Comment by underlipton | Hacker News Reader

Comment by underlipton | Hacker News Reader

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But it's not just that a business was sold; it's that it (usually) was sold in such a way (leveraged buy-out) as to weaken the business and make it more desperate from jump. Doctor's practices et al. used to change hands all the time without much trouble; it's only now that PE is allowed to buy them with massive amounts of debt that they're allowed to use aggressive tactics to pay off (and pay themselves) in just a few years that we've started to have these troubles.

When you buy a house, the mortgage is associated with the buyer, not the house, and you can't just dismantle the house and sell it for parts to cover payments. Could you imagine if we could, though? Pretty soon, we'd have a lot of on-paper debt associated with empty lots that mortgage holders could simply walk away from (perhaps after a nominal sale). Then, the house declares bankruptcy and the bank is just out all that money. It's preposterous, they'd never let that happen. So, why with businesses?

>When you buy a house, the mortgage is associated with the buyer, not the house

In the US, this depends which state you are in:

https://www.investopedia.com/ask/answers/08/nonrecourse-loan...

The non recourse states are Alaska, Arizona, California, Connecticut, Idaho, Minnesota, North Carolina, North Dakota, Oregon, Texas, Utah, Washington.

>and you can't just dismantle the house and sell it for parts to cover payments

You can do this in every state, at least with a conventional mortgage. If you default, they can pursue your other assets, except in non recourse states.

>we'd have a lot of on-paper debt associated with empty lots that mortgage holders could simply walk away from (perhaps after a nominal sale)

I don't know what "after a nominal sale" means, because if you sell a property with a lien on it, then the lien holder gets paid first. And underwriting would not let people who have a history of dismantling a house and defaulting borrow money over and over, and people need a place to live, so I'm not sure why anyone would take out a mortgage to dismantle a house. The scenario makes no sense, as raw materials are cheap, and labor costs are expensive.

> It's preposterous, they'd never let that happen. So, why with businesses?

Because the lender agreed to those terms. No one forces a lender to lend money without a personal guarantee.

https://www.investopedia.com/terms/p/personal-guarantee.asp

extending the example, for PE, the mortgage is actually in the name of the house and you can take out additional loans in the name of the house to pay yourself the down payment that you used to purchase the house (while simultaneously stripping everything of value inside of it)

>>and you can't just dismantle the house and sell it for parts to cover payments

>You can do this in every state, at least with a conventional mortgage.

No you can’t. Mortgages require you to keep the property in good repair. Your lender won’t let you start taking the house apart to sell pieces of it because that lowers the overall value of the property.

> > and you can't just dismantle the house and sell it for parts to cover payments

> You can do this in every state, at least with a conventional mortgage.

Legally, you generally can't, because the terms of the mortgage will prohibit it. Practically, you probably can get away with it, as long as you actually make the payments, unless the dismantling requires recorded paperwork that comes to the lenders attention, because how will they know? But if you fail to make payments, then the lender is likely to care about the condition of the property, and then, in addition to collecting your debt on the mortgage itself, the lender will have a cause of action against you for breach of contract. (And such breaches of duties under the mortgage also will often be within the scope of "recourse carve-outs" in loans in non-recourse states.)

Believe it or not, most buyers aren't interested in weakening the asset they just paid 5x for

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