In the real estate boom, many homebuyers extended themselves financially to buy a house that may have been beyond their means. With the exuberant market, people were encouraged to buy with low introductory interest rates and interest-only loans, the belief that their income would increase to meet their payments, predictions that real estate prices would never fall. As should have been predicted, adjustable-rate mortgages have adjusted and monthly mortgage payments are higher and income hasn’t increased. More people have fallen behind with their mortgage payments.
With declining home prices and interest-only mortgages, more families owe more on their mortgages than their home is worth. Financially, it could make sense, at least in the short term, to walk away. In this state of negative equity, abandoning the mortgage and the house would actually be financially beneficial.
Here is why:
If the house you purchased for $400,000 is now worth only $300,000, but thanks to an interest-only mortgage, you still owe $400,000, your net worth increase by $100,000 simply by wiping the mortgage and the house from your balance sheet. Of course, if this is your primary residence, you still need a place to live. But from this point you could buy a more affordable house or rent for a while.
There is a major drawback to abandoning your responsibilities. If you walk away, you will trash your credit rating, making it more difficult or impossible to rent an apartment, qualify for a new mortgage, and perhaps get a job.
Freakonomics addresses this dilemma (if it is a dilemma at all):
My new wife and I bought our home in Temecula, Calif., as a place for us to start a family… We bought the house in early 2007 for $445,000 and put $50,000 down… Now that the market has crashed in our area, our house is worth about $250,000.
Although our monthly mortgage payments are high, we can still afford to make them, but should we? If we walk away and buy another house with my parents cosigning on the loan (or even just rented a place), we could save almost $1,000 a month in payments and maybe even have positive equity in the next few years. If we stay in our home, we’ll be stuck for many years, and if the market ever does get back to what we paid, the best option we’ll have will be to break even with a sale and then buy another house with an inflated value.
I’m certainly concerned about the ethical side of it, and know that walking away is not “the right thing to do.” But my question is from a purely economic perspective and I’d be saving a significant amount of money by lowering my monthly payments and erasing $140,000 in debt.
What should this family do? Are there ethical considerations, or is it simply a question of math? Credit rating aside, the financially responsible option may be to walk away, accept your mistakes, and start over. But if people can simply walk away from their obligations, what incentive is there for people to buy houses they can afford and work hard to continue making payments responsibly?
New laws are now in place to help families facing foreclosure, which should encourage people to choose options other than abandonment. But they may not help every family that finds itself in this predicament. What should they do?
Updated January 12, 2012 and originally published February 20, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.
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Whoever said “I’m in a stable job/industry” is delusional. There is no such thing anymore. I used to think the same thing, til Fri Feb 13.
Anyway, I still don’t understand the American house obsession/fetish. Renting is still held up as failure. “Oh you’re just throwing your money away.” Well, so are you: it’s the ITI in PITI. Sure part of my rent covers my landlord’s ITI (though I doubt it covers the entire nut), and he can try and raise the rent every year (good luck with that this time, pal), but I have the option to move somewhere else at the end of the lease, or even before then if I find a job out of commuting range by paying him an extra month’s rent.
How many buyers live in a house long enough to actually own it? I’m sure now more people are going to stay put, out of necessity, but the serial buyers/sellers/re-fi’ers of the past 15 years never accomplished anything more than renting from a bank, and losing their down payments assuming they made one, so I think I’m ahead for now. Prices are still falling, and at some point I’ll see a bargain too good to pass up, and then I’ll buy it with about half cash, because that’s what you do when you rent and aren’t overextended and underwater: you save money.
As for walk-aways, yes, most of them should never have been offered the mortgage in the first place and lenders went quite insane with disregarding decades of risk and lending standards, but then nobody had a gun to their heads when they signed the papers, assuredly without reading them, so there’s blame on both foolish parties, but in the end the mortgagee bears responsibility for completing the transaction (and don’t get me started on HELOCs and cash-out refis blown on Hummers, Harleys, luxury vacations, home-theatre rooms and granite countertops, etc. Those things are worth zero).
Is it wrong for my wife to buy a home on her own for a great value during this housing slum.. while I file for bankruptcy and surrender the home we currently live in that is in my name only ? I’ve lost my job , I have 20,000 in CC debt(My name only) but we are keeping afloat since my wife works, but we can barely make mortgage payments, let alone MY credit card payments ,and we are definatley underwater in value of the home, and have had to tighten up on spending etc.We ve thought of a loan modification but my wife really doesnt want to continue living in a house that is underwater in value, beside she is not on the title. I know people will debate walking away but i look at like this , No one is looking out for us but us, so we gotta do whats best for my family to keep up with this economy. Wall street certainly is with all the bailout money, which is a joke. It’s survival of the fittest. pluss the thought of having a bigger home at a lower mortgage payment that we can afford sounds like common sense to me. Plus the home is in my name only so its only my credit that is gonnatake the hit, and i can start rebuilding it right away by adding my name to my wifes cards. I refuse to get caught up with this brainwashing notion that you must meet your obligations and so forth, it seems to me that all those rules have ben thrown out the window. Just turn on ur news. Everyone is getting a bailout except the american people, So guess what ? Im giving my self my own bailout.
I have a question for anybody out there…I am walking away from my home, and I have 50k to put into a house to purchase for cash. The other house will be foreclosed upon. Can the creditors take the new “cash” house later on? We are all under the assumption that when I got the loan for my old house that the collateral is the house itself…therefore, giving it back is the collateral….they can’t ask for my new house. they can ask me for money in order not to destroy my credit….
any help would be appreciated.
Thanks!
In California…
The lender only has a lien over the home they are making a loan on. FYI, though: even if you’re paying cash, some lenders are still requiring a “pre-approval” or “pre-qualification,” and at least proof of funds prior to approving the sale.
If you can pull it off, the previous lender whom you foreclosed with cannot go after you.
That is in California.
If you just walk away from the house you will still be liable for the amount the bank loses on your mortgage after they sell the property. If you work out a short-sale agreement with them they can accept the proceeds from the sale as payment in full. Just walking away isn’t sensible especially if you haven’t spoken to the lender about ways to settle the debt. Otherwise they will issue a lien against you for the difference but they can’t take the new house. However if they issue the lien against you it may not be possible for you to get a new mortgage for the new house anyway.
***Can I walk away and buy another home for cash******************
Thank you so much Odie and Mayjerr for your comments,
I didn’t want to get too wordy w/ details…actually I didn’t walk away to just walk away…I had 2 condos, both went downhill due to renters, I spent over $20k paying the rest of their rent…put up the condos for sale for over 1 yr. and my friend’s condo sold and mine didn’t, oh, well…his gain…
now, I’m still in my house and have been going to and fro w/ Countrywide regarding my “loan madification” all these mods do is make one mad…so, I saw no reason to keep making payments on my “new” rising mortgage of $1700 a month…I teach school, I’m not a doctor,
I could afford the $1000 month mortgage and always paid on time…so, now I cannot do the short sale because Countrywide told me I must be behind on payments to qualify for their mods or their “NEW OBAMA PROGRAM” ha ha! which has a loophole…
you must have a fannie mae or mac loan which I understand is a gov. loan…anyways, I don’t qualify…I’ve gone this far up the mountain, and they’ve given me another stone to push me down the hill
As I mentioned I have 50k to purchase a home outright, let this home go and be done with it.
Any comments would be appreciated.
Thanks.
K
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.
Thank you Yana,
I will take that into consideration :)
K
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.”
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?
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.
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.
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?
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.
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.
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.
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.
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.
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
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!!!!!!
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?
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 -
typo on the last sentence ###### full back #####should be ###### fall back ###### opps
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?
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!
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.
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!
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.
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.
Jeff, you couldn’t have hit the nail on the head any better. Everyone on this thread has complained about paying the price for people walking away, without realizing we will have to pay more taxes to support them in their old age due to their lack of savings if they stay. Most people don’t realize that they are really paying 90% interest the first few years with the bank keeping about 25% of that profit.
I’m in a situation where I took my mortgage broker to court for fraud in a civil case, and I won. They owe me several hundred thousand, but they have disapeared. They have walked away from their obligation, but I am stuck with mine.
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.
So many people are so quick to judge when they are not in the situation that the original person who started this post. The reality is that the economy is screwed up right now and no one knows what will happen.
My wife and I bought at the beginning of the slide mid 2007 we had a home valued at 310 we new it was over priced so we offered 280 paid 285, We both had great jobs we had very little debt and we where paying more than we needed to. Now my home is worth 149k and the neighbor hood is full of rentals and crime rates have tripled, we had our front door kicked in twice the first time 40k stolen insurance paid 11k second time the alarm got them so just a 3k repair because the crappy construction of the home allowed the thieves to kick in the door and almost remove the wall.
Then because I am in the building trade I was soon out of work. So now I my wife is carrying the mortgage 2k a month. Oh yeah the bank stung us was 6.5% on first and 9.5% on second. So now she has 2k mortgage and our car loans and we have a new born baby. So we went from base salaries of 12k a month to 3k so what do people like us do.
We have also been forced to move states to keep my wives job and now we have rent on top of the debt we have. I know that so many other people are in this situation. We rent out our home and now its been all messed up by the new tenants they pay half the mortgage rates because thats all we can get in the area for it.
We have called the bank asked for help we talked to all our creditors asked for help. We cut our living expenses to bare essentials and exposed our lives with complete transparency to the creditors to get there help under the so called bail out. And guess what we are still waiting to get help 5 months into this mess, my parents let me all the money they had left in their name so we could keep our payments going and keep our credit going, now my credit has finally been hit my wife still has hers but we have one month left before we start sinking into the obis. I would say this to all that are not affected, this is not what I wanted in my life I am gen X and i too want to work and pay my debts, but I surely did not create this mess I was not looking to make money on my home I just wanted a home to raise a family, I never lived beyond my means I need to have a car loan yes and so did my wife but we had little to know credit debt some savings which are gone and now the first Christmas since I moved to the US in which I could not buy a gift for my wife or my daughter. I look for work from 6 am till I can not find a new posting I have applied for jobs as a house keeper in hospitals and because Im over qualified they want hire me. So tell me what do I do. I want to put my foot up the proverbial of those of you who think your above the situation but you should be thankful that you have what you have and consider what would you do in the same situation, I would say this none of you would know until your there.
Think if I keep my home keep paying I will pay to the bank over 700k on the life of a loan. My home may go up in value perhaps make it back in 20 years to 250k so my net loss of 450k is my legacy to my daughter she will have a great start in life with that.
In this country when the bank allowed appraisals on homes to go from 100k to 200k in the matter of weeks like they did in Phx they where committing the crime of the century. I am not sure what crime I am committing to say to the banks you want negotiate with me so screw you Im out.
I own a home that I owe $185k on and I believe its worth less right now. I pay $1400 a month in mortage and have to rent it out for $1200 because I moved out of town to keep my job. I also am stuck with the $150 a month HOA feels as I couldnt get any renters to pay it. So I’m upside down $350 a month on it. I contacted Wells Fargo and the best they could do (after several months of back and forth) was to lower my APR a few points for 6 months, lower my mortgage to $900 a month BUT it would cost me nearly $6000 to do this. AND at the end of the 6 months they “would see where I was at and decide what to do then”. If I take the $185k i owe on the house (30 yr fixed) and add another $6k to it… in the next 20+ years I will be paying that $6k balloons to over $20k that it cost me. HOW THE HELL IS THAT HELPING ME?! IF\when my renters move out if I cant find new ones I may have to move back into it and commute an hour to work… I know i wont be able to sell it for anything close to what its worth either.
Another option is a short sale, where the bank allows you to sell the property for less than your balance. If you have a second mortgage on the property you need to secure written agreement that they will not persue you for the balance after the property is short saled. Seconds are considered recourse loans, meaning your are responsible for paying the loan even if the property short saled. If the bank holding the second will not cooperate but the first will, it forces you to declare bankruptcy to claim the second as a creditor and have it written off. depend on how much you owe, may be better to pay it to keep credit as good as possible. I am in a very similar position. If my bank will not make a meaningful modification to my loan it will go the short sale route and pay off my second. I’m $900 upside down each month. I do not understand why the bank is charging you $6000. for a modification, unless its past due payments, penalties and fee’s. It is a negotiation process, go back and propose more favorable terms. like waiving them. Or is that some loan modification company charging you that fee? You should never pay up front for a loan modification! Any fee should only be paid after acceptable terms are agreed and closed upon. One catch to the short sale option, if you have a lease agreement with your tenants that is a legal obligation. You will need to come to some sort of agreement for the tenant to allow the property to be shown while they are living there. Short sales can take several months to close. Being owner occupied makes it much easier. Part of the agreement to negotiate with your lender regarding a short sale is for your lender to report to credit reporting agencies, “paid as agreed”. Any late or unpaid mortgage payments reflect negatively on your credit, they will show. Part of the recovery is being able to buy again at the low. Requiring your credit be as good as possible, on the other side of this. So guard your credit by including it in your negotiations. Moderating your decision to let the property go, is to consider the tax advantages of carrying your negative cash flow. It may not be costing you as much as you may think to hold and wait the market out. It depends greatly on your market. In the expensive markets, I think its worth it to wait it out, if your not too far underwater. The offset, lower depreciating markets seem to be hit less hard than the overly inflated to income expensive markets, the upswing may not be worth the carrying costs. Calculate finacial consequences by your research of your market.
Your stories are heart wrenching. I may be the oldest one reading this blog at 62. An I am just as mad and disgusted as the rest of you. I have been working since I was 14, just want to be free to draw a small social security check along with a small government retirement check (the two together at $1850) and visit my 7 grandchildren before the good Lord calls me home. As like the rest of you I’m trapped! bought a condo three years for 215K and today is worth 104K. Started the short sale process with B/A in Oct 2009, so far one apprasial has been done, a second one has been ordered since it is a fanny mae loan. Two months behind in mortgage payments, missed Nov and Dec because my car needed repairs to get back and forth to work and dental bills, made Januarys payment. Already got one nasty letter from B/A “first acceleration notice, noticed on the porch another certified letter from B/A waiting for me at the post office. What bothers me young people is I have been a faithful customer of B/A since 1970, and this is the first time I have ever been late on any payments and only because of necessary repairs to the car. I wish i was in a position to help you all out, and I would if I had he funds otherwise i could not sleep at night, This mess brings tears to my eyes for you hard working folks that like me seem to take one step forward and three back, old to quick smart too slow. Grandpa battyrattles
THAT’S AKIN TO SLAVERY….
If an American family buys a house that they love and accept the terms for the home and begin their payments with full intentions of paying it off and through no fault of their own but through the faults of the lending institutions the real estate market falls and there is a recession and all and jobs are lost and the value of the property they just bought falls in half so that they are paying for a house that is not worth what they are paying for it, that is an inverted value (upside down equity) and that is akin to working for nothing and that’s slavery.
These values are based on concepts. Concepts are not ”concrete values”; they can change. The banks should have renegotiated the loans right away and made a market value adjustment, even charged the homeowners a fee to do it, gave the owners a new loan for the new market value and let the owners stay in their homes and start their equity accumulation off under the new market values. Then, the crisis would have been seriously abated; the homeowners would have stayed in their homes and the other homeowners in the community would have maintained a semblance of their growth but the market would have caught up with itself within a few years–I think someone suggested that…but no, we had to have all of this drama and put the public at risk, suffering and struggling and losing their credit standing. of credit standing.
BUT HERE’S WHAT BROUGHT ME ONLINE:
2 brothers inherit a property from their mother when she died. There was a mortgage on this property of $143,000 with a standing market value of $325,000 in any real estate market in the last 10 years. That’s a baseline value for the property; the potential value exceeds a half-million in the next 25 years. The brothers got a re-fi loan on the property for $550,000 during the real estate boom, subprime, when the property assessed at $650,000. (The refi paid-off the $143,000 first loan balance.) I’m told these brothers are allowed to Just Walk Away from this kind of debt without bankruptcy and without a tax liability on the cash.
All is forgiven. Even their credit standing is suppose to be AS IS, as it was before the foreclosure. That doesn’t seem right.
It seems right that they should owe something.
It seems right that they should owe a mortgage on the property for: $550,000, but IF the mortgage company has foreclosed and owns the property; the amount they should owe is $225,000, the difference between the mortgage value of the home and the market value of the home: $325,000.
They originally got cash amounting to: $407,000, after the first mortgage was paid off, but since the mortgage company took possession of the property worth $325,000, they should owe the difference: that’s $82,000 + $143,000=$225,000.
But then I learned that there are companies out there that are buying up these properties, negotiating the existing loan down and then claiming “DEBT RELIEF” for a portion of the balance or the entire balance left owing on the loan. So that, this company can actually end up with a $325,000 house with a lesser loan value on it and the property has a potential value in the future. These companies may have to face a dim market with these properties but they stand to make somewhere from $50,000-$100,000 and more on each of these properties that they can work up to a lower mortgage balance. (The lower mortgage balance is gained by paying the lender off at the end of negotiations.)
BUT NOTICE, PLEASE….that if the “experts” had moved on this quickly, and the banking industry had done the right things, the homeowner’s mortgage balance could have been adjusted to the new market, especially on a new purchase within five years, and the homeowners could have stayed in their homes and the market could have absorbed the blow with less trauma. (BUT THEN, the new companies coming in like vultures on a kill (but this is capitalism: bravo new companies!); the people involved in the new companies think the whole thing was done right of course.)
I HAVE TO DO MORE RESEARCH BECAUSE THIS STILL DOESN’T MAKE SENSE. IF IT MADE SENSE THEN ALL I’D HAVE TO DO IS FIND A MORTGAGE COMPANY THAT WILL GIVE ME A MORTGAGE UP TO THE HIGHEST AMOUNT POSSIBLE (I DON’T HAVE TO SELL THE HOUSE AND PAY A COMMISSION OR ANYTHING ELSE) JUST WALK AWAY AND LEAVE THE MORTGAGE COMPANY HOLDING THE BAG, AND I DON’T HAVE TO PAY ANYBODY OR OWN ANYTHING, JUST HAVE A DING ON MY CREDIT RECORD, IF THAT. SOME COMPANY WILL COME ALONG, BUY THE HOUSE, NEGOTIATE THE LOAN DOWN, PAY-OFF THE BALANCE, CLAIM ‘DEBT RELIEF’ AND WRITE OFF THE REST OF THE MORTGAGE AND THEN SELL THE HOME FOR ITS MARKET VALUE. (IF THAT WAS TRUE THEN I SHOULD TAKE THAT EQUITY AND BUY ANOTHER HOUSE BEFORE THE FORECLOSURE OCCURS ON MY OLD HOME, KILLING MY CREDIT RATING.)
THIS SEEMS WRONG….WELL, ETHICLY SPEAKING, IT IS WRONG IN ACCORDANCE WITH “OLD” THINKING — “ONE SHOULD PAY ONE’S DEBTS” BUT IF ONE IS NOT GOING TO GET ANYTHING OUT OF PAYING DEBTS BUT INTEREST AND MORE INTEREST, THEN THIS PROCESS WOULD BE AKIN TO SLAVERY. THE HOMEOWNER WOULD BE WORKING TO PAY FOR SOMETHING THAT IS NOT GOING TO EVER BE WORTH WHAT THEY PAID FOR IT. (TO HELL WITH ETHICS THEN!)
Where do we look for reputable, real-estate legal advice in the Detroit area in regards to being $70,000 underwater, unemployed and with an interest-only APR that’s coming due in a year? We can make payments for now, but not later.
The problem really is that in most cases you remain personally liable and that may mean declaring bankruptcy further down the line which in turn may even impinge on ones ability to rent … but I still see that this fate is in store for many many more citizens, sad as it may be: Of Mortgage Brokers, ARMs, Attrition and Marathons
Everyone gets pretty emotional about these things. Indeed I myself have felt strong feelings regarding “walk aways” in my neighborhood. Even though we purchased our CA home in 2007 after prices had already fallen more than 30%, prices continued to plummet and we are now about $125k “under water” in a still very weak market with little potential for near-term recovery. The house down the street has been sitting empty for 8 months – lender likely hoping to avoid having to write down the asset and show a weak balance sheet. The landlord that owns the house next door to ours is in default even though the renters are still there. Lots of emotions/questions involved for most people around here, especially those who put money down, obtained a conventional loan, and bought a house well within their means. Our income has declined approximately 30% but we continue to pay our mortgage fairly easily. Have no other debt, own one car outright, lease another through my employer’s reimbursement program (I drive quite a bit for work).
Will it always be the case that we will pay our current mortgage? I can’t really say, but we hope that the market stabilizes and recovers sooner rather than later, though with so much government lending going on that eventually has to dry up it seems that may not happen anytime before any of my 3 kids are in college. After all is said and done here are my reflections:
Defaults occur in real estate transactions and business world all the time and have for many years.
A mortgage contract obligates the borrower(s) to make the monthly payments specified in the mortgage. If the borrower cannot or does not fulfill that obligation along with other terms in the mortgage, the remedy is that the lender is entitled to take back the property, which is the collateral for the loan.
The monthly payments are determined by the amount borrowed, and the rate of interest determined by the lender. The lender determines a rate of interest that is adequate to cover their cost of lending the money, their required profit, and the risks involved in extending the loan. In any state one of the risks in extending a loan is that the borrower may elect to stop making payments (due to hardship or due to choice) and default, returning the property to the lender prior to loan maturity. In non-recourse states that default risk is heightened, but the lender knows this going into the loan agreement. The house is the collateral for the loan, just an automobile is the collateral for an auto loan.
The lender does not make a loan based on the borrower’s “word”, “good name”, or “moral or ethical code”. These terms do not appear anywhere in the loan documents. The lender evaluates the borrower’s ability to pay and past behavior as measured by a credit report, and evaluates the collateral (the property) for the loan. Often the lender will even purchase insurance against default (typically from private insurers such as AIG) after making the loan. The lender(s) decide(s) the terms they are willing to offer to the borrower. Default in “good times” means the lender’s losses are minimal if any, and they might even gain, but the borrower has forfeited any downpayment and their accrued principal reduction and had their credit negatively affected. Default in “bad times” means the lender’s losses are significant if they elect to liquidate the property at that time, and again the borrower has forfeited any downpayment and their accrued principal reduction and had their credit negatively impacted.
If a borrower decides that it is no longer in their interest to make payments on the mortgage, then the mortgage provides the lender with the remedy. It doesn’t matter why the borrower makes that decision. Perhaps they decide they don’t like the new color of the neighbor’s house, or perhaps they lose their job, or perhaps their roses or orange tree won’t grow in the backyard because the afternoon sun is insufficient. It doesn’t matter the reason for the default because the lender offered the terms of the mortgage, including the remedy for default, to the borrower. The lender should not complain if a borrower decides to stop making payments because the lender already provided itself with a remedy when writing the terms of the mortgage. Upon default, the borrower has given up their past contributions to the property, the borrower will take a credit hit, and the borrower forfeits the right to any future gains that might accrue to the property if they elected to continue in the mortgage.
Does the lender have to sell its newly acquired (through default and foreclosure) property at a loss? No. It may elect to hold the property if it desires, in the hopes that recovery/value appreciation will restore its position in full. If it has insured against default, it may elect to sell the property at a loss, and collect all, some, or more than the difference between the loan balance and the proceeds realized from sale from the insurer. If it has no insurance against default, it may elect to sell the property and realize a loss, but the defaulting borrower has not forced the lender to sell the property (though currently some government standards are forcing some lenders to sell).
All these scenarios used to be evaluated by lenders when determining whether or not to extend loans. Apparently most lenders failed to adequately consider all these possibilities over the past several years. Many borrowers, including myself, failed to adequately consider the possibility of further significant deterioration in the market.
Currently, if a borrower “walks away”, they lose 100% of any money they put into the property and they suffer the negative effects for several years into the future. The lender may lose some percentage of their contribution as well, if the lender chooses to sell the property.
This is the way the mortgage business works in America. Sometimes good, sometimes bad, but the sun always comes up tomorrow.
Opinions about facts-
I’m going to bypass all the frivolous reasons I purchased my condo and what I thought was a great purchase and will present the my facts in the hopes of seeing all options clearly so I can possibly make the best decision…
Own a condo and owe 275k;
Last appraised at 215k (5 months ago) – 60k upside down;
Have ARM that’s going to kick in, 2011;
Have no problems paying my mortgage and have invested my “diverted” money (difference of real payment vs ARM payment) and have paid down the principle- still underwater;
Attempted to refinance, but could not due to over ratio of renters to owners in condo association;
Applied for loan modification but do not qualify;
Current credit- top tier – not worried about 100-150 point drop as I will rent for next 3-4 years – and am financially stable enough to overcome the 7 year high interest penalty for foreclosing;
Reason for thinking about walking away from Condo – planning on life changes (career, personal – married) that will take me away from the area permanently. Do not plan on coming back to the area since I was here because of my job. See no incentive for continuing to pay mortgage.
Personal moral concerns – I believe in being responsible for your decisions and contracts. However, I’ve tried to renegotiate my contract based on current and future circumstances, but am now seeing this as business decision on what’s best for me and my future.
Any opinions or help on something I may be missing would really be appreciated. I still plan on meeting with a loan representative to look for alternative options. But as it stands, I do not see much incentive to continue paying into a seemingly deeper hole that I will get nothing out of, except for a “vacation home” that I will not be vacationing too and will not be able to sell for another 10+ years. Thanks for any insight.
Respectfully- R
I find all this talk about ‘ethics’ well-intentioned, but entertaining and totally misguided. What is the ethical obligation of a mortgage holder to a home that the BANK, not the resident, actually owns until you’ve paid in-full the loan? You might love your home and have some sentimental attachment to it, but in our world, that building is first and foremost an investment opportunity and source of profit for all players (this explains why it was built, purchased, and loaned money). Now that it’s becoming clear that not everyone can win at this game, the question is, who is gonna take the fall on behalf of others? In the eyes of the banks, mortgage holders are first and foremost investment opportunities (your interest payments, new fodder for MBSs, etc.). Banks no doubt love the fact that all you good people are confused enough to think of yourselves not as the source of the banks’ profits but as moral agents with an ethical duty to fulfill a contract as if it were written by God! It was not. The bank shook hands on what they hoped would be a good investment, but with values dipping as they are, it’s obviously the case that they got it wrong. The court system, not God, guarantees the system of contracts in our society, and as of now, it is perfectly legal to walk away from your mortgage. There is no ethical concern, as far as I see it. Only a cold, sober analysis of the math. This is how the banks operate, for sure.
Sober up, people. Get your heads out of your asses and realize that the financial institutions pulled a fast one on you, even if they, too, were
i totally agree. for me, the financial stakes are way to high to play the morality game. i gotta do what’s best for me and my family.
if the situation were reversed, the banks would “walk away” from you without thinking twice. they do it all the time
From the New York Times (full article here http://tinyurl.com/yjp4ngh)
Of course, this is not necessarily how Wall Street itself behaves, as demonstrated by the case of Stuyvesant Town and Peter Cooper Village. An investment group led by the real estate giant Tishman Speyer recently defaulted on $4.4 billion in debt that it had used to buy the two apartment developments in Manhattan, handing the properties back to the lenders.
We bought a house in Colorado 4 years ago. About a year ago, my husband’s company moved us to Washington. We put our house in Co. on the market in spring, but the end of summer it hadn’t sold…we were just looking to break even, pay what we owed with the sale. With the new school year starting, we decided to do a “lease to own”. We lease/rent our home to a family in our same situation. The rent doesn’t cover the amount of the mortgage, but it did just about cover our new house/rent payment at our new home. So its just about a wash. Doable, yes. We didn’t prefer it, but hey, its our loan we have to pay it. Then came tax time. So, the income from our “rental property” now puts us in this higher tax bracket where we can’t claim all the stuff we usually claim. We are screwed. Thats the way it feels anyway. I can stand the difference in the rent/mortgage ($1100) but then we really end up paying much much much more in income tax. I grew up without a stable home, always renting and moving, so I feel like I shouldn’t complain, at least I HAVE a HOME. I don’t know how much longer we are going to stay with it though. Every day now we are thinking…$1100 more a month and no high income taxes to pay…our first kid starts college soon…
That house in Colorado may never be worth what we owe for years!
I feel your pain. My house (as mentioned above) is in Colorado as well. Near COSP actually.
@Diane,
I also rent out a house that I don’t want to sell at a loss. It’s my understanding that when one rents it out for less than the monthly mortgage payments, the deduction for the loss makes your taxable income go down. I think this is also true in your case so renting out the house shouldn’t bump you up into a higher tax bracket. Plus, you get a depreciation deduction on the house which works in your favor.
Double-check with an accountant since I am not one.
UH2L
My situation:
I have 5/1 arm (interest only) that is going to convert on May.
I currently owe 302K on a property that appraised for 160k in December.
I paid 342k
My bank will not refinance my loan because of the value.
The Bank owns the loan, not Freddy or Fannie.
I do not qualify for any government programs.
I make over 100K
I have never been lat on any payments.
Please give me some advice..
My amateur advice would be this:
1. If you can qualify for another mortgage on top of the one you already have, do that (FHA loans are great right now). After you close on the new house, then initiate short sale proceedings on the house you own now. If short sale doesn’t work, then foreclose.
2. If you can’t qualify for another mortgage, walk away and rent for a while.
Your credit rating has a value, but the value of your credit rating is not $140K (the amount you are upside down).
We are trying to sell our house (we both drive an hour to work)- its in my name only. My husband wants to walk away and get a new house- close to jobs- in his name. I know it will hurt my credit but does that really matter when we can use his- ? The house has been on the market a yr and no bites- its worth less than we owe. Probably won’t sell unless we list for less than we owe. Do we pay to get out- leaving no money for a new house down payment or walkawy- and how do we do that?? Will he even be able to get a good loan in just his name? I did 6 yrs ago but that was then…
I bought a condo in 2006 before I was married for $120k. It’s now worth $40k. My wife and I can easily afford the mortgage plus another home. I intend to buy a bigger house and then attempt a short sale on the condo after the purchase of the new home is complete. My understanding is that having the new home will allow me to demonstrate some financial hardship.
If the short sale doesn’t go through, I will allow the condo to foreclose. Anybody have any experience with this scenario? The financial stakes are too high for me to consider the morality and ethics of this kind of financial maneuver; I will do what is best financially for me and my wife.
OK…here is my situation..we bought our house in 2006 (me,husband, 2 kids)..and of course this was when homes were way overpriced, but we are young, in our 20′s and wanted a home bad. So, bought a small fixer-upper in a great neighborhood, only 2 bedroom’s, figured we would add on later. So we got approved for an 80/20 loan, the 20% being a HELOC, at approx 7%..being clueless we thought this was a good deal. The home is in NY, long island actually, and it was $281,000(cheap for this area), so we were excited, it was actually appraised for $370,000, the owners wanted out fast…duh, red flag! The inspector was not thorough and the house need’s a lot more work than we thought..and it had a gas leak!!! So fast forward, we had a 3rd child, this house is way to small, now we are upside down, having trouble paying since september (6 months behind) and we are trying to do a modification, but the mortgage company keeps asking us for more and more paperwork..I have had it and we need to get out..but I don’t want to walk away..this house will not sell easily, maybe for around $230k at best in the condition it’s in, in this market..I’m freaking out…please, some advice! Thank you :)
I’m caught in the moral dilemma as well. We bought a house 2 years ago at 94k. During those 2 years, the crime in the area got REALLY bad and our house was robbed twice, as well as multiple attempts to rob it. We sunk 3k in putting security in our house, then four months ago, my wife and I had a baby. In the month of March alone there was three attempts to break into my house. I couldn’t take it anymore so we moved out into a new house, farther away in a WAY better area with little to no crime. I can afford to pay for both houses with my current salary and my wife’s. The only issue becomes that we have had our house up on the market since July and little to no bites. We to have tried to have our house at literally break even. Now our house is even at a 10k loss (to which we have to have our parents help us pay if it ever gets a contract at this price). Due to the area, we will never sell this house to break even, and if we’re even lucky where we are at now. We could not afford to go 20k at the table for closing or more. We do not qualify for a short sale because I’m not behind on any payments and make too much. We cannot seem to sell this house due to the crime and no-one liking the area. So what do we do? I’ve considered walking away as well. I already partially did as I had to get my family to safety in a new house. I live in NC which apparently is a non-recourse state, but can I walk away legally? We did a FHA loan and had 0% down on the first house with Suntrust Mortgage. We’re seriously not sure what to do and are getting ever frustrated with trying to get rid of the death trap. Any help would be appreciated.
Have you tried renting your place? Since youre in NC the mortgage is probably around $600? Is it possible to rent it?
Yeah. The banks love you so much and honor you so much. They just dumped 3 trillion dollars that we will be responsible for paying, into our laps. You call them honorable and ethical. NOT
We bought a home in a small Missouri town 3 years ago for 256K. Its a nice home, but not a “grand” home or a McMansion.. just a house in a decent subdivision. We did NOT do any interest only/balloon loans, just a straight 30 yr fixed with 30K down. Six months after we purchased the home, my husband was transferred 2K miles away. Now we could afford the home we bought, didn’t get in over our heads etc., however NOW we have to support 2 homes, and my husband has to live in a city with a very …very inflated economy. I have tried to list the Missouri home on the market so I can move out west with him and I don’t know..actually live with my husband! No go, my lovely 256K home is now worth about 190K according to the two real estate agents who actually recommended I not sell. Our credit is slowly getting trashed because of the strain of supporting 2 households and little bills are getting neglected. Can we still pay the mortgage? Yes, but no longer do we have any savings, and are officially living paycheck to paycheck. Should we continue to struggle and pray we never lose one paycheck or have an emergency thereby losing everything? Do we file bankruptcy, walk away and start over? The same bank who thought we were GREAT for the original loan now thinks our credit score is too low for a refi. (By the way, it was BoA, and they dropped our credit score by 100pts when they made the mass decision to reduce consumer lines of credit across the board, leaving us as using 90% of our available credit. Tank went the CS). What can honest hard working people do to not live in fear everyday, stressed beyond belief? Would you walk away? File bankruptcy? Just continue to be miserable?
I completely agree as that’s my exact same situation. We can afford both homes currently, but at what price? I can’t save any money….if there is ever an emergency, or one of us gets fired or a paycheck is gone, we’re screwed. To answer the earlier question, no, cannot rent it. #1, mortgage is 800 a month (even on a 30 year mortgage), not worth it paying 5k to refi to make it better. #2, property managers even told us they can’t rent it in that area. Since I last wrote, the empty house even had someone try to break in again!!! and there is nothing in the house!!! We’re in the process now of short sale (hopefully will be “approved” for it…….get that for crazy) and still no takers…..not even a single person looking at the house. Why do we have to suffer because of a bad economy? I’ve had lawyers tell me it’s not a good idea to walk away, but what happens if I cannot short sale it? What if the bank or the FHA says no? Even though I have no other options with the house? What if no-one will even consider the house at all because of the area? I’m right with the previous poster…….I don’t feel this is correct that I have to suffer because too many people have taken advantage of the system. I’m VERY close to walking away if this all goes sour, only because I have no other option.
I see so many people are starting to see the reality of the banking system in this country, one person has written that it is like “Slavery” …. I don’t know about that but I would say that they have never thought about the customer. When the system is designed to always allow profit to come before long term success the consumer will always loose.
What I find funny is my wife and I spent months almost 12 trying to negotiate but no assistance then the weeks before we are finally being forced to file bankruptcy we have had over 100 credit card pre approval letters, the bank is sending letter after letter to get us help and credit help lines are calling daily. I am sickened by the situation…….. Until the people speak together nothing will ever change the government has ear muffs on and the only voice they are hearing is their own. Democratic or Republican I think they are all worthless this country needs someone with common sense and some big brass ones to really fix things…… No more lobby groups, work on energy and education, health care reform that fixes legal issues first …. finical regulation that is balanced and actually delivers …. board protection that works with current illegals, … no more foreign conflict involvement unless we have a direct strike and removal plan.
…….. for those in my position I pray for your future success, the future is in your hands stay the course do not be beaten by big business……
Here’s my situation. I bought a condo in the Denver area for 125K in Jan 2003. I have never missed a payment on it, and do not have a problem making my payments. I currently pay around $900/mth with HOA dues factored in. The home appraised in March at 51.4K. I’ve owned it for 7.5 yrs and it has depreciated in value every year, I’m currently 55K upside down on it, and don’t see any sign of it changing. I’m really wondering why it would make sense to stay. I can rent in a much nicer area for less or the same as my current mortgage, and with the money saved by skipping the 8-12 payments in the walk away period(coupled with my savings over that period) I could put down about 50% on a new home loan.. I really agree w/ all the posters talking about commercial banks doing this all the time, why is it only bad when consumers do it?
I don’t think I got a bad loan, I don’t think my home value was over inflated, but why pay for it? Running the numbers, my home will have to appreciate 13.4% per year for the next 9 years for it to be worth what I bought it at in ’03. Hardly worth staying in my book.
I was living in New Orleans when Katrina hit. Relocated to the Baton Rouge area my job relocated too. I was rushed into purchasing a home with an very high interest rate an adjustable mortage. 3 years later I refinance to a fixed mortage but still high interest rate. Now 5 years later, I got married put the house on the market. The house was old from the beginning, the area is not good and we want to move very quickly. I owe 97k but it is on the market for 114k. Its been 6 mos. no bite. Dropped the price again. We don’t want to be landlords. Now my husband wants to walk away. He can afford to purchase a home with out my help. My house is not on his credit report. I know my credit score will drop but I am not going to do any purchasing no time soon anyway. what other problems I may run into by doing this foreclosure?
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