Comments on: Should You Walk Away From a House and Mortgage?

By: Michael

Michael — Fri, 13 Nov 2009 10:35:51 +0000

Question for you guys. I purchased 2 years ago for $388,000 and now my home is worth $225,000. I pay two mortgages each month, the second being $20,000 total. If I walk away completely does the bank have cause to go after me for the second, or will it be considered a straight foreclosure with both the first and second being in default? I live in California.

As for the ethical and moral issues, I have just lost my job and cannot afford a $2,550 per month mortgage. I find it difficult to feel uneasy about potentially walking away. I do feel bad that I can no longer provide a beautiful home for my new wife.

By: Jeff Nissen

Jeff Nissen — Thu, 12 Nov 2009 06:37:39 +0000

As usual, it is not a black and white issue. Individual borrowers are mortal; they have 30 – 40 earning years. Depending on a person’s age, a borrower may not have the time to recover from this crash. Considering the crash of the 1990’s was far less severe and still lasted 8-10 years, its conceivable this crash could take 10 – 15 years to recover the values that were seen at the peak. Considering the future value of money, that will still be a loss, especially adding in the opportunity cost incurred by paying the carrying costs.
Now that the moratorium on foreclosures has lapsed, the second shoe is about to drop with a landslide of pending foreclosures, further declines in values, bank failures and I’m sure bailouts at tax payers’ expense. Banks have been playing hardball with borrowers not seriously negotiating in modifying the terms of their mortgages or allowing borrowers to refinance into affordable terms. There is a moral law that you reap what you sew. In addition, you are morally obligated to support yourself in your retirement years. Bottom-line its beyond a moral issue, it’s a business decision, depending on your age, your financial situation and how far you’re upside down.

By: Barbara

Barbara — Wed, 11 Nov 2009 02:00:14 +0000

My husband is a construction consultant; we had our best income (180K) just a year ago. Then, in October 08, the bottom fell out and we lost over 75% of our income (from Baltimore City). We tried to hang on to our family home, realized we weren't going to make it and attempted to file Chapter 13 but the monthly payment to the trustee became impossible to maintain. We are now going to convert to Chapter 7 and have to walk away from our family home of 10 years (we have 2 kids in community college) and have used up any savings and retirement money (we are 55 yrs old) We had already attempted to apply for a modification w/Wells Fargo (what an exercise in frustration!): we were turned down because we didn't have enough income. They'd rather we foreclose and leave them w/house to sell at a loss. Finally , after much agonizin and gut-wrenching discussion, we're going Chapt 7 and walking away from our beloved home. We found a sympathetic landlord who's willing to help out a desperate family in need. We see the light at the end of this tunnel and maybe we'll buy again and maybe we won't but we've gone thru the fire and wrath of family members who think we are a disgrace and morally bankrupt for making this difficult decision. We're going to hold our heads high and move forward w/ dignity and know we made a positive decision for our family and Wells Fargo can go “fly a kite”. Good luck to everyone who finds themselves in this predicament; it's the most difficult time.

By: Jason Wilson

Jason Wilson — Tue, 27 Oct 2009 17:09:04 +0000

I live in an area destroyed by the mortgage companies and the auto industry. when I moved in I paid a fair market price, and got a conventional loan I could afford. now my once stable neighborhood is a war zone where I am a prisoner of my home due to a dramatic increase of crime. yet my home has lost an amazing amount of its value and I couldn’t sell what was a 100,000 home for 20,000. I fear I would not be able to give it away. I didn’t pay to own a house in a dangerous area, and I may make the mortgage take this house if things don’t get better. but that said, why cannot I and other “under water” borrowers sue the mortgage companies that used questionable and risky behaviors at the detrement to our way of life. Negligence is unexcusable under the law! If my actions cause signifigant money damages to another I am liable, why are we not being forgiven some of our loan balance or compensated for our loss. I wan’t to move but I am supposed to have some moral obligation to follow through on the deal but morals do not exist in wall street were my money is abused repeatedly and continues to flow unchecked by regulations from the govt. maqkes me sick!

By: advisor

advisor — Fri, 18 Sep 2009 13:45:33 +0000

I would recommend you scrap by at this time unless you are willing to let your house go. However before doing that if you have a secound on your home after a forecloser the bank will come after you because you cashed out. Seeing that you and your husband have 88k in medical bills and mybe a bank following you for the secound (loan on house) i would bankrup both then start over. The down side is you will not own your home and you may need to rent for now.

By: Joan

Joan — Fri, 18 Sep 2009 03:32:00 +0000

I bought my home for 175k with my first husband, divorced, re-fid to buy him out. Then remarried. Second husband fell from roof. Smashed his leg – and is a self-employed contractor. We have spent a decade in and out of hospitals, surgeries, unable to work due to his injury. We have diligently made mortgage payments, but now we are so upside down and so outta cash (and now I am unemployed) that I just don’t know what to do. We are literally 250k under. Come to find out, last re-fi appraiser used over-inflated comps and we had to use a shoddy mortgage company (Countrywide). This was to get my husband thru another convalescence. I must have been in a daze, but we were desperate as he had a septic infection (life threatening) and needed to tap the equity one last time. I take full responsibility, but not sure how I could have done anything different given our circumstances. Now we have an upside down mortgage and 88k in left-over med bills – plus more surgery ahead. How can I keep my home “wisely” and ever expect to get back on my feet? Ethics? Please! Just someone tell me what would be the wisest financial move! Seems I’ve made mistake after mistake! Would I be making another one by hanging on and scraping by? I have two kids – 14 and 10. Help!

By: T

Sat, 12 Sep 2009 17:02:17 +0000

smelly4dogs, I saw your post saying you are in the process of buying another house and letting one go. How do you do that? We are in a bad situation like a lot of other people. We did the 7 year interest only because we moved to a different town and we weren’t sure exactly how much my husband would be making at his new job.

We figured after 2 years we would refinance. Well, that didn’t work out because of the market. So now we have 2 years left until the loan adjusts. We do have a first and second on the house. The 2nd is fixed.

We have excellent credit and have always paid on time. I am just wondering what do do now? I don’t want to ruin my credit. So do we wait out the 2 years or not pay now? I just don’t want to walk away, I would like help, but my bank said we aren’t behind so there is no help. So it looks like the only way to get help is to NOT pay. It’s so frustrating!

I have heard people say try and buy another house now, and then let this one go. I just don’t feel right about that. Has anybody ever done this? How does it work, with the debt to income ration. I don’t think it would work for us. I just don’t know what else to do right now. Any ideas?

By: smelly4dogs

smelly4dogs — Sat, 12 Sep 2009 01:54:49 +0000

typo on the last sentence ###### full back #####should be ###### fall back ###### opps

By: smelly4dogs

smelly4dogs — Sat, 12 Sep 2009 01:50:26 +0000

John – If your mind is set I would stop making payments with out paying off any debt – I would save the money on the monthy payments not being made and live rent free till the short sales goes though – So think about it how much money would you be able to save in the next 6-8 months with out making you monthly mortage payments? Also why would you want to payoff any debt at this point your credit would be affect by this time anyway – I would save that money and have a good full back for the future of your family -

By: john.quinn247@verizon.net

john.quinn247@verizon.net — Tue, 08 Sep 2009 07:46:14 +0000

I completely understand the ethical and financial problem. we are in a home that is worth $140 less than our mortgage. We can afford our current mortage, but seem to be living pay check to pay check and our credit card debt keeps rising. We are current with our loan, and have great credit, but are always stressed and our saving is nothing. We want to refinance at the great new rates but do not qualify and the banks won’t even work with us because we are in good standing. it’s funny, they will only help you once you screw them. We are thinking of not paying the next few months of mortage and pay all our other debt off instead and then short selling. We currently could rent a house nicer than ours, save $1000 a month and be otherwise deblt free. This is not my dream house and would have mved two years ago if I could. I know may credit will be bad for a few years, but we feel with the current market the banks are not going after people and if we do not do it now we will always be stuck in a house with no equity. What would you do?

By: smelly4dogs

smelly4dogs — Sun, 06 Sep 2009 19:23:39 +0000

I guess my furture plan is not bad at all – I purchased my house about 5 yrs ago – The home has only 2 bedrooms and 1 bath with about 1000 sq feet and worth 50% less than what I paid for it – My wife is not on title nor on the note since I just got married with her but been living together for about 3 yrs – We have decided to walk away from this house to get into a better newer house with more room and cheaper – We are now in escrow for our new purchased with lower payments which will also included taxes and insurance – Our new home will have 4 bedrooms and 2 baths with about 1800 sq feet – I think this was a good plan because we are also now waiting for are first child to be born and we are planning to have another child right after – With out making this choice we wouldn’t have the room for more childern – In this situation I the furture father to be had to look at the best interest of his family and not the bank!!!!!!

By: jen

jen — Sat, 05 Sep 2009 16:28:47 +0000

One thing some people need to realize is: Responsible people are not asking banks to pay the difference of the loan. All we want is to refinance at a lower rate so that we can pay out more to the princpal and recover ourselves faster. Banks will not work with you until you act irresponsilbly. (Sometimes not even after that) Therefore creating a monster. Reward the losers and punish the hard working and responsible. Is it that hard to lower the rate???? explain this to me….they would still make money off the loan and people would continue to pay

By: DEREK

DEREK — Mon, 31 Aug 2009 20:53:04 +0000

Ethics smethics. Do what makes sense! After the feds bailed out all the banks, the old rules are no longer in effect and people should not be required to stay locked in a losing situation just because someone else wants to label you a loser, a deadbeat, etc.
In your mortgage, you agreed that if you defaulted on payments, you would relinquish the property. It’s in the contract!!! As long as you had good intentions when you signed the mortgage, you should feel no guilt. Move on, pal (without remorse)… I certainly will.

By: John Johnson

John Johnson — Wed, 19 Aug 2009 17:30:47 +0000

We bought a condominium two years ago and financed with a 30 year loan with 20% down. After a year of living there we realized we hated it and moved back into a house we own free and clear, i.e, that mortgage was paid off years ago. We now have the condominium for sale at an underwater price, but there has been no offers after a year on the market. Our HOA will not allow us to rent it either so we throw about $2000.00/month at a declining asset that we no longer desire. The bank loaned us the money and we signed a contract stating that we would give up the property if we didn’t pay the bank back…which we would be overjoyed to do. So when looking at it that way I have contemplated walking away. I’m not worried about my credit rating. I buy cars with cash and I’ll never take out another mortgage. Yet from an ethical standpoint, I can’t bring myself to do it. Maybe I’ll be able to talk myself into it though if the housing bust continues.

By: Terry G

Terry G — Mon, 17 Aug 2009 20:05:16 +0000

This is my first visit to this site and I am amazed at the various responses to these posts. In my previous employment I was a licensed financial advisor. Allow me to make one thing clear, when you purchase a home and you place a mortgage on it, this is a financial transaction between you, the seller and your bank. People continually attempt to make purchasing a home an emotional attachment. Rick has stated that he is a real estate investor and as a real estate investor you of all people should know better than to get emotionally involved with this type of transaction.

This great country of ours is based on capitalism not socialism. The banks have made business decisions to issue loans and have charged fees and rates comparable with their perception of the risks involved. In the event their investment choices were poor, and they failed to charge the appropriate fees to accomodate their risks then they will sustain losses. In the event they are unable to absorb their losses, they have the ability to file for bankruptcy just like every one else. Should the banks have written the loans, should the buyer have bought the house for that price? Who cares? People are currently faced with a dilemna regardless how they got there and they are considering all their options as they should be doing.

This whole argument over ethics is irrelevant. Every person has their own ethical situations they have to deal with in these difficult times and do not need to be preached to on how they will need to be able to sleep with themselves at night. People are searching to determine the financial impact on their options they are not looking for people to teach them religion.

Unfortunately, every persons financial impact will be different as well as which option is in the best interest of their family. In addition, most banks are not willing to discuss options with you unless you are a large depositor or you are in default. My wife has been in the banking business for over twenty five years so don’t even try to argue this with me.

When you are looking at the financial impact of your decision, keep in mind all that is going on in Washington and in the international communtiy as it all effects the value of the US dollar that you are trying to protect.

By: Customers Revenge

Customers Revenge — Fri, 31 Jul 2009 02:38:00 +0000

I don’t think bankruptcy represents poor integrity. It is neither the bank’s fault, nor your fault that the price of the house went down. Both of you would pay dearly in a bankruptcy but it is simply a business decision. You basically say “Here, take everything I have — it isn’t enough to cover the debt, but it’s everything I have.” How could there even be any guilt in that?

Your comment about the refinancing and the kids indicates that you’ve thought about the bondage you would be in should you keep slaving away to pay that $100K of negative value. You could not move for years, likely not refinance and might be forced into bankruptcy in a couple of years anyway.

Yana says it’s a gamble and you don’t know how much it’s worth. The bankruptcy option is the only option where you do know how much it’s worth. The gamble is in sticking it out.

For $100K plus the appreciation of whatever new home you did buy I think it is totally worth bankruptcy. As well, the time to rebuild your credit will pass quickly, way more quickly than the time it would take to pay off $100K.

By: Unfortunately Ahead

Unfortunately Ahead — Mon, 27 Jul 2009 17:37:37 +0000

Well I the option i was considering was buying a for sale by owner first, and then letting everything essentially collapse behind me. The issue as i stated, is my moral to financial obligation. I feel no moral obligation to my bank, because they don’t care about my best interests in the slightest, my moral obligation is to my own integrity, which means a hell of a lot more than leaving the bank with my upside down house. Conversely, I need to think of the best interest of my family, and finances are a huge part of this obviously, 3 kids to put through college, I have 13 years until the first one is ready for college, so thats plenty of time to start over.

Yana makes a very good point comparing this to a gambling scenario, which it is to an extent. I would be wagering my credit (and my integrity) in hopes of creating a better financial situation for my family.

We’re obviously at a historic low in the housing market, especially for my lifetime, and it is cheaper to buy a home than build one here. So it is inevitable that housing prices will jump up after the surplus is gone, but with the large volume of bad loans and unemployment continuing to flood the market with homes, which perpetuates unemployment in the construction industry ( which by the way is more like 40% unemployment compared to the overall “10%” that’s admitted to). How long will it take?

On the other side, if i stay, and feel proud of my decision( save my integrity) and my home doesnt gain enough value to bring me back above water (about $100,000), I will now be faced with a situation where i will loose my home due to adjusting rates(underwater homes can’t refinance), and have to start this whole process way down the line instead of now.

I guess I’m just thinking out loud here, but I’m sure I’m not the only one torn with this particular dilemma, Thanks for your input.

By: Customers Revenge

Customers Revenge — Sun, 26 Jul 2009 02:45:18 +0000

Unfortunately Ahead: If what you’re saying is true then I support the financial decision to declare bankruptcy. I am interested to know how you can keep enough assets after a bankruptcy to buy a “for sale by owner” home. Or do you buy the second home first and then let the bankruptcy court take the first?

By: H Lee D

H Lee D — Fri, 24 Jul 2009 20:32:25 +0000

Unfortunately Ahead-
I agree with Yana. Three years ago when you bought your home, you didn’t know what would be going on three years later. What kinds of things are you going to want to do in the next 7 to 10 years that you’re going to want good credit for? It’s not worth it, IMO. We’re in the same boat that you are (more or less), and we’re looking at a possible refi, but that’s all. Our house is a place to live and we like living in it — no need to cast financial disaster upon ourselves just because houses are cheaper now.

By: Yana

Yana — Fri, 24 Jul 2009 18:12:12 +0000

Unfortunately Ahead – You already made your gamble. I would stick with it and not gamble again. I think changing things in the way you propose would cause you more trouble, much more trouble than it’s worth.

By: Unfortunately Ahead

Unfortunately Ahead — Fri, 24 Jul 2009 16:32:19 +0000

So here’s my situation,
I was 23 when i bought my house 3 years ago for 260,000. I could afford this then, and I can afford this now, i have a fixed loan for 5 years then my rates adjust. Obviously due to my age all I know about real estate is what I’ve seen in my lifetime, and that has been that you buy a home on an adjustable rate that is fixed for 3-5 years, and then you refinance once you’ve established the credit to get a better rate. My credit is flawless, i have worked hard to keep it that way, i haven’t missed a single payment or been late even once, i have to stretch every month to support my wife and 3 kids, but i do it by working hard.

Now, I’m 26 and my friends are starting to look into buying homes because they can actually afford it in this market. There are tons of programs offering $5-15k incentives for first time home buyers, these were not available when i bought my home. The reason is obvious, to stimulate the economy and get the surplus of home here in California bought up. My dilemma comes in the fact that just because they are buying now, they can buy the house next to mine for 100k less than i paid, and get up to $15k of that paid for. Where’s my bonus? i busted my ass to buy my family a home at a young age, i pay my bills, and now I’m 100k upside down in my home with no recourse, all because i was a little ahead of the curve. I kick myself because if i was just a little more lazy in my early 20’s, id be paying 100k less for my home.

This is an ethical and financial dilemma for me, do i walk away and file bankruptcy, saving myself $900 a month, and spend the next 7 years repairing my credit to buy a new home at a later date, or do i stick with it and hope I regain 100k worth of equity in a reasonable period of time?

I mean, just look at the math, i could walk away and buy a home as nice as mine, if not nicer, in a “for sale by owner” circumstance for $900 less a month, and in 7 years, i will have over $70,000 of income i didn’t waste on an over priced mortgage, and my credit will be free and clear by then. This is a serious dilemma for me…

What would you do if you were in my situation?

By: Barbara

Barbara — Sun, 05 Apr 2009 03:45:19 +0000

I live in California. We refinanced two years ago and cashed out some money. Most of the cashed out money was used for home improvements. We are having some financial diffuculties and are considering letting the bank forclose (walking away.) I have been told because we refinanced, our mortgage loan became a recourse loan. My question is this… since California is a “one action rule” state, and if our loan is now “recourse” can they still sue us for the difference if they forclose? How does that work in California with the “one action rule.”

By: Investor Bill

Investor Bill — Sat, 28 Mar 2009 18:14:02 +0000

If you need to walk away from a property then YOU SHOULD! As a homebuyer, you are making an investment in a property with the hopes of appreciation. Guess what? The bank is also an investor. When you go to them for a loan, their greed peeks just like yours does. The bank says “hmm, this person has great credit, we’ll lend them money at 7% and use the house as collateral in case we don’t get paid.” Sounds like they are investors to me. If an investment goes bad for the buyer then the same thing will apply to the lender. That’s life! WALK AWAY IF YOU MUST AND DONT LOOK BACK!

By: Alias

Alias — Sat, 21 Mar 2009 23:38:31 +0000

Thank you Yana,
I will take that into consideration :)
K

By: Yana

Yana — Sat, 21 Mar 2009 20:26:05 +0000

I don’t know the law as far as whether you would be putting your new home at risk, but I’d say that if it is safe to do so, walking away and buying a home outright would be the smartest thing to do. Credit means nothing and has no value, if you have the money to live your life.