanding, the recourse is that the bondholders (lenders) get control of the company before the shareholders (you) get anything. (This is analogous to the mortgage situation above: the mortgage lender gets the house, become an REO [real-estate owned] on the bank balance sheet.)

It is the same. You put up your 20% down payment and the bank puts up the other 80%.

If you walk away, you lose your investment, but you aren't on the hook for the money that the bank put up.

It would affect your credit rating (and for musk there would be a similar reputational hit) but neither of you need to pay back the bank.

> If you walk away, you lose your investment, but you aren't on the hook for the money that the bank put up.

Well, not always. Banks can add clauses which make you responsible for any losses on the price of the house. In other words, when the price goes below the money owned then that can cause a margin call.

Banks can do that? Or they do do that?

I've never seen this happen.

Yes, you literally can. It's sometimes called a "strategic default". More importantly, this was what people did during the subprime mortgage crisis of the mid aughts. In fact, the baller move was to stop making the payments, and then challenge every bank that tried to foreclose because none of them had all the proper paperwork to show they legally owned the debt.[1]

There were even pearl clutching op-eds[0] about how it was "immoral" to stop paying a loan on a property that wasn't worth the loan, even though that is is literally the legal and optimum move that companies do all the time.

[0] https://www.csmonitor.com/Commentary/the-monitors-view/2010/...

[1] https://www.nytimes.com/2010/10/04/business/04mortgage.html

It's called "the corporate veil". That's the whole reason corporations were invented. He isn't personally liable.

It's not like a mortgage. When you own a company, the debt of the company are not your debts unless you pledge your own assets as collateral.

Its the terms of the contract.

Twitter borrowed $13 Billion, not Elon Musk. Technically, "X Holdings" took on the debt (a new company Elon started up), but "X Holdings" is effectively Twitter now.

> I can’t just buy a house with a mortgage and walk away.

If you create a business, lets say "Foobar Incorporated", and get the banks to recognize the debt as assigned to "Foobar Incorporated", you can walk away as "Foobar Incorporated" goes bankrupt.

Similarly, it is "X Holdings" who goes bankrupt in this arrangement, not Elon Musk.

Who is going to own Twitter when this whole mess falls apart?

Probably the bondholders (the people who lent the $13B).

Do we know who specifically that is? Because they're going to own a pretty (societally) important property.

Morgan Stanley, Bank Of America, Barclays, Mitsubishi, and a bunch of other banks are the current holders of these bonds.

But the banks can sell those bands over the next few weeks, so the "final owners" are still yet to be seen.

They can sell those bonds at any time, really.

Well he could file for bankruptcy.. but I doubt he'd ever get another loan again.

You can walk away when you declare bankruptcy. Lot of people in 2008 just did that

He wouldn’t need to declare bankruptcy because they’re not his loans. They’re Twitter’s.

No, he doesn’t. Twitter is formally owned by X Holdings, an LLC Musk set up. In the eyes of the law, Elon Musk and X Holdings are two separate entities, where one can file for bankruptcy and the other may not.

He’ll be liable only if he personally guaranteed the loans, but the details say otherwise.

Do you really think the richest person in the world still has to make personal guarantees on business loans lmao?

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