Go Ahead, Walk Away

[Robb]

Go Ahead, Walk Away
There is nothing immoral about ditching your mortgage.

A solid two years into the housing bust, the national foreclosure wave doesn't show the least signs of abating. Banks that had called a foreclosure moratorium are now back to the business of taking back properties, and the foreclosure numbers are again at record highs. As the foreclosures rise, so too does the criticism of “walkaways” who hand the keys to their drastically devalued houses back to the bank.

Last month a study from the credit reporting agency Experian and consulting outfit Oliver Wyman estimated that close to a fifth of troubled mortgages involved borrowers who were “strategically” defaulting—walking away from mortgages they could pay but decided not to because they owed more than their houses were worth. Self-assigned guardians of financial ethics see the willingness of borrowers to abandon their mortgage debts as a sign of the “erosion of social and moral standards.” The aim of these critics is to shame debtors into sticking with their mortgages. That's something debtors should take with a grain of salt. There are many good reasons to keep paying your mortgage and avoid the black mark of foreclosure, but the immorality of sticking the bank with a loss isn't one of them.

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[brendan120678]

1. Well, if you want to screw up your credit rating, sure...go ahead...

But good luck finding another place to buy or even rent after you default on your mortgage.

[Tansy_Gold]

2. Yes, and you can remain liable for taxes and maintenance

even after you've walked away. Not to mention liability risks if someone squats in the home and is injured. . .. . .

Better to surrender a deed in lieu and get out of it than to just walk away.

[Robb]

8. Easy to say

Banks, however, have the say as to whether they will take the deed in lieu.

Put simply, if you're remotely close to upside-down, they will not.

[pokercat999]

14. It looks like walking away is NOT the best option. Staying

and NOT paying the mortgage may be a much better option. I would see a competent lawyer and map out my best plan of action.

[JuniperLea]

4. It will take less time to repair credit than for the equity to rebuild...

In my area, home prices are down 50% or more... I've seen many, many people walk away from their homes. Many areas are becoming ghost towns.

[louis-t]

6. That is a very good point.

"It will take less time to repair credit than for the equity to rebuild..."

[JuniperLea]

7. My house, for example...

Was worth $450k during the summer of '06 when the exact (cookie cutter exact) size and style home sold for that much... my mortgage principle is $300k. Now, that very same exact home that sold for $450k in '06 sold a month ago for $150k... it was bank owned; the people walked away. Everything in the same comp group is selling for the same amount... some are bank owned, some are short sales.

Now I have a mortgage of $300k on a property valued at $150k. How long do you suppose it will take for my house's value to double? How long does it take to repair credit?

[pokercat999]

13. In "normal" times with inflation at 4% it will take about 18 years

for your house to return to the $300K "value". Your credit will repair in at most 10 years, in actuality about 3.

[JuniperLea]

15. I'm glad you said "normal"

Too many are basing financial futures on past performance... we're in uncharted water here. When I heard some talking head yesterday say we're expecting 4% real estate growth (existing home sales) in the first quarter of 2010, I about lost it.

[prostomulgus]

17. Buy another 150K house, THEN walk on your 450K house

Get $30K together for a down payment by cash, credit cards, whatever. At today's interest rates, a $120K loan would have a monthly payment roughly equal to a nice SUV. Finance it THEN walk on your underwater house.

[Robb]

9. Looked at rentals lately?

Landlords could care less. They're drowning in vacant months.

And after this year and next, I suspect a foreclosure on your credit history will have less impact than before. Lenders would miss out on thousands of otherwise A-OK prospects to lend to... and they're too greedy to let it happen. Standards will be lowered.

Put another way, look for FICO inflation. ;)

[Dawgs]

3. High foreclosure rates are fucking over everyone.

Foreclosures have brought down the price of my home by over $50,000. Now I'm fucked.

[JuniperLea]

5. My home value went from $450k to $150k...

I'm not joking. I have comps to show it.

[gopiscrap]

10. Tough shit fuck the bank

it's a renters market...and credit can get repaired after a couple of years...

[flamingdem]

11. All of this is damn unfair to those of us who lived within our means

and did not believe in the fantasy of an ever increasing real estate market.

The gamblers won if you can walk and get your credit back in 2 years.

The savers lost what we had in the stock market, how do you walk away from those losses? YOU CANNOT.

[Robb]

12. But instead believed in the fantasy of an ever increasing stock market?

Not to be harsh, but you "savers" were sold a bill of goods, too.

[pokercat999]

16. Don't turn this into a poor against poor or middle against middle

argument. It was the wealthy and super wealthy stealing from the poor and middle class as much as they could, as fast as they could and it was supported by ALL our politicians. Sure lots of people made poor choices about loans but they were herded into those loans by companies that KNEW exactly what they were doing and they KNEW it would end badly. And the people that KNEW better told the unknowing it was no problem to use an Option Arm or Pick A Pay mortgage because the price of housing was going to climb forever and you could sell for a huge profit in just 2 years, long before the loan reset, long before you couldn't afford the mortgage, long before you were in the street.

Anyone still in the stock market is nuts, has a death wish for their money or is a hell of a gambler.

Oh, by the way, why do they call it "playing" the stock market? Because it's a gamble, short term/long term it doesn't matter. Just like a dice table at your local casino you can bet with the dice (bet stock will go up) or bet against the dice (short, bet stock will go down) but it is very much like a slow moving dice game.

One thing about the craps game in the casino, no matter which way you bet the house ALWAYS wins in the long term.......the same is true for the stock market. Simply a way for "respectable" people to gamble.

[Yehonala]

19. Sensible Post

"Anyone still in the stock market is nuts, has a death wish for their money or is a hell of a gambler.

Oh, by the way, why do they call it "playing" the stock market? Because it's a gamble, short term/long term it doesn't matter. Just like a dice table at your local casino you can bet with the dice (bet stock will go up) or bet against the dice (short, bet stock will go down) but it is very much like a slow moving dice game.

One thing about the craps game in the casino, no matter which way you bet the house ALWAYS wins in the long term.......the same is true for the stock market. Simply a way for "respectable" people to gamble."

Exactly. It's not a place for long term investments. If you want to generate an income, save a TON of money, work with your accountant, and then live off of the interest generated. Don't buy, sell, then buy again nonstop. It's no different than squandering your money slowly or quickly, depending on how you want to lose it. People who act as stock brokers are no different than salespeople, that's all.

[wuvuj]

18. But wait! Things are getting better....

The MORAL HAZARD was giving all the $ to the banks that trashed the economy in the first place?