Should You Walk Away From a House and Mortgage?
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.
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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?
Article comments
I bought a house in 2006 I walked away in 2009 I think can they do anything to me they tried to foreclose on it but didn’t sell it I heard it’s in bad shape can anyone help me I’m on ss and ssi
Here’s the issue that I see in doing EVERYTHING to avoid a foreclosure.
Its expensive to maintain and then sell a home.
For example, you bought your first house. You loved this house. The mortgage payment is lower than renting a 900sq apartment. You maintain your house the best that your finances allow for; maybe a new fence, plant a tree out front, new (but affordable) flooring in the kitchen, update an appliance or two, do some painting, or rip up ugly carpet to discover and recover beautiful hardwood floor.
But then the years pass, and sadly, things go wrong that you cannot afford to fix at the time- the central air needs a new compressor, the deck needs to be fixed, etc etc., but you put money aside, bits at a time, to fix those problems.
Then the area that was once nice, safe, and quiet, is getting an influx of the wrong kind of people. And that beautiful home which you once loved, maintained, and were loyal and promptly with mortgage payments is not worth the increased value that you put into it, or even its original value. You know, given its market value due to location, the expense of selling, and things like “Sellers assist” that are frequently requested, will make you negative, and you will have to PAY cash out of pocket to sell your house.
Is a credit score really worth it? Are ethics and contracts really worth it? This would be easily explained to most landlords, especially if you did not walk away because you could not afford the payments anymore, but because you were not liquid enough to bring the thousands and thousands of dollars needed to close to sell your house.
You did your part; and sadly, any investment is a risk. And due to circumstances beyond your control, the value of the home became so poor, that it would cost too much to sell it. There are other things to pay for: transportation to and from your job, clothes, food, and other debts. I think, in this case, you need to look out for your family, (meaning buying them food and clothes and have a way to your job) bite the bullet, and take the hit on your credit.
Some of you will say- “you should’ve saved more” or “you should’ve predicted that” but the mortgage process is beyond complicated, and the housing market or value of a location can be difficult to predict by even the most astute experts.
I really wish I would have did much more research not into just buying a home but all the things that could go wrong. Go in you really do need thousands set aside IF things go wrong. Especially if you are not fortunate to get your house built from the ground up. To me it’s not the credit hit that I am worried about but the tax liabilty that I would be hit with if I sold the house or even walked away. Somehow I would owe the IRS. Being a single parent and maintaining a home with maintenance and cutting grass and shoveling snow it just too much. I am praying that somehow they pass a bill 51st will allow so many of us a chance to get out our home or help those who may want to keep them. Just like they bail out the banks and everyone else. They should be willing to help us homeowners out.
My 85 year old mother in law was taken to the hospital and then ended up being taken out of her home while I was out of town. My daughter and my boyfriend were at the hospital with her and they released her to my boyfriends care, I am home now and am looking for an assisted living facility for her to be in since she can no longer be alone in her own home. I am her Legal and Medical Power of Attorney she has no other family except her grandchildren my son and daughter.
She still owes nearly 79,000.00 on the home through a second and third mortgage plus has a 24,000.00 home equity loan. I am wanting to just stop making the house payment and the home equity loan payment and turn it all back over to the bank since all of her income from retirement and social security will go to the nursing/assisted living facility. so should I just stop making the payments on the house and let it go into foreclosure or call the bank and let them know that she is going into a nursing home and they need to take control of the home again and try to get their money by selling it. Confused about all of this, I Need Help thank you.
I have been out of work for almost a year now, I am behind in my mortgage payments and don’t know when I will find a job. I live in VA, at this point I’m trying to decide if I should walk away from my home or let it go into foreclosure. I’m told that if I do a short sale and the home is sold for less than what is owed I could be responsible for the difference and right now I know my numbers are upside down, if I walk away and turn the keys in will I still be responsible for my payments or should I let it go into foreclosure. I have been trying to find work but VA is not the land of employment. So in six months I may be in the same situation. Please I need feedback.
My husband is out of work, we want to buy a house in another state paying cash, and we are behind on this one, we don’t want this one anymore, if we do buy the one out of state can the take away the one we paid CASh for to get their money?going to take out of his retirement.
I have owned my house in upstate NY since 2004 when I bought it for $50,000. In 2010 I started having trouble with tenants that couldnt afford their rent. Now I am $27,000 behind and owe $39,300 on my mortgage. I have tried to work with wells fargo several times through several programs to fix my problem, including a loan modification, refinance, and a short sale. Each attempt came back full of excuses and crappy representatives who only know whats in their training manuals. I am now ready to just drop my deed on my local wells fargo desk and wash my hands of the stress on my family. Any suggestions on how to get rid of my house and not back my credit or character?
Oct 2011 I bought a large 1940 built house. Since then I have had the roof replaced (wind damage) and most of my living room and dining room ceilings repaired from water damage. The house is now way to big 4 bdrms/3ba and maintenance is just to much. I fell behind on my mortgage payments and was granted a home loan modification. Oh did I mention I had to take a pay cut or move 200 miles away to keep current job. Now in the last two months I have had a plumber out four times and since then I have put house on market. Accepted an offer and all is fine, inspection and appraisal and house is now in final underwriting. Now one of the bathrooms both toilet and shower poured into basement. I am totally out of money and have been selling my furniture for deposit, first and lasts month rent. I’m single and only one income. I can’t make necessary repairs and don’t know what else to do. Help!!!
Hello, I bought a house 3 years ago and the owner is carrying us because at the time only I worked and was not approved for the this house. My husband since then has been promoted and we have to move. I cant sell the house because we owe more than it is worth. My husband wants to walk but I am afraid the carrier will try and garnish our wages. If we are more than 50% upside down on the value of the home, do we have any rights with a private carrier?
good evening all.. so I’m wondering if any of you have advice my husband and I live in a mobil home and still owe $50,000 on it and really at this point don’t know what to do because its up for sale and there is no way we are going to get what we owe on it.. so i called a Bankruptcy lawyer to see if we could file chapter 7 on it and we make to much to to that so we would have to file a chapter 13. My ?? is Im wondering how much we will have to pay back if we do file??
Salvatore, I don’t know enough about this type of stuff that I should make a comment ~but my mom was so happy to get out of her home at that age, and find a place like “assisted living.” That way your sort of planning ahead, and yet can still have your own privacy etc. I would suggest talking to your family etc. I forget what it’s called > maybe reverse mortgage, where you can live off the equity If you have family helping you perhaps you could rent out your place and then family can decide what to do later on when things get better. I hate to see your faithful payments of all these years go down the drain. It will be just your luck that someone tries to get you to forclose early without any money saved up. Put in a shorter question about this in your browser and really read up on other ideas what to do. Maybe ask someone at the bank. People do that all the time, stay free in the house to save up but then your credit will go to heck and you will be bugged with a million phone calls to pay bills > that can be old. Also they call family as well. My mom didn’t walk away from her mortage but she walked away from her “bills” and they called me tons of times in a single day > she has since died and they still calling. Kind of not fair to the ones getting the calls. Usually you can get free thirty minutes when you call an attorney… maybe you could call one or two or three. Find the right attorney to call and then call a few and get some advice that way. My heart is heavy for you as if you are trying to decide this alone, many people take advantage of older people and would hope that no one does that to you. Don’t make any haste decisions> PRAY and study up on it… it will be worth it in the end. I do think moving to a smaller place will make you feel better. ~ but that bad credit will follow you and you might not be able to get that perfect small place. Anyway, I will pray for you… and hope you find some good advice. Peace out!
Bought my home in 1992 for $155,000.00. Today in this market and in Monroe County, PA, I would be lucky to get $140000. My mortgage and home equity loan (chose interest only payment in 2005) is 137000. I am 80 years old and upkeep is more than I can handle. Been advised to “walk away”, as the foreclosure would not take place for 1 year or more; therefore, you would have more money at end of year than if you tried to sell. Any suggestions.
I was just wondering if there is anything we can do! We bought our home in January 2010 and we just recently figured out we are on a floating foundation. According to our loan papers No one is supposed to get the type of home loan we did on a floating foundation. Is there any loop holes or anything we can do ? We did nothing wrong it was the bank who approved our loan who was in the wrong and we should have never been allowed this mortgage
I suggest talking to an attorney
I have been on disability for over thirty years and aprox. 17 years ago I bought a house with the help of my mom’s down payment and her signing on my loan. My mortgage came out of my bank from my S.S. payment and haven’t been late on that but do have other horrible credit. However now I need a new roof, my mom is in a nursing home and can’t help me. The rain is pouring in and have mold problems and might even have sewer problems too. I still love my house ~but am getting sicker staying here and yet too sick to move and on a limited budget. I Idon’t qualify for anything President Obama might give out~ because my mom’s name is still on my loan, even though she has never paid only the down payment. Every time it rains I get sicker and really have no one I can turn too. I am 58 years old and lives alone. I have so many medical problems as it is.. Should I walk away from my house and mortage?
OMG!!
Here is my question, I bought my home in 2006 when the market was high. I saved for years and put over 150,000 down. Bought my home for 658,000 and now it is worth 447,000. I have made every payment and have not refinanced as of yet. I can afford the payments but I am 60 years old and want to be able to eat and have roof over my head when I retire. Not to mention some type of health insurance. My credit is excellent. I am so confused as what to do, just walk away and let the bank have this place or do a short sale? Really do not care about my credit at this point, but then again I do care.
I just re-married 4 years ago and my husbands name is not on the deed. Was thinking should I just stop making payments and save that money and purchase another place in his name as his credit should not be affected?
Good grief the American dream…….My head hurts……
F.Y.I. If you are approved for making homes affordable or any of Obummers refi programs the one thing they dont tell you is its temporary. They refi you at say 2% or whatever low interest rate at first but it eventually goes back up to whatever 8% and you are back in the same stressfull mess been there done it all of the above.Like the one person said your contract is to pay or give the property back.The government programs are scams.Do all you can honestly do.I went the short sale route fanny mae declined a offer at 175.000 I owed 190.000.fanny mae bought back the house at 211.000 at the court house steps.I was never late a payment untill I was told to get three months behind.they then proceeded to forclose.The only thing I can see is they are buying up these homes like vultures in hopes of a real estate rebound and then resale these homes at a profit and right off the previous mortgage as a loss tax right off win win for them.freddy and fanny has rental manegment all across the country renting these homes out till they are sold.this is the government not the banks mind you.good luck to all of you having this prob lots of stress I know!
Can someone offer good advice for my house problem? It would help me out so much… My husband and I bought a house in 1998. It is actually a duplex home. With one bedroom/bath upstairs and one bedroom /bath downstairs. We had three children quickly after moving in. We began having bad foundation trouble about two years after moving in. The Problem only got worse. Finally, seven years ago we had to take out an equity loan thru the bank… To fix the foundation. It cost us $10,000. No foundation company would give us a warranty past two years. We had to have the foundation repaired two more times within the two years. Now, the foundation problem is much worse. And our roof has been leaking for a year now…. In five different spots. I am now concerned for my children’s safety. With the roof damage…. We can not rent the house. That is how bad off it is. We can not get another loan to fix it. It would take thousands to repair. And this house is just a money pit. Our credit is fair. Not great though. Since my husband has had several surgeries in the past five years. Our bills did get behind some. I desperately need to get my kids in a safe home. Any advice would help. Thank you very much.
Jenny:
I would check your old documents when you purchased the home and see it is was disclosed that there was a foundation issue. If it was and it states it’s fixed I would consult the person you purchased the home from. However, I do think you are in a tough situation, the bank isn’t responsible and possibly even the person you purchased the home from is no longer, if at all, responsible. Additionally, I know for the most part people do not want to just walk away from their homes, but you may have to cut your losses and secure a place that will not stress you out, safe for your kids and allow you to move forward before you credit is in the tank.
I have not read all the comments though I will, but I need to say, who is the really immoral here? If you ask me, the banks should be cleaning up the mess that has been made granted we signed the docs but under the impression that it was a good decision. The banks should be forced into reassessing the value of homes and modifying the loans! Everyone should be responsable not just the “people who can afford to pay” the exorbanent price of their worthless properties!!….just an opinion
Why would it be hard to get a job if your credit isn’t good? You need a job to pay for things.
I have a question; when a homeowner looses their home and they abandon their property – such as furniture, what legally needs to happen? Can it be sold and apply the money to the debt?
WoW ..I cant believe all this. and now its me. Im a Pharmacist who has until Sept 08 made all the right moves. I paid my house off then refinanced to send my 4 daughters to school and get some things I choose for them to have like horses….This was good for them but a bad move for thier mother and I. We built our home in 1989 and spent 149000.00 on the construction loan..We owned the property. We have a home 2500 feet off the road with the horse barn, creeks, and pasture on the Chattahoochee River right below Lake lanier. Its a wonderful place to live. Long story made short …We inherited a house next door which we were renting out. It belonged to my mother and was what was left of a family farm. It was a very nice home, however, my mother had been terribly ill and had left alot of debt. Like I said we were renting the house out after putting a terrific amount of money into it to bring it up to date. Then our problems started. The house was broken into and all the copper wires and pipe was stolen out of the basement,as well as, other damage to the rest of house. The damage came to about 14000.00 according to appraisers. Well we had let the bank put insurance on the house because it was so muc cheaper than what we had through Travlers..we were still having the insurance escrowed and were paying for it. We filed an insurance claim and the Bank wrote us a letter saying there was only 500.00 of damage and they were closing the claim when in actuallity it was 14,000.00 and the Balboa company should repair it. To shorten this after 9 months the Bank (BOA) forclosed, both the bank and Insurance company had got weekly letters from me telling them the damage was more extensive and they need to fix it so we could rent it out and make payments. In some way at this time the insurance company was an affiliate of BOA, the bank. They had never even sent out an appraiser, I know because the house was located a thousand feet down a gated drive for which no one had ever asked me for access, and thier was no way to get in with out codes and keys. Well, there was alot of lies told me by the bank while I put up the tenants in a hotel for the house to be repaired. After all the renovations I had done, and paying off all my moms debt I didnt have the money, In addition, I had put the house up for sell before all this happened and a realator had an original offer and a short sell offer after all this damage. BOA ignored the Realators and never got back in touch. After 9 months the bank forclosed. They then went back and used my estimates to file an insurance claim on the house for which they were paid. This was afer foreclosing. Now at the sam time all this was going on we had been on a foreberance on our home. I had called to get off the foreberance (after aquiring a Pharmacist job at Krogers). I was given the amounts to catch up and I paid them thru a Publix Western Union Quick Pay. The next day the money showed on my accounts correctly, several weeks laeter they didnt show up anywhewre. I called BOA and aske thm what had happened to my payments and they told me they didnt know and they would need to research it. I spent he net months calling and finally they told me it had been in advertantly put in my bank account. Well I though to myself this will be easy Ill just go online and pay the money back. However, when I went to my bank account the money was not there. Then I gotr to thinking….I dont Bank with BOA and how would they know where my bank account was? I had paid these quick pays at publix with cash. Well we started on what amounted to a 24 month chase that has ended with me having to put 24000 dollars on the back of my loan and struggling to make payment….While we have a heloc that we were told that would be modified ater the 1st but hasnt been and it looks like were gonna end up having to put 7000 or so onto that loan and modify. Well, while all this is going on a Krogers locates 800 feet from the property along with several fast food chains, and chase bank. Then the County is going to condemn us for a road widening . Krogers agress to do the road widening up to about 500 feet from us. Now the county actting on behslf of the state and thru Morelad Antobeli associates comes out to purchase our land, put us upside down on our home. The draw lines taking our pasturse and with not set back off our barn, but around our barn and they want to leave us a house with a drive. Take our pastures and creek and not buy the barn they have made useless. This will make our private little horse far go from a value of approximatelt 1,000,000.00.00 to just a 30 year old home at 159,000.00. It wasnt long after Krogers started building that they started washing out my creeks and making the hores sick, which we had to move. When I got stop orders through the state against Krogers they fired me and said I had fraudulenlty filled out thier application. Which unemployment found to be alotta of Bull shit and awarded me un employment. I had never had an appraisal below 85. Well while were researching this we find out that a guy named Wienan had purchased the property for krogers. That he had secured a loan through an attorney group and it was recorded while he was in the hospital 2 weeks later. The loan cam out of Tarp money which supposedly if you listen to the news, they werent loaning this kind of money anymore out of TARP. John Wienen died 2 weeks later in the hospital. The attornet group behind all of this was womblye, carlisle, snyder ect…look up thats enough info. They done represent you or me, only the 1% and to get what they want. However they have 3 basic groups…..Land aquisition, Investments, and I think litigation. I wonder if this one giant firm is consulting and and driving this whole thing against us. This is too much to be coincidence…and I have left out alot of the hardships….but just so you know were gonna continue to fight like Hell……and Womble…..Chamberlain Hrdicka say you wont win…Not here in the South…..
Should you do bankruptcy or just walk away? Will I be hit with a tax form at the end of the year if we just walk away? We can’t afford our home and never will be able to. Plus we owe 154,000.00 and we could only get maybe 70,000.00 if that. So bankruptcy or walk away our credit is in BAD shape which one will make it even worse?
1st off i woild like to say that i have been in my home for 8 years. Up until last year i have not had any problems until now. My 1st problem is that my house is worth 30,000 but i owe 112,000 on the loan. i can affford to pay the morgage but the neighborhood has taken a beaten and people keep breaking into my house!(2nd problem) this is my 3rd break in! They even went as far as cutting a hole into my floor! I dont know what to do i have and alerm system but they seems to get around it everytime. they even stole my a.c system. THIS IS REALLY BAD. my family is scared to live here considering how offten they keep comming back. I replace it they find a way to take it. Im ready to walk! LEAVE IT ALL BEHIND ME! Im wondering if anybody else incountered this problem and can give me and insight on what is best…p.s my neighbors seems to hate me for some reason i have never done anything to them!
I walked away in June of 2011 and am so relieved.i am still currently living in that home,and have recieved very few calls from my lender.My home is now worth 80-100k less than I owed on it,and after a horrible re-fi(my own fault),I went from a 1600$ payment to 2700$..lots of reasons why,but it could of been avoided.My credit will be shot,but I have saved 16,000$ in cash already.My spouse(who wasnt on my first house)will be buying our next home w/o me on it,and only needs 5% down because we have got her credit into the high 600’s.Im in Washington,and would like to thank all the democrats for catering to the lazy,financially unresponsible home owners.Thanks Obama! You democrats finally paid off!
“horrible re-fi(my own fault)”……”lots of reasons why,but it could of been avoided” sounds like you are also one of those “lazy,financially unresponsible home owners”. Ever heard the expression “pot calling the kettle black”?
I’m sick of hearing all the slandering of “irresponsible homeowners”. Maybe some or a lot made bad choices (I’ll include myself), but no one thought the economy was just going to bottom out that far and that fast. Regular people didn’t expected that housing prices were going to drop and jobs were going to dry up overnight. There are the things that happen in life, like illness and death, but people couldn’t rebound from those life events because all of their resources were tied up in their houses and the rest of our economic mess that came crashing down on us all. Stop the blaming each other and show some compassion. Right now the main difference between the ones who still have their houses and the ones who don’t (whether they walked away or were forced to leave or sell) is simply in what kinds of resources they had to fall back on. I walked away and filed a bankruptcy to cover what I owed. I have crappy credit, but my stress is almost gone. As for finding a new place to live, don’t you think that renters know that more than half of the people wanting to rent right now have been through the same thing? So you pay two months rent for deposit instead of one, it still doesn’t add up to $70,000 upside down mortgage with 3 times a normal monthly payment.
I have NO loyalty to that mortgage contract you people are whining about. You would be the same people that would take your luggage onto the lifeboats when the Titanic sinks (no sense of what is really important or what is really happening for that matter).
I agree all the way !!! sometimes some of us fall on bad luck, loss of income and bad choices, so why would anyone in their right mind stay in a struggling upside down mortgage unless you have more money than sense, the bankers have shown little to no remorse with realistic modifications all they had to do in most cases was modify to currant market value to all the true hardship (real) cases and this mess would not have grown to economic disaster which now has lead to massive foreclosures and upside down housing causing so many to start at the bottom all over again….bail out!!! hmmmm…all the greedy deals that were made from 2000 and up were so far fetched selling for crazy prices no wonder people are screwed. as far as Honor and responsibility do what you have to do to make it!…show respect to your family making a sound intelligent decision and learn a valuable lesson in life” there is no shame here.
Well, we are one payment behind on our mortgage and we received from the bank a Notice of Pre-foreclosure options…. So, we are to meet with a Housing counselor provided by hud I believe…. We are probably $75,000 upside down on our house. Do we have to accept any of the proposals at this meeting? We have already been denied a loan modification, so it is not like we have not tried to work with our bank, Flagstar.
We feel like we just want to walk away, can we do that if we attend this meeting to “”so call work out other options?” We thought we would just still remain in the house and save our payments of $l.063.00 per month and try to buy a mobile home in florida…. Any thoughts or has anyone done the counseling with a housing counselor?
I don’t think the counseling session will change anything, they will most likely just go over your options and agree with you that a foreclosure will be looming. unless these bankers adjust the loan to currant value in- which is unlikely” I think the only thing to do is walk!, you don’t have to take any of the options if you do not feel they will make a permanent cure-all we had a mod a year ago only to realize we are still in a horrible bind thus we have missed our fist payment I’m sure we will hear something in the next couple weeks….good luck.
Beautifully said.
My brother and his girlfriend are living together in a house she bought before they met. 4 years later they have two children, he (because of a degenerative eye disease) is not working and she is the sole income provider for the household. They recently found that their home is worth 20,000 less than what they owe on it PLUS they need to fix the bathroom (i.e. totally replace), replace foundation in the basement, get new windows etc. They have an option to move into my other brother’s house and pay rent for a few years until she inherits her mother’s house (she has been asked to take out a $40,000 loan to give each of her siblings $10,000 since she is inheriting the house) my brother could take out this loan (his name is not on the house loan.) After talking with this over with their lender they were told they cannot voluntarily forclose. They spoke with their realator who told them to put the house on the market and instead of making the necessary repairs paint the mold spots on the celing that have accumulated from the prolematic bathroom, staple rugs over areas of the carpeting that have shown ware and a few other recomendations that had me appalled. Is this common in the realestate business? Not to fix problems but just mask them? Is there some kind of “lemon law” for homes? Any advice would be appreciated! Thank you!
im 41 single was making 40 000 a year ive lost my job in construction. i bought a cheap townhouse when things were good economy for 43000 put new roof, new heat ,new ac, new bathroom, new floors, new windows, after 10 years of never missing a payment at 6.5 percent nothing down fha loan i owe like 30000. the townhouses like mine in worse condition are just about all vacant in process of foreclosure. crime is moving in the area, people dont even want them for 10000 my moms health is going down fast i want to move in with her and take some minimum wage job or maybe 11 an hour and take care of her shes 63. she is disabled and in the modification program also. im thinking i dont want my mom miserable to die alone. it seems obvious to me take what furniture i have or want and move in her basement. lock the door and call b.o.a and tell them come get it!
i havent eaten but 1 meal a day for three weeks and have begun thinking about suicide. we both are underwater. together i could eat food though. please god someone help me, she cant take care of herself and i cant either
Please do what you have to do to live, it sounds like you need to walk, hell I say run! and take care of yourself and your mother we only have one mom and there will be other houses down the road nothing is worth all that pain, sometimes we all have to stop and look at the real situation and make the right choice at the right time. I am walking also after I have invested over 90,000 in my property who ever gets this home when I leave will reap all the work money and time that was done in vain as I too will be starting over and I am almost 60 years old….Good luck to you and God Bless. Remember there is no shame in doing the intelligent thing taking care of yourself and family is as good as it gets…also you can ask the bank for a deed in lue they will pay you for the deed and it is usually around 2500 that they give you and get a document stating that your loan was satisfied so they can’t come back later….good luck..
I bought my 92 year old house 6 years ago for $130,000. I was able to make the payment and pay the monthly bills comfortably. I planned on going in and fixing it up and being out in 5 years. I was young and naive. After tearing into the basement, I found that my foundation walls and support system were failing. My 40 year old furnace and 10 year old air conditioner were not energy efficent. Basically, I got hosed. 5 years later, I lost my job, had a baby and my boyfriend decided to travel for work just to make our $1100 a month payment. We have to put $30,000 into the basement just to make it safe for us. So now that my house is only worth $80,000, we can’t afford to put the work into it that it so despreatly needs. My boyfriend wants to walk away from it but I am too proud. It is ruining our relationship but I am so afraid of ruining my credit for life. Any suggestions??
Sounds like you need to walk, there will be other homes down the road when the time is right, your credit will get better in a few years, remember there is no shame in doing whats important and makes the most sense, Good luck.
Mine is another sad story. I am a single woman in my 60s and bought a little house 8 years ago after having rented it for 2 years. I’ve enjoyed it enormously. Up until November, upon my return from seeing kids/grandkids—–It had been raining while I was away and was very cold. On Monday evening, I decided to turn on the heat (gas furnace in crawl space). Well, it made a horrendous noise, so I immediately turned it off and looked up an HVAC repairman to come out the next day @ 2pm. That day, I went to unlock the crawl space prior to the tech coming out and found the whole place filled with water. No one could get in and my plastic storage bins were floating. So, I called the insurance company to come out the very next day. The adjuster said that it was surface water coming through the foundation vents and I said “no it is not and you can very clearly see that.” He was not happy with my response so he countered that he would send out an independent engineer for an assessment. I was away on business the next Wednesday when the engineer came to do his review. He called me and said that the foundation was crumbling (still no idea where the water is coming from because the city meter was not moving at all) and that I was in danger of the house collapsing with me in it. He stated that I must do something to correct the foundation problem as soon as possible. Well, like so many of you, I am upside down in the mortgage (50%). The foundation repair would cost 1/2 the mortgaged amount. Then on 2/1, I get a cancellation notice which will be effective 3/1. Okay, now I am in a home that may collapse at any moment plus I will not have any insurance in 3 weeks time. I conferred with family and they said “get out of that death trap and don’t put any more money into it.” This has literally made me sick. I am current on the mortgage and all my bills, so walking away is going to destroy my credit and is hurting my hyper-responsible nature. That being said, I went out and rented a little house this week and will not be staying in the dangerous house I own any more. Come March, no more payments will be made and the mortgage company will no doubt ruin me. Sad, but the danger became the issue, not making the payments on an upside-down mortgage. My life and my health were what motivated my action. How bad will it be when I am foreclosed? It is killing me and I loved my home. That is my sad story.
That is weird. In my country, there’s no such option as simply “walk away”. If you cannot pay your doubled mortgage, the bank will sell your house. They will sell it for the half of the actual price, and you will always owe them with the remaining amount. If you die, your child will complete the payment. Or your parents. Or your dog.
Sorry for my bad English, i’m not a native speaker.
My father was recently diagnosed with vascular dementia in addition to suffering a stroke a few months ago. He no longer can live in his house independently. I had to move him into an assisted living facility to address his medical needs. His house has a mortgage balance that is about $25,000 higher than the values of similar homes in his neighborhood so trying to sell it and making up the difference isn’t possible because his only income is his pension and social security. He has no assets and very limited savings. I’ve got to help him out in this situation because he isn’t able to do this for himself. He can’t afford the costs of assisted living as well as continuing to make mortgage payments which include real estate taxes and homeowner’s insurance premiums. Is the best option to let the bank foreclose on his house?
So many stories here… reading each make me feel very sad for all, yet at the same time I have come to acceptance of ‘walking’ with the help of some of the above comments. — My story – We paid $629,000 June 2007 when our first son was born because we wanted him to have a home for at least the next 18 years of his life 🙁 . Our home is now worth $355,000 per the last comp which is identical in sq footage to my unit (townhome). So, $274,000.00 less in value AND we put at least $50,000.00 bring the place from 1974 era as it had not been touched since new. So, $274,000.00 + $50,000.00 = $324,000.00! We put down $125,000.00 or 20%- “WE I DID THE RIGHT THING!” We decided to have my wife stay home until our child was 2 and then began looking for work. Has looked for 3 + years now and nothing above $30,000.00 offered. With the cost of babysitter, she would work for free. We worked for 12 months with Wells Fargo to get a modification only after paying a lump $5,000.00 payment to them back in 2010 did they allow a rate reduction that took off $400.00 for 3 years. After the recent SHORT SALE in my lovely complex, we have decided to call it quits. We will rent a modest condo in a good school district here in the Bay Area and she can remain a stay-at-home mommy which is for the ‘betterment’ of our child. We should have left during the modification negotiations with Wells Fargo (in which we sent the required docs in on 4 seperate occasions!) long ago and would have saved a ton of $ per:
http://youwalkaway.com/output24/InterectiveFlashCalculator.html
Word of advice – If you are 20% under now and are struggling to feed your kids or save $ for your family, and have done all you can to get a favorable loan with your lender, WALK AWAY and do not feel guilty about it. You are holding onto what is called a bad investment and the bank who owns your home can afford the loss. You can’t. Lesson learned and now I’m hoping to help someone else not to make the same mistake we have made by waiting.
I walked away from my mortgage due to preditory lending. My house sold for 22,000 @ auction I owed 90,000 on the loan. They sent the 60 some thous.and dollar difference to the I.r.s as income now im supossed to pay income tax on that difference. Dont walk away you will not gey away with it. Has any one else found a way to get out of this trouble im in now ? Please help
Not sure when you wrote this or if the tax laws still allow this but if this was your primary residence you were allowed to exclude up to 250K income due to forgiveness of debt. If it was an investment home and you can prove insolvency (assets – debts < 0) on your taxes you are able to exclude the income. I had to do this numerous times as I lost 9 investiment homes when the market collapsed. The bank sends you a 1099 form. Give this to your tax preparer.
Let me tell you, I left my house and the foundation was very bad the house is still in our name. The bank write off the house and the city is coming after us for property taxes. They have decided to garnish my wages. How do I get this house out if my name. It’s been 3 years. Help
Buying a house should be,should be, strictly a business consideration. The bank looks at it that way, why shouldn’t you?True enough that there is an emotional component, but that emotional component needs to take a back seat in tough times. Most people will pay their mortgages as long as they have the funds and they feel it is a worth while investment. When you are underwater with no hope of recovery and you can find shelter for a lot less, why continue paying for a losing asset? Your house is an ASSET;treat it that way. The bank most certainly is. They care not a whit about your emotional ties. They only care about your willingness and ability to pay. The bank has the means to handle your “non-performing asset”(that’s what your underwater house is called)so don’t worry about the bank.
It would really help if we could at least get a lower interest rate, With a credit rating over 800 it is horrible not beable to get a lower interest loan, if we could get the going rate we could lower the interest rate over two points. We can`t becuase we owe to much, it makes us feel like they want everybody to fail
Lyle,
I’ve heard that too from some friends that were approved for a loan modification, they needed to get behind on payments and then take a chance that the bank would approve them for the modification, to me that is too risky to do, cause if the bank doesn’t approve it, then you could end up facing foreclosure. We personally are not willing to take that risk as to having too much invested in our house over the last 10 years. It’s just so unfortunate, the government should reduce everyone’s payments/balance across the board to reflect the housing economy. After all, it was the banks fault that everything got out of control in the first place, and again, the ones that make payments on time are the ones that get it socked to em!
Think about this,Lyle.In the not too distant future your circumstances may require you to consider selling your house. Your house may still be underwater and you may have to sell at or below your original purchase price, meaning you would take a loss on all the money you poured into the house because you felt “obligated ” to pay your mortgage. Your decision to stay in the house would be a good one if the cost to move and pay for alternate housing was much higher. But,and here is the good part, what if you could have found similar housing for much less and not have spent thousands on an underwater mortgage? Would it have still been a good decision?
Sorry, I meant Lmm, not Lyle
Lyle,
have you tried a loan modification? I know of people that have done this and got their mortgage amounts greatly reduced due to their homes values decreasing. It messes their credit up for about 2 years and they cannot sell for 2 years, but, this would be worth checking into.
Yes! They told us we do not qualify for that. We were told the company will not take anything less than what we owe because we are not late on payments.
Stuck in Mn.
My wife bought the house we live in over six years ago before we got married, it is an FMHA loan, we owe $120,000 and I have been told it is maybe worth $75,000 at best, I have retired and my wife will be working a few more years, we would like to move to a warmed climate. We cannot refinace they tell us, do to the fact we owe way more compared to what it is now worth. It is a manufactured home, I feel if we stay here we will have nothing when we get it paid for do to the fact these manufactured homes are getting very hard to refinance, I think that is going to elimanate them down the road. We are not late on payments. Are we here for life or is there away out? Can someone tell us what we should do? Thank you
When we bought our house 10 years ago we paid 175,000 and within 4 years we sunk in another 50,000 adding another 2 story garage, made our driveway circular, 2 decks, finished basement yada yada yada, paid off our 50,000 equity loan 3 years ago and have never been late on payments, problem is now, the house is worth about 150,000 which is approx what our balance is on the mortgage and even though we continue to pay on our mortgage, we are the ones that have been screwed!!! while others around us now by their homes for 100,000 although their homes on the outside don’t have what ours have, we can’t sell cause we would lose our ass! so much for buying, adding to the value and selling at a profit… it’s the banks fault!!! All those interest free loans, no doc loans etc..etc..etc…I believe is what made us homeowners lose our butts and made them richer cause of all the money they made at closing on those homes… I think the banks need to pay or GREATLY reduce our mortgage… Why should we be in the hole because of banks all over the nation allowing these loans to go through. it’s not fair to the homeowners who still continue to pay on their mortgages while watching others around them get their homes for next to nothing!!!! Any advice would be greatly appreciated on what to do. Thanks
We bought our home 6 years ago and paid 172,000 and put 36,000 down then we put an additional 45,000 with new roof, custom porch, concrete, custom kitchen and bath. we are 40% under water and have decided to walk OMG what a loss of money!… it is only worth about 85,000 and we owe 147,000 so we are walking and cutting the loss that will grieve us for years but why stay and throw away more money and continue to struggle in a beautiful home that we can no longer afford, we thought back when we put all that investment into we would down the road make money on it if we sold it….if the banks would modify to the currant market value then we could stay but that will not happen in a Fannie or Freddie back mortgage , thus I just made my last payment.
If you could afford your home 5 years ago, why cant you afford it now? just because your home is worth less than you owe, you agreed to pay x amount over x number of years. in a few more years values will increase and you will no longer be under water. if the value didnt fall, would you be looking to walk away, or would you be making your payments? homes are long term investments. those who “lost” everything in the market did so because they panicked and sold on the way down or at the bottom. investments go up, investments go down. they are cycles. wait out the storm and you will be glad you did in the long term. and to an earlier post someone made about a person buying 10 condos. they were only buying what others were casting off.
Well for us 5 years ago our mortgage was about $300 dollars less. Because of the economy my husband is getting paid about $600 less than he used to. I even had to go get a job and it’s still not enough. Our electric bill and all other bills have increased. Even groceries have gone up. When our mortgage is due we can’t even buy food for our children. I just don’t see how to wait this out any longer. We have no saving gs left. We tried to refinance but got denied a few months ago. So what’s left for us?? Pay an extremely high mortgage while we all starve and can’t our furnace just broke and we have no extra money to fix that. We’ve been trying to get a loan modification for over 6 months they give us the run away. We keep making these payments but it’s only gotten harder and harder.
Feed your children. You didn’t do anything wrong….just trying to live like a “normal” American family.
We’re in a slightly different situation, but are faced with the same issue. We lost our business of 15 years, and it totally broke us. Like an American Trooper, I poured what I had into it to keep it going, until we had to close, then, continued to pay my bills (including the mortgage and credit) for another year – tapping the rest of our savings – because I was sure I would find something and wanted to maintain my credit rating. It took a year and a half to land something that pays less than half of what I made. I still kept up on the mortgage but not the taxes, I paid what I could afford and the bank worked with me the whole time. I’ve got 3 judgements against me and a garnishment in the works so I have no choice but to file BK. The question becomes, do I work with the bank on a refi that includes the mortgage balance and back taxes?, the sum total which is more than what it’s worth and unreasonably affordable?, or discharge that as well as everything else and start over. I have a family and I’m afraid with the BK, and discharging the house we won’t be able to find anything to rent reasonably or in a safe environment for my kids. If we refi, we’ll still have the house and neighborhood but a new 30 years to pay and high taxes (the monthly tax contribution is about 40% as much as the mortgage payment), and the total PMIT would be about 50% of my check. Any feedback?
I’m also debating to walk away from the house. My husband is the only one working at the moment. We have a First Mortgage and a home Equity loan and the payments are between them including insurance and taxes $1395.00 a month. When we took the loans in 2006 and 2007 we was making good money… We was bringing home $1200.00 to $1500.00 a week we make some renovations to the house for wich we spend over $20,000.00 the value of my house was $17500.00 at the moment. But now the value of my house at this moment is $70,000.00, ((( We still owe $130,000.00 on it))) I’m not currently working because my son got sick, and I resign at the begining of the year to care for him, He pass way in May – 6 -11… but I have no luck founding a Job and my husband hours at work when from 60 – 70 a week a few years ago to 28 to 32 a week at the moment.
This whole thing sickens me. I know that some people run into hard times and can not afford the lifestyle they created financially anymore. To them I am truly sorry, and they must do what they have to.
To those of you out there that are planning on strategically foreclosing there homes, I too feel sorry for you. You are throwing away your financial future over a hypothetical loss of value? What happened to people taking responsibility of there commitments and not blame others for your decisions? You agreed to pay a set amount, and now that times are tough you want to just give up. I sure hope there are enough honest and responsible people out there to keep this housing market together until it turns around. I promise all of you that do keep to there commitments that some day you will be rewarded, and the ones who give up will be slaves to higher debt and higher interest rates in the future.
Let’s all make America a better place to live. We live in a self serving, in the now, instant gratification, and selfish world. Only you can change that.
This is a tough decision for anyone in any situation. Yes, we agreed to a price. A price that was dictated by a value certified by my lender who graciously and somewhat eagerly gave me my interest only loan. I’m not a specialist in the department of buying/selling homes so all I can go by to confirm the value of my potential home is to review comps. If these are inflated, what is my reliable source for investing my down payment, my credit and my livlihood? I’m seriously contemplating getting out of it one way or another because it is ridiculous to stand by and spend twice as much as I have to because the controls were not in place to protect my investment. Don’t forget, I’m losing everything I’ve put into the place, not just the interest and the exaggerated monthly mortgage I’ve been paying for the last 8 years. As mentioned in a previous comment, my commitment was for the house. If I don’t pay, they can have it. If that isn’t a winning situation for them, why did they do the deal in the first place? Greed.
Here is one! Why should I keep paying on a home that is worth sixty percent of what we owe? I`m 62 and by the time we have it payed for I will be dead or close to it. We have tried to get cheaper interest, no deal thay say, (banks) we are current and have a credit score over 800 but as long as we have not fallen behind on paying they will not even try to help us out with lowering the interest. We have tried many different places for lower int. nothing doing they say, We have even ask if we could get a lower int. rate if we dropped it to fifteen years, they say no, Why should we be punished for being the people that are commited and have been paying out mortgage and still they don`t want to help us, for this reason I feel the bank can have the house, all they want is money money money, they can still make money if they would refinance people like us that have a higher interest rat and have great credit, but no thay want everyone to have bad credit.
That is exactly what happened to us!! Underwriters wouldn’t touch us because no homes had sold for what we owed in our area even though we had 800+ credit score. Mortgage co refused to work with us because we were current. We finally stopped making payments; suddenly, they couldn’t stop trying to help us.
Thank you for responding. I have had a few people who responded and can’t seem to find the link to respond to them directly~ anyway, thanks for taking the time out to answer me. Since I posted this first request~ I have had my roof done and a few other repairs from the help of a friend. I had continued to pay my payments and then was blessed. I have other problems now, barking dogs and nosey neighbors but over all things are better. Thanks again to those wanting to help me and am wishing you all the best too.
No good deed goes unpunished, Lyle. I am glad I found this forum. There are quite a few of us, it appears, who are in our 60’s and in the same situation.
Why don`t the banks refinance the people that have made thier payments? Yes we owe more than the house is worth, I just do not understand why they won`t lower your interest rate and help you save some money, but no! they say because your current on payments and you are not having any problems. Well! Then why don`t they refinance you before the problems start? The banks don`t want to help a person that is trying to make it and does have good credit and has always made thier payments, I feel we are the one`s they want to fail too just s they can have it all, so why should we try to pay for our home when we owe twice as much as it is worth, Save our money now and let them have our house too, some day they will come back and wish they would not have been so greaty.
John,
The commitment was to pay or let the bank secure the property. Get over yourself. I am abiding by my signed contract.
Many people who go through shortsales are taking terrible advice, advice that will cause them such doom for many years to come. You will hear either real estate or mortgage brokers ask the most infamous question: Are you current or behind on your mortgage payments? Some will say yes and some will say no! Those who say no are then hit with this: In order for me to qualify you for a shortsale you have to go through 3 months without making a mortgage payment..Well this sometimes is one of the worst suggestions you as the homeowner can take. Never put your trust into the hands of any broker. My advice is to call an attorney who specializes in real estate shortsales and forceclosures. What many homeowners do not realize is that if you are having issues with negotiating a loan mod or a restructure with your current lender, the banks usually have a dept called the exectuve responce unit which is the higest dept right under the President of the lender. Many times the executive responce unit is willing to help you and there also times when they will approve a shortsale without you having to fall behind on payments. They many also protect you from getting your credit crushed as well as guarantee a 30 day closing which most shortsales can take months..Please do all that you can in terms of taking your time to gather all the right info to protect you from the damage you can take when selling your home short
Matt, you assume there is a willing buyer who will pay your asking price. Banks may be willing to work a short sale for a small percentage below the mortgage value but not 30% or more. The people who are having problems are 50% or more underwater, not a few thousand. If I am a buyer and you are selling short, why should I accept your initial offer? You are desperate and the market is distressed. I can name my own price. Short sales may work in a few special cases, but it just is not an option for most people who are in trouble. Same for refinancing.The bank is not going to take a loss until they absolutely have to.
Banks are committing modern day bank robbery on home owners! This is so wrong. The government bails them out only for them to steal from the people. Do not sign a contract loan from any bank. They will give your money away and hold you liable for the money. They force you to sign a contract loan to turn it into a reg loan by charging you a high 21% rate for disagreements. The contractor goes free; even if the home is incomplete. You will be stuck like chuck. This is what the bank has done to me and my family and the news in the great state of Kansas will not even look into it to let the public know what has happen to life after a military service to our great country. I have sent out several packages to the media all over the US and no one will air my story.
I think it’s great if anyone can thrive off of the economy, such as by buying 10 condos at dirt cheap prices. After all, if they are doing so on credit, they will fall just as the rest, but if they have managed finances properly to the extent that they can pay cash, they deserve their success. As far as health care, I am for socialized medicine and think the USA system is a disgrace. Anyone who can live without proper care deserves whatever else good they can get.
I truly agree, if they can afford it, do it. Don’t hate.
Wow. I am shocked at how all this have been allowed to happen. The banks definitely have us by the neck. I finally could buy a condo after saving for many years (I am now 64 ) I was married and my husband decided to leave he couldn’t handle the stress of trying to catch up to the market that was shooting through the roof in the 80s , so we could never afford to buy our home then even with both of us working.
When I was 60 I got some money after my parents passed away and I had a full time job, the price of a condo had come down in price (in 2007) and I took that money and bought my condo not knowing then that the market would do the exact opposite from the 80s. I lost my job only two months later. I bought not for investments but for a place to live probably for the rest of my life and it makes me sick to see how people with “spare change” are buying all the ones that has been foreclosed on; they will be making a mint in a few years after renting them out all this time; that should not be allowed. One woman told me proudly “I just bought 10 condos here in this complex” She doesn’t even live here in any of them. I hope she feels good about steeling it from the poor persons who had to give it up. I might have to give mine up soon. My savings are dwindling and I will have nothing to live on at my old age. I have no children so am I going to end up on the street in this great country of ours? I was told at the clinic when I wanted a mammogram that they didn’t have the funds to help me get one, so we are getting sicker too on top of everything. I am not sick, but are trying to prevent getting sick by having a checkup now and then. Insurance you say? What insurance? Where am I going to find the money to pay the insurance companies which is another way to get very little for all the money you pay in premiums? Eat right, don’t smoke and stay healthy is the best insurance, but we should be able to get help with checkups.
I have been working part time although always looking for work, but being 64 and with so many out of work it is not likely that anyone will hire me even though I am healthy, look younger ( or so they say) and active in sports and have lots of experience and work cheap even though I am worth more. I may have to try to rent my condo ( I still have to pay part of it since my payments are higher than what I will get in rent money) and move in with my sister if she let me stay there for free. She lives in a place where they take care of their citizens. Perhaps we should all get together and build our own hotel where we can live happily ever after like they in the 1800s. The banks may be interested.???
OK, I am totally confused. I am recently seperated and have 2 small kids. My husband moved out and the kids and I are still living in our house. We decided to try making the Home Affordable program (Obama) and after a LONG road, last Friday we were approved. I cannot afford to live in the house with our 2 kids (my husband had decided to keep thye house) so I am working with a realtor to help my sister and her husband purchase a home for me and the kids and we will pay her as we would a bank. My husband and I both had over 800 credit scores until we applied for the Making Home Affordable program. As the gentleman said above, we had to default on our mortgage just to qualify! OMG! Now my husband tells me he is not sure if he wants to keep the house, I can’t afford it, what do I do? Do I just continue with the MHA program and try to stay in the house myself or stop paying altogether and walk away. I am completly confused!
Yea just try to stay in your house with the MPA, also contact your local goverment hud houseing they have counslors that are free they do not cost you money, and they can help you with MHA and your bank and guide you along the way in this tough house job market. I say this because I am there and this is how i got help, talking to just the bank and MHA was like pulling teeth. I think it’s best to have a houseing counslor on your side, but remember they the helpers hud coulnslors are free pay no one nothing.
If you decide to go through with the Home Program PLEASE read the fine print. Make sure EVERYTHING is explained in detail. I was approved for the Making Home Affordable program/ Modifications and yes it was a long road and was sooooo happy when I was approved. My mortgage went from 1257.00 to 832.00. I was working two jobs to make my mortgage then was scammed out of $2000 and had no choice but to do the modification with the bank after I lost one of my jobs. So what I didn’t know which was almost year later is that now with my new mortgage I’m paying 70% interest. Then my mortgage went from 30 years to 50 years and they split the loan. The first $125k I’m paying on now and the remaining $43K will be due immediately after, in one payment. Oh and my house is only worth $120k and it keeps decreasing. Again Make sure you understand all the details and even though it make look good now think about it long term
I keep hearing about contract and honor. The “contract” states that if I don’t pay the bank gets my property. How exactly am I going against the contract? The interest I have paid over the years has pretty much equated to the value of the property that I have lost. What exactly has hurt the bank? I’m the one without a home and with a credit score taking a hit. People should walk away if it’s best for them and their family.
Also if the bank does sell the property again on a loan they will continue to make money….just not as much.
DP, such a brilliant summation. I am having such a hard time with this, and your words helped me. Thank you.
Bravo. Excellent analogy DP. My hands are clapping for you. I’m planning my retirement. I’m NOT staying in a worthless condo where the HOA is not keeping up appearances of the complex. It’s like a ghost town. It’s getting very rundown and riff-raff are taking over as tenants because owners have bailed. I worked too hard and long to live my “golden” years like that. I’m going to buy a little something in the country and try and rent this place out and see how it goes. I will, in good faith, try that but if I can’t afford both or my health starts to suffer because of the stress in maintaining 2 properties, I’m dumping the first. We didn’t create this mess and we shouldn’t be penalized. The banks caused us to be victims and now they’re going to try and turn it around and cry victim themselves?? I don’t think so.
DP, The “honor” part comes in because you promised to pay the mortgage. The consequences of not paying it as you promised is they get your property. The fact that they foreclose and take your property does not mean you kept your promise. In fact you didn’t.
To anyone who agrees with DP’s thinking you could not be more wrong. You people are the reason the housing crisis and all the foreclosures was as bad as it was. Millions of people walking away on their homes even though they had the ability to pay, and equally important, signed documents promising to pay, because their houses have dropped in value. Part of the reason houses dropped in value was because of exactly this. Banks should not simply repossess the property. They should sue these people for the difference between what they get for the property and what was owed to them, plus interest, plus all the fees and costs involved. If they did this the people simply walking because they didn’t feel like paying for their houses might think twice and all of us would have been better off.
Hey blink – blow it out your backside. Seriously – you think the MAJORITY of people walked away when they could pay? Your facts are wrong. But do you know where that moral righteousness got me? Screwed. I moved into a neighborhood in the hopes of turning it around – I should have sold that first year when my home appreciated, but nope – the “right” thing to do was to help my neighbors and the city. When the economy crashed and my neighbors started losing their jobs – they started to lose their homes. But nope, I did the “right” thing and stayed. Then the city decided to cut police by 1/3rd to meet their budget. Crime skyrocketed. People started to leave their homes. But nope, I needed to do the “right” thing and stayed. Then they elected a criminal. It got worse, more neighbors left. (Look it up, Trenton, New Jersey) But, here I am doing the “right” thing and staying. Over time, people passed away, and their remaining families couldn’t afford the homes. They left too. All this time I stood by my “right” ideology and stayed. NONE of those people had a choice (except the city administration of course) – when the only “right” thing to do was to think about my family’s future – and now I’ve paid over $190K in interest on a $280K loan – only to have actually paid off less than $50k on the principle. My house value has plummeted. I still owe $60K more than my house is worth – and if I stick through the next 20+ years I’d have paid nearly $150K on TOP of the principle to meet my “promise”. That’s what standing on your blind morals will get you – remaining the last rat on a sinking ship. I don’t blame ANY of my neighbors for leaving – they made an economic decision in their best interest. I’m not even mad at my bank for the money they’ve made – it was in their best interest to give me the money since I could pay it back + interest. But now that I’ve matured and realized that MY best interest is to get out – credit be damned, and good bye all that sunk cost that I’ll never see anything for it – by not doing it because it wasn’t “right” – well, damn, I just screwed myself over, didn’t I? But that’s OK – because I have YOUR approval right? RIGHT? DP is completely correct – the bank made back nearly 90% of their loan already, if I execute my CLAUSE to end the loan and forfeit the house, they can sell it (as a discount) and still end this DEAL with almost 130% of what they loaned me. Boo hoo if I’ve inconvenienced them into working their contingency plans. Boo hoo if it didn’t go as planned, you know – the one where they make a small fortune, but I was supposed to turn this city around? But FU if you think that me PRUDENTLY WALKING away is what has rotted out this country. Oh, and there was a shoot out on my block a while ago. Fortunately, we can count on people like yourself to put your family’s future and well being at risk because you signed a contract to pay back 2x a loan you borrowed to an institution that was built around being profitable even calculating the risk of deals not panning out. Thankfully, folks like yourself will carry the day in lieu of all our moral hollowness!
All I have to say is BRAVO!!! I am clapping my hands for you.
I agree, I agree. I’m 62 years old, and bought my house ten years ago. My city went bankrupt due to the shenanigans of our “Mayor for Life”. I owe more on it than it’s worth. People are leaving, and renters are moving in. It’s a nightmare. I’m on the fence right now as to what to do, because I’ve invested in this property.
You slime bag. I finished building my custom home at the peak when everything crashed. I invested $150,000 CASH into building my house….the banks house. I borrowed $380,000 to close construction loan and start 30 year mortgage. My home appraised over $600,000 when it was built. But when i needed to get into a mortgage, the lender did not want to move the loan into a 30 year or any year. Cash or get out. They created every scenario you couldnt imagine to stop me. I jumped through all those obstacles as each one was thrown at me. You could not begin to imagine how evil and rotten a bank could be. They had an appraisal done from someone out of state. He used what he considered comps that were over 15 miles away in middle of a mobile home park. There were custom homes within 2 miles that were “true” comps. They wouldnt use them. I paid $125,000 for my home lot. The rocket scientist said it wasnt worth more than $25,000. He also said my home was substandard and poor quality. Amazing since it had cheap sleazy solid walnut doors, custom made walnut cabinets in kitchen, baths & laundry room. $25,000 in countertops. Custom built windows with acrylic built in for extra safety. A huge Mahogany door in front entry. A massive rounded entry with custom security gate to go through before reaching mahogany entry door. It is round shaped like you would see on an expensive castle. Best i can describe. $9,000 in tile, not including the all natural carpet with no formaldehyde to choke on, in all 4 bedrooms. Master had $8,000 walkin shower and $5,000 tub. 14 ft ceilings, lavish bronzed water fixtures, big $$$. Built in vacuum system. Built in sprinkler system. Oversized attached 3 car garage. Entire home and garage has foam insulation. Dual heating and cooling from Trane for seperating temps in two areas of house. Yeah, i guess it was a piece of shit comparable to a 1970’S home built in middle of mobile home city. Well i had to come up with MORE $$$ to tune of $68,000 to get $330,000 construction loan rollover to a standard 30yr. I didnt qualify for ANY other loan. All said and done…..my $600,000 home is appraised at $280k. I tried to refy when rates dropped to super low levels. I was told I could not afford the new rate that would be $1,000. I was a high risk. But i could still afford the $2100 payment i had been making for 5 years. Oh, and that was wth credit score well over 800 and making over $100k a year. Obama plan was good too. All we heard was ..”oh that sucks..you missed it by 9 days”. You dont qualify for help, but keep checking in. Thank you M&I bank and Bank of America. I had my income reduced. I can afford $1200 but not over $2000 a month.
True story. I am living it. Bank said i had two options, walk away or they could give us $3000 to help us get into an apartment and turn house over. I did nothing wrong. I was at wrong place at wrong time.
I dont feel bad for banks. Feds bailed them out. Didnt help me with anything. Was able to get lower paying job due to cuts. Because housing market crash…my fault I guess…??? What do U think Blink?? I am behind 3 months payments and am being forclosed on. I have wife and 3 young children. I guess i should have bought mobile home or school bus to live in. The banks did this. They created all of it. Giving out loans for 150% of home values. Dumb. Stupid. U R arrogant. U dont know what U R talking about. U dont live in this world. Maybe high and mighty BLINK should be captain.
I am currently paying a little over $3K on my house that’s now at least $150K less than the purchase price ($370K) , and although both my wife and I have jobs , we are still struggling with the mortgage payments ‘coz we are also paying for babysitter ( $400 per month for 2 kids) , car payments, gasoline, etc … I AM GETTING READY TO DEFAULT THIS MONTH OF FEBRUARY…GOOD LUCK TO ME! ..I don’t need your sympathy but would really appreciate comments or suggestions . Thanks !
Not sure where you live but you could rent a nice 3 bedroom for less than 3k a month and save the money. 150k is a lot of ground to make up. You could even save 9k by just defaulting 3 months although I hope the bank would work with you to find a affordable solution.
I am getting ready to default as well, we put 36000 down in 05 and another 50,000 in the home remodeling it….I hate to leave my home I have all my money in it, but the facts are its only worth 90,000 and I owe 150,000….we are almost 60 years old we will be dead before its paid off…..property’s will not get better fast enough to warrant us staying….we have been living on saving until they are almost gone, so leaving seems to make the most since, just wondering what advice I can get.
WE did the same thing, I`m 62, Spent all my savings and still have a house that is worth only 70,000, (Not fancy here) We are just about ready to stop paying on it, Just is not worth staying here, would rather rent and have the same thing than have
maintaining this place.
I just missed my first payment I don’t know if I should call them yet or just wait for them to contact me…….I am a wreck!
Relax!
I`m no lawyer, I can say you will have bad credit for 7 years or so, if you cannot make the payments it is maybe better you back away and if your young you will still have time in your life to get a home and go on and be happy. It is tough to letting your home go, if you cannot make the payments you do not have any other choice, well maybe you could starve and save it, then you would be in bad health or die, so you need to do what you have to to stay healthy. good luck.
I can make the payments and my interest rate is low but I am not paying on the principal because it is a rotten interest only mortgage recommended by my former realtor who is about to get a very nasty letter. from me siince she recommended this financial guy and was in cahoots in taking advantage of me. But still, I don’t really want to ruin my credit and I have to live somewhere. I would like to move to a warmer climate since I am older now and can’t stand the snow and cold here.
Not just the banks. Wall Street, Rating Services (Moodys,etc) Politicians that cave to Corporate lobbists. Just a few that helped bring on this mortgage crisis. It’s all greed. Piss on the little guy. Well, I say, now its time to piss back. Just don’t stand in the wind.
@LarE, You’ll see my post above if you look. It’s been quite a while since I spoke on here. Pretty much I did what was right for my family. The crime in that are got even worse. Someone stole my entire HVAC unit week before last…..the ENTIRE 1989 Train unit…..hell of a feat. I am still in the middle of short sales. First one fell through as the buyer backed out, and the second two are still around (one main offer, one backup). In order to do this, we had to stop paying our mortgage. They won’t even short sale unless you are 31 days behind in mortgage. When that happened, and the empty house was robbed twice again (another time they pulled my entire meter out of the back of my house….brilliant criminals), we just stopped paying our mortgage. We’ve done literally everything we could to get rid of that house, and were not going to put another cent of our money into the cancer. Could the new sort sale fall through because the HVAC was stolen? Sure…….Could the backup go as well? Sure……But now we’re not paying a THING for the house. There will probably be reprocussions, but honestly what else can you do? You have to do the right thing for your family, and tell everything else to go to hell. That’s pretty much what we did. When we did that, the stress of it went away. I’d suggest you do the same too. Write up a hardship letter, exactly the same as you did here, and then get a licensed short sale Realtor to sell your house. According to the “financial” hardship we are not drowning, but it looks like our bank gets that if they don’t let us short sale, they will be foreclosing on the house. Probably a good idea for you to do the same.
I NEED to comment here. I am a single widowed mom of four -3 grown and own their own homes. I bought my home (with my young teen daughter) 4 years ago (downsizing). I did not by fancy, or beyond my means and had a good job to pay the monthly payments but life changed. My new job pays less and I do NOT make it pay check to pay check. My interest rate (under the new Obama plan) went from 8.2 % to 5.4% and I still do not make it . I have no cable, my car is a 1999 and I am afraid daily that it will quit on me, my daughter and I live very simple. My mother has MS and proposed that MOVE together in a new home (one that would have an open floor plan for her) BUT if I sell me home I would be at at 28, 000 loss or more and that is A LOT for my single income to repay. It takes me 2 1/4 weeks just to pay my house payment now (my job cut hours a few weeks ago) and if I moved with my mom (to care for her) I would pay 1/2 of what I do now and we would share all other expenses. I am physically sick with ulcers because of my financial stress. Should I walk away?- (my credit sucks anyway). And when should I stop making payments? I am already in the hardship/Obama plan (that took 8 months of paperwork to complete) so I can not go to the lender. My mom can not move in my current home (home to small). I am so upset trying to do the right thing but I really can not see paying all this money when my current home is falling apart around me and my mother would pay 3-4x the monthly amount for an assisted living apartment if I did not move with her. I want to care for her , as she is still very healthy and just wants companionship. I want to know that she is safe. I am rambling but I wanted people to know that the decision to walk away is not always a selfish one. it is a difficult one. Suggestions are appreciated.
You should look into finding someone who will take over your monthly mortgage payments subject to the original mortgage agreement. You do not need a bank or any money up front to do this. There are risks involved but I think that in the right situation it can work. It’s basically a rent to own contract for the person making the payments and you benefit by not ruining your credit by walking away. Some “buyers” will even give you a “down payment” that you can use for moving expenses or save as a security deposit. This agreement is call a “subject to” in real estate terms.
Funny when banks first showed up historically farmers fought them. They knew it would be the end of owning your land. Banks would own them. Truth is you don’t own a property until the last dome is paid and deed is in your pocket. Then it can still be taken for non-payment of taxes. Banks are owned by the government under the federal reserve as a separate entity but no less controlled by the government.
The reason they send you pre-approved credit cards is to finish you off. Credit cards increase debt. They don’t want you to pay in cash or checks so interest can accrue on the credit because you’re spending what you don’t have. As a result, you can’t save any money because you didn’t have it in the first place. No one has truly owned their property in this country since banks, the government/taxes took over in the 1700’s. The U.S. is a plantation and everybody works for the government.
You are so very ture in you comment ! What ever happen to “Govnered for the people,by the people ! “
Mortgage companies can not come after you for any part of the balance as long as the house is underwater. No court in the USA would hear the case. And in the .5% chance someone did, you can prove that the bank predatorily lended you the money case closed! You win walk away and live happy ever after!
What do you mean, underwater? In the ocean or in delt?
upside down. I owe more than it is currently worth with a difference of about 20,000 now.
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?
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 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……
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.
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?
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
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?
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 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.
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…
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).
@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
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.
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.
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
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.
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
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.
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!)
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
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.
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.
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.
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.
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.
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.
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!
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 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!
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?
typo on the last sentence ###### full back #####should be ###### fall back ###### opps
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 –
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?
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!!!!!!
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
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.
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.
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.
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.
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.
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?
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 – 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.
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?
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.”
***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
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.
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.
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.
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).
Interesting series of comments but I’d like to suggest that the morality argument is specious.
Given the consequences of “walking away” , and the state of our economy, I question if very many individuals choose to abandon a home when they can afford the payments merely because it has become a poor investment.
The individuals I know (and know of), who have lost homes to foreclosure were laid off, self employed and business has fallen away, or have changed circumstances due to health or health of a family member.
L
“it’s not fair to stick the bank with the consequences of your bad gamble.”
Isn’t that what they are doing to their customers, the taxpayers? It may not seem fair, and isn’t, but turn about is fair play.
Wow, I see my situation is definatly not singular. We bought a home on a 80/20 and paid the second off as soon as my old home sold. there went $45,000 i’ll never see again. That left $198000 on a home that now is worth $125000 at best. I refinanced, before this crap happened, with an ARM, thinking we could refi in two years( as the home appreciated within a week at first) into a fixed loan. Guess thats not happening now. My ARM will come full completion in less than a year, meaning my home payment will be over %60 of my take home pay. National average states that %18.5 is normal. Will my greatgrandpaerents be dissapointed if I walk away? Who cares? They didnt leave me any dowery to live on. It’s been stated that banks will work with you…LOL….tell me another. The answer I got was ” just gonna have to pay your loan” Duh! I tried to talk to the person to figure a course of action other than forclosure. I don’t want my credit rating to be bad and i’ve been through a bankruptcy before.( took years to restablish). Maybe most landlords (archaic term, if there was any) will not rent to you but I see lots of home rentals owned by folks that are reasonable . I doub’t all of them go on electronic character alone. My guess is if they know my reasons and see the money is there to pay…they would rather make money than have an empty house thats costing them…unless they are wealthy and have no need to really rent it. Maybe if I rented a BMW and meet them at the rental house, then they would not question my ability to pay..mmmmmm…or would I be better off finding a rusted Pinto and fill it with the neighbors kids?
In closing, I have tried to walk the line and do whats right. I have tried to reach an understanding with the lender. I have tried to refinance( yeh, like any bank will touch an upside down home). i’m looking at my kids and wondering how i’ll support all thier needs and still be able to save for some kind of retirement (alsa, my 401 is mortally wounded) on %40 monthly pay. Doesnt take a brain surgion to figure out that my options are limited. But then again…we have the Messia now to cure it all…ok! No politics. Good luck to the rest of you.
I must admit that I did not read all thundering amount of comments.
In Malaysia, when one takes a housing loan, not only is he bound hand and foot, but his estate is also bound. Not even death will release him / her of the loan liability.
If our loan is upside down, and we have to sell, then woe betide us. We have to make good the difference. It is not only our credit rating that is thrashed, rather we also get thrashed by being dragged through the bankruptcy courts.
I am really surprised that it seems so easy to walk away from loans in the US.
Given the right circumstances, I would walk away in a heartbeat, and yes, either rent or buy before it reflected on my credit. Banks play hardball and you should too. It does not surprise me that banks bought these loans, dissected them into a million pieces, paid credit rating companies to “high” rate them and passed them off to investors near and far. But wait, that wasn’t enough! Banks then made bets on them with YOUR MONEY. Is that ethical?? Makes no difference if I walk away or not, I’m the only one suffering here. My bank is going to the government for the bailout money (read “our money, our childrens money, etc) which they will get no matter if I suffer and stay in my home or move. It’s the same as their credit card scheme. Come on in at ZERO percent and then…… Not like it use to be in the old days when you actually did business with your bank, and people actually expected to live in their houses until the house was paid off. And this stimulus to help home owners is a joke.
Linda: I agree with you about the banks and their leadership. How much was the downpayment on your house and how much are you upside-down?
MBirchmeier mentioned that some people buy a new house before walking away on the old house. That activity is something I disagree with. The bank can never be expected to make a proper risk assessment if they aren’t told the facts. However I’m surprised that the bank with the foreclosure could not sue the homeowner for the difference if they walked away without declaring bankruptcy.
I commented before, but the truth is that I don’t understand how this walking away is done. Legally speaking.
@Linda I don’t fault you for walking away, and I think there is a morals and integrity problem if you don’t take care of yourself and those who are important to you. This business about justifying the walking away only for those who are in hardship is nonsense. I don’t think it’s justified to wait to be in a state of hardship if you can save yourself. To do so is just plain foolishness. Nobody in this mess is superior, morally or otherwise. The majority were unthinkingly going along with the prescribed mindset of using credit, getting goods without the ability to pay for them, and putting complete faith in future income and the capitalistic system. For instance, you didn’t want to be “house poor”. To my way of thinking, owning a mortgage makes you poor period. I personally don’t feel I have enough faith or psychic ability to pledge income for 30 years, and never have.
You feel you did everything right, as you were supposed to. That means the way you were taught, according to the system and “conventional” wisdom. Having you walk away is the price the system will pay for what it has strongly encouraged. It goes with the territory. If you’ve done something wrong, it’s that you didn’t think for yourself sufficiently, and I don’t see how others can resent you for that.
@MBirchmeier – I agree that many people here missed the point. To reiterate my first comment, the story is not about economic hardship, but about buyer’s remorse – i.e. we can pay, but why bother if we can move and save money?
On the other hand, if walking away is the best option for your family based on your circumstances, then that’s what you have to do. But there are many people contributing to the problem that have no hardships at all.
I just don’t get the thought behind walking away from a mortgage. If you signed up for it and it is within you ability to keep the house (barring selling or foreclosure) then a person with good character should stick to their contract and pay no matter what the economy.
@Linda, Rock and a hard place:
I don’t think most people are faulting people for walking away due to circumstances outside of their control, health issues, job loss etc. People who walk away because they are unable to keep up their end of the bargain have likely faced tough times and are making the option they feel is the only one for them to make.
But the situation in the story highlights a different group of people. Those who have not experienced hardship, and can still afford their homes, but they’re walking away because their home has gone down in value, not because they fell upon hard times. Especially frustrating when these people have the money for a sizable down payment on a new home that they buy before foreclosure and the hit to their credit rating.
-MBirchmeier
We bought a home for a modest amount 50 miles form employment, because we did not want to be house poor, shortly after purchasing the price of the new homes in my development doubled, now they have plummeted to half of what I paid for my home (I paid $250,000, the price my neigbors, who are moving out paid was $500,000 and these homes are now worth $125,000) We did not sell when the price went up, we however were growing concerned, we loved our home and we loved our jobs. We were content.
At this point we are about to lose our jobs because the compamies we work for are going out of business.
Now I feel we did everything right, as we were suppose to, but I am very angry that the people running our banks were so consumed with greed that they have caused my hardship (and they are still living large) I have been thinking of walking away because the jobs have moved 300 miles away, but I do not want to ruin my good credit. I have never made a late payment on anything, I have also never been this angry. I want to walk away very badly, I could get that new job easily, but do not know if moraly I can.
I think those of you that speak of honor and morals and make blanket statements are misinformed to all that is going on out there. The only dishonest folks I see are those at the banks and investment companies.
If these folks running reputable companies are out for themselves, then I am doomed if I don’t look out for myself and finally do what’s right for me. I see this as a whole new way of life, where morality and doing the right thing are a thing of the past. That’s what the banks have opened the door to without much thought to what they were unleashing. You would be stipid if you did not adjust to the new way to survive in this new ruthless society. Another fallout will be that when we do get back on track, companies and products will be under a much bigger scrutiny. It better be good before we do business with them ever again.(One of the first things I did when my bank went under was switch to a credit union.)
I agree, and disagree with homes being an investment. I consider it an investment on the grounds that I am working towards something that will one day be paid off. Meaning I will not be paying to live there anymore (minus expenses of course) – where as if I rented for 40 years I would be in the exact same place I was.
I disagree with it being an investment when you start ‘tapping into equity’, because too many people get into trouble with it. They start raving about what they could do with all that money instead of asking whether they should. If things go badly, and they get into financial trouble the house is gone which is not a situation I want to be in. Ever.
While, I would not just ‘walk away’ from my obligation to pay my mortgage.. I still think it’s funny when people make ‘unethical decisions’ that effect lenders or creditors. We all know what good upstanding, and caring people they are. : )
We moved to Temecula in 2006, bought a house for about $550K which now is only worth about $200K. I lost my job in late June of 2008; my company was one of the first casualties of the economic breakdown. While before I was able to contribute to our obligations, now my husband has to single-handedly support three kids and an unemployed wife. With 4 mortgages to pay (2 homes) and all the other obligations, and not to mention deteriorating stock values, we have slowly eaten away at the kids’ college funds, 401K and other liquid assets just to try to keep afloat.
Like many others, we face the dilemma of making a moral decision vs a financially sound (or practical) one. Do we continue to bleed profusely until we’re sucked dry so we can say “we did the right thing?,” or should we walk away now while we still have some money in our pockets to ensure our future and, more importantly, the future of our kids? It isn’t an easy decision to make, but one has to be made. (This situation only applies to the home we’re currently occupying. The other home is also upside down but the mortgage is still somewhat manageable.)
To be sure, we had every conversation possible with our lender to try to find a workable solution to our situation only to be told each time they can’t do anything for us. The rule that the borrower have to be behind on their payments before they can start looking at a modification is absurd. We haven’t been behind, nor did we want to. We waited for what the stimulus package would do for us responsible borrowers only to find out we still wouldn’t qualify for help.
For those of you who are quick to make judgments on the “walk away” people, having a better understanding of an individual’s situation, would you still insist on us staying in our home and “do the right thing” so that you and your interests would not be affected?
We bought our house at the height of the market with a 20% downpayment fixed 30 year loan. We did everything right but got caught in a very bad situation. House prices in our neighborhood fell more than 50% and the neighborhood is getting more crimes. When we first moved here, it was nice and safe. What would you do if your family’s safety is suddenly compromised? A lot of places have become blighted from this crisis. We weigh heavily on this decision. Stay on and live in a rapidly deteriorating neighborhood with no hope to even breakeven in 10 years. Or walk away now, start saving money again, start living in a safer area immediately. There are so many things to consider. Most situation is not as clear cut as you think. Don’t judge until you know what really goes on for the walk-away families.
It seems to me that contracts are binding when we feel like they should be. Marriage is a contract, and how many people honor that? There are people on contracts at work who just walk out.
I agree that people ought to take contracts more seriously, think smarter about their decisions and the possible consequences of their decisions, and then live with their choices. But I think this lack of respect for anything but “Me” is woven very thoroughly throughout our culture. Individual rights have taken over, and I’m not sure it’s for the best.
Being a site typically frequented by folks that are fiscally responsible, I am not surprised at the commentary. But I am surprised at the lack of a pure financial analysis of the situation versus the ethical soapbox rants.
Above “Steve” wrote to say that he cannot walk away from his stock losses of 40%, why should these folks be able to walk away for their houses that far under. It is an Apples and oranges scenario Steve-O.
Stocks, if down, you don’t continue to buy them at the old price, you cost average down. One cannot do that with a mortgage, they continue to make payments on the original loan value. It’d be like continuing to buy shares at 60 when the stock is at 30m and doing so every month.
Who would do that? Is it not the classic good money after bad? I currently am doing exactly that with my mortgage (purchase price of 750k, 600k mortgage 300k Zillow value as of the other day), but evaluating my options to stop that hemorrhaging.
I did make the bad investment of buying at the peak in the Bay Area, but I did not speculate, I bought the house I could afford here, and I can still afford to hold. But should I? (CA is non-recourse on a first mortgage)
All in PITI I’m paying 5k/month. I could probably rent a house on my block next door for 2k/month and invest the other 3k.
I do have impeccable credit 800+, that would be ruined, but I’ll be building a healthy cash cushion, and probably be able to hold some of the cards I own and pay in full every month – so even if they jack the interest rates – what do I care, I never pay any.
I haven’t decided what to do – but I have yet to see anything that makes staying a better financial decision than walking away, and improving my balance sheet by 300k, and then using the savings to build up my cash assets.
The big risks would be:
Unemployment – This one is scary – but I’m in a stable job/industry
Ability to own a house again – building my cash for future huge down or outright purchase is my offset here (plus I think the stigma and lender view of this era will be different than in the past)
I’ve seen some write of an underwater house like an underwater option – don’t exercise it (walk away) – take your loss (in this case my down payment of 20%) and walk away. As of now – this is the way I’m leaning.
I’m not asking for a bailout – but will happily take it if they do anything around principal write-downs, as it would eliminate me making this walk away decision.
From the banks pure financial perspective – one would think the bank would prefer to reduce the principal on my mortgage and keep me paying them with interest (albeit on a reduced figure) than foreclose, not get payments for some time, spend money on the foreclosure process and a sale and then get the same amount they could have reduced my principal to back from the eventual foreclosure sale.
I appreciate the domino effect of such action by them, but I’d make the case that the financially wise decision may be to mark these assets to market on their books and lock down these lower risk revenue streams they can hang their hat on – versus thigns they truly cannot value properly. It will be interesting – do I wait for this mark to market principle write-down scenario to happen (if ever), walk away, or put my head in the sand continue to bleed financially – that is my dilemma.
I don’t need sympathy, I don’t need ethical/moral rants, but I would appreciate financial discussion – are there dimensions to this situation I am not considering?
I don’t have time to read all the comments above so I apologize if I repeat another’s sentiment.
What strikes me is how we encourage corporations to be unethical by shirking their contractual obligations. Think of all the encouragement to have GM get out of their contracts by filing for bankruptcy. But individuals are supposed to have ethics when it comes to making financial decisions. As a mortgage-paying home-owner, I will continue to pay. I’m not upside down, but I understand why others might just walk away.
The same thing seems to apply with jobs and lay-offs. Employees are supposed to be loyal and work hard for at least a few years, but companies lay some people off right after hiring. Also, they often quickly resort to lay-offs to improve returns in the near term.
Nice hot button topic. Lots of strong feelings on this.
Rick: “It’s people like you who make the handshake worthless – if you’re willing to walk away from a home underwater, then there is no value in your handshake, is there?”
I see you’re misunderstanding me. You believe that **I** would walk away. I wouldn’t. I have never. That’s because I would not have taken that loan. All my mortgages are on houses that are worth more than when I bought them, and none of them are higher than about 70% of the current value.
I just have compassion for the consumer who lost $100K and I do believe that many people were literally sold on buying a house that was too big for their means. The consumer is at considerable fault and responsibility without a doubt. But consider that the banks are full finance professionals, and if professionals advise you of something, especially when charging you for that advice, then that weighs heavily on your decisions. A guy in a suit with a computer and charts tells you that your debt service ratio is well within affordability and you should get the biggest house you can to take advantage of rising values and tax breaks, giving you pamplets and contracts full of legalese, explaining the details of complicated payments and interest rates that change over time. At some point the average person is at a disadvantage in knowledge and has to TRUST the banker. That’s where the banker’s responsibility comes in. A person decides to buy a house, then their advisor team helps them to structure the details. That includes the realtor, banker and lawyer plus the media in general. When all these geniuses and experts are saying the same thing then it takes an above-average person to say the opposite.
Many many people don’t understand compound interest for goodness sakes. They just get strung along.
I do understand your point about continuing to pay when you’re upside down a little and are going to live in the house for many years until you can get caught up.. The property will likely appreciate and you’ll accumulate equity until it’s positive. Consider it rent. But if a person ever had to move they would be screwed at that point anyway.
Kitty:
a) Legal contracts mean a lot. This is a very very special situation and THE PERSON WALKING AWAY is not walking away scott free. They _are_ tarnished and they’ve lost a ton of money.
b) The bank is a single “person” with whom you have made the deal. It is a system that is designed by the leadership. I don’t blame any of the front line individuals for anything. And you mention that even a reasonable mortgage can be upside down: Very very rarely. The houses only crashed because of the bubble, and even if the did crash to 50% the bank and the individual would have risked similarly and lost similarly.
c) The bank makes a ton of money off mortgages. Banks are cash cows. They take on very little risk (except over the last few years when they lost their minds) and lend back your own money to you. If you have $1000 in deposit and a mortgage, about $9000 of your mortgage is enabled by your own money. The bank charges you say 5% on $9000 = $450 per year, and pays you about 1% on $1000 = $10. So the bank makes 4500% profit from you. THEY ARE MAKING PLENTY PROFIT. You should not feel sorry for an institution that screwed up such a good and easy deal by being greedy enough to lend 100% of the value of homes that were valued at an all time high.
d) I agree with you. I have 8 rental units and I would choose bankrupt people last, for sure, no doubt about it. I think you’re not seeing it personally.
I somewhat agree with your last statement. But I reiterate, the homebuyer is destroyed, no scott-free. And as for stock investments, the bank manages those risks better typically. The loans are made with stocks as security, just like the house, and if the stocks drop too low then the loans are called in. The investor is forced to sell the investments and is left with relatively a small loan to repay relative to their whole portfolio, not a whopping negative $100K for someone who might make $50K per year. It isn’t the same.
I say that the bank should lower the loan as a shareholder because I would like to recover the money. I would not expect the buyer to stick around so I would want the bank to reduce the loan. Perhaps the property will increase over the life of the loan and the bank can recover it. It’s a more sane situation.
Well if you’re a homeowner I can’t understand why you would want the guy to walk away, you should want him to stay and if he can’t afford to stay to be able to restructure the mortgage with his lender (which the new plan will try to do for some people). Because if he walks away the housing market just crashes further and it means your house will become worth less. Personally I don’t own but may want to if the market crashes much further so I hope people walk away. I was upset about the mortgage plan because it will help prevent some of the crash that would happen when more and more people walked away from their homes. Right now home prices are still way too expensive historically and have much further to fall. Without doubt they will continue going down, the question is how much will they overshoot on the downside and if more and more people walk away they will overshoot to the downside by a lot.
I am a Gen X-er. Growing up, the mantra I heard from my parents is that if you wanted something, you had to EARN it. However, it seems like the mentality in this country has shifted from EARNING to DESERVING. People stopped waiting until they had the capital to buy something and jumped in to get that designer purse, new car, or new home because heck, they DESERVED it, regardless of ability to pay.
So, it comes as no surprise that some people now, finding that the investment they made is suddenly worth less, they DESERVE not to have to pay it.
Everyone took risks here: buyers, the government, and banks. Why are banks the only culpable party in so many people’s minds?
I find this morally reprehensible. No one complains when the value of an investment goes up and they profit. When stocks or real estate investments rise, no one asks for anything. But the minute the investment is worth less, some people find that they “deserve” a bailout. Investments go up, and sometimes they go down. A contract is a contract, and once we, as a society, shed the notion of personal responsibility, that the agreement of terms should be null and void, we have lost any sense of civilization.
In response to Matthew Paulson:
In CA, you are NOT held responsible for the deficiency. It’s CA state law… and, in my opinion, crazy.
In any case (or state), most lenders don’t pursue deficiency judgments because legal fees really eat into the potential profits. A certain percentage of borrowers wouldn’t be able to pay anyway. I also imagine the lenders are swamped with foreclosure proceedings and auctions, and just can’t handle intensive work to pursue judgments.
Situations change and in life we have choices. Banks were duping folks into shoddy loans and people were walking right into the dog $hit and not over it. Some purposely. Both parties are to blame and frankly, each situation is different and warrants different treatment. Still, it’s just time to pay the piper. Let’s just all suck it up and move on.
For those asking questions about states and bank recourse laws, I write a post about it here: http://bit.ly/11Uyb6 Scroll down to the middle for the state by state list/chart.
@Customer Revenge:
a. We know what happens with the economy and a lot of people who have nothing at all to do with banking business when people follow your advice. As it was mentioned above by Rick and Emily and others – do you really want to live in a society when legal contracts don’t mean anything?
b. Why do you view a bank as a single individual? There are a lot of people working for a bank, most of them aren’t involved in any decisions regarding mortgages. For example, all the programmers and DBAs who don’t even work with people. Additionally, even a reasonable mortgage could be upside down – e.g. if the prices drop by 50% or more.
c. “If I’m a shareholder of the bank that made such a loan to a person with 100K upside down then I authorize my bank to reduce the loan amount to at most, the value of the asset.” Well, I don’t. Assuming the bank does what you say and the value of a home goes up again, why should the owner be the one to get extra money? Real estate values fluctuate, they hardly ever go up in a straight line. Being upside down for a period of time is perfectly normal – a lot of condo and co-op owners on the East Coast were upside down in mid-90s, even those who gave 20% down. So, according to you, every time real estate prices go down, the bank should make “gifts” of 100K to everyone? Because this is what this is – a gift. How would banks make money then?
d. I used to rent out – I was briefly upside down on my previous condo in the 90s (that I had bought with over 20% down), but instead of selling with a loss, I rented out and “upgraded”. I agree with Rick – I would never rent to someone who walked out on his home. If the person failed to return his debts once, how could I trust the same person to pay the rent on time e.g. if this person loses his job or just decides that the rent is too expensive. Landlords aren’t in charity business. Landlords have their own mortgage on the home being rented as well as other expenses. So the landlords can’t afford to rent to someone who failed to pay even once.
I also agree with posters above in that a house isn’t an investment. It is a home. If you can afford it, you shouldn’t worry much about how much it is worth unless you have to sell it.
BTW – it was fairly obvious to everyone with a brain that the real estate prices were in a bubble. Even if most of us missed the effect this bubble’s collapse would have on the economy – most of us didn’t know much about CDOs and such, it was fairly obvious that the housing prices would have to fall eventually. So if someone went ahead and bought at the top – they should take responsibility for it and continue paying. Asking the bank to bring the loan value down is about as ridiculous as my asking to buy a stock from me at last year’s prices.
I’ve dealt with far more banks than you. Some bad, most good. If they are bad, I transfer funds or change loans. There is NO REASON to deal with a bad bank. I have helped my mother out of a bad mortgage by taking on her bank head on. It was a bad bank.
But, by and large, I deal with only 3 banks right now and all 3 have been excellent. Sovreign, Hudson City (a local bank) and BofA. I have encountered minor glitches. In each case, I have had them remove fees, return money, or reduce debits that I felt were improperly assigned. Each one was very willing to work with me when I was unemployed 2 years ago (luckily I didn’t have to do anything).
Taking a bad attitude into any relationship will guarantee that you fail. You seem to have a bad attitude toward banks. I am sure the people who service you recognize this and react accordingly.
As for walking away, YES I DO ADVOCATE STAYING. Why? Did you ever buy a car with a loan? Why did you continue to keep the car and pay the loan? Were you “enslaved” to the bank who held the car loan?
The concept that being underwater is a bad thing is based on flawed logic. If you’re meeting the payments, and there are no issues, then walking away is flat out stupid. As my wife says “I can live in a house, I can’t live in stocks or bonds”. A house is NOT an investment while you live in it. It is one when you sell it. So you should maintain it like it is an investment, but not manage the value like one. Sounds like a conundrum, and it is – people who view houses as “locked up capital” are fools who string themselves out. And now we see how their behavior is hurting all of us.
I have managed my finances efficiently for 30 years. Today, I am in debt only with my mortgage. Yet I will be paying, because of my financial acumen, for all the fools and nitwits who strung themselves out or walked away from their underwater homes. Is it right that I did everything correctly and the government is going to penalize me to benefit the foolish?
Is it right that someone who can walk away from their home does so – thus lowering house values and further damaging credit markets just because they are unwilling to live up to their obligation?
No it’s not right. In fact, it’s flat out wrong. Only a fool who got himself into trouble would further that foolishness and walk away. Bad decisions multiply with people who have no concept of how to manage their affairs properly.
As I stated, walking away is an option ONLY if there is no other. If you’re meeting the payments, even if it takes 15 years to pay off the mortgage you should stay. Why? For several reasons I’ve already stated:
1. No landlord in their right mind will rent to you. If they do, you’ll likely live in a pretty bad apartment.
2. Your credit will be utterly destroyed. It will rebuild, but in the meantime you may not be able to find a job. I do credit checks on all my potential employees, as do most companies. Good luck getting that job if you walked away.
3. You have a contractual obligation. You may laugh at the obligation because you’ve “lost value”. But when you were gaining value, the bank didn’t ding you for the extra value you were potentially collecting on, did they? So, when the market turns against you it’s the bank’s fault? Yes, I can see how your logic works. It’s only fair if it works FOR ME. If it doesn’t work for me, it’s someone else’s burden.
Point 3 is the reason I fear for our country. People like you feel personal responsibility is something that is not honorable or valuable. You feel that every major company is “out to get” you. If you face any difficulty or stress at all, you will push it off on others because it’s “not my problem”. You don’t want to be “enslaved” by a bank. I’m sorry, but no bank has enslaved me – even if my house is underwater. And mine was back in 1992. I was $20,000 under on a $140k home. I guess I should have walked away – right? I still own that home today, and I own another along with it. Had I walked away, I’d probably be in much worse condition than I am now.
If you were a shareholder in a bank and authorized such a move, then that’s a bank I would not work with. It is clearly being mismanaged. The best solution, today, to people suffering from mortgage difficulties is to extend the life of a mortgage by 10 to 20 years. It will reduce their monthly payments significantly without having to touch principal. That is the fair thing to do.
As for lawyers, while I’m no fan of them, I disagree that a handshake should suffice. I’ve done that twice. It hasn’t worked. Thankfully I’d never do it on anything meaningful. It’s people like you who make the handshake worthless – if you’re willing to walk away from a home underwater, then there is no value in your handshake, is there?
Rick, every word you write makes a lot of sense. I am grateful there are people like you out there!
Been in our home 12 years. Put 20% down and made an additional $40K in improvements. Went $250K upside down after the toxic bundled mortgages were revealed. My wife lost her job of 15 years in 2009. She was lucky enough to find a job but at 60% of her previous salary with no benefits. Most of her co workers cannot find jobs. The bank modified our mortgage but not permanently. The bank sort of told us they could not not help us unless we were 90 days delinquent.What happens on day 91? If you have Private Mortgage Insurance the bank is paid up to 2 1/2 times of your note. News Flash. The banks are still selling mortgages as MORTGAGE BACKED SECURITIES. After many calls and,emails to our banks Home Preservation Department they have no interest in helping us stay in our home. We are current on our payments yet the bank ordered an appraisal on our home and will not tell us why. If you think your bank is a upstanding benevolent organization just Google What your bank does not want you to know about your mortgage.
Rick: You find the banks helpful. I do not. Just have a look at my website for 2 pages of personal experiences that I’ve had with the banks and other financial institutions that I deal with (type “bank” in the search box). I deal with 3 banks. One is great, two are not. I have 5 mortgages, an unsecured line of credit, a HELOC, 4 brokerage accounts, and accounts with investment companies. So I think I have a lot of experience with banks. In general they are filled with the lowest possible level of service, they tilt every advantage towards themselves, excepting the initial efforts to get your business they are not compassionate or honorable at all, and they frequently go against the spirit if not the letter of their agreements if it suits them. Since customers have nowhere to go they can be bullied easily by banks.
It just doesn’t make sense for a person to work for a house that is worth 100K upside down. It might take 10 years to pay off 100K, which is maybe 15% of a lifespan! Are you saying it’s reasonable for a person to be enslaved for 15% of their life? Nobody denies at all that the purchaser was stupid and “walking away” is an extreme letdown on the system. But a person only has one life. I’m looking at this practically. Everyone should keep all their promises, there should be no lawyers, a handshake should be good enough for anyone and all doors should have no locks on them.
If I’m a shareholder of the bank that made such a loan to a person with 100K upside down then I authorize my bank to reduce the loan amount to at most, the value of the asset.
Very well said!
Very well said and I agree 100%
The very thought of walking away from a legal and binding obligation is unconscionable to me. When I signed the papers for my mortgage, I committed legally and morally to paying the money back. If I were to lose my job I would find a way to continue to feed my family and pay what I promised to pay. In this country it can be done. People are not willing to work hard enough to make it happen.
The people that consider walking away from this obligation are no better than Madoff, Charles Ponzi or Allen Stanford. I would propose that laws are introduced that are similar to child support (just because you lost your job doesn’t get you off the hook) that require a “earning potential test” prior to relieving an individual of the obligation to pay back loan. If they don’t pay it back, they should not be allowed to have a mortgage ever again. When someone makes a promise they live up to it. Businesses, CEOs and now irresponsible homeowners are now entitled to a get out jail free card with a bailout. Stop the insanity!!!!!!!!!!
As I pointed out (for those of you who advocate walking away and renting), good luck renting. Once your credit report shows that you walked away, you have no shot of getting a decent apartment.
Walking away is a terrible alternative for many reasons. It should be a “Last Resort”…no other option is left.
Customers revenge takes a typically Marxist view that the banks are making money off the back of the mortgage holder, and won’t do him/her any favors. Incorrect. I have found my bank(s) to be very helpful in difficult situations. The view that the banks won’t assist is true in rare, very rare, cases – particularly today.
The whole system (actually any system of economics) is based on trust. Marxism relies on people trusting each other to “give what they have and take what they need” – something we know is impossible. Socialism relies on people trusting that the government will provide properly and fully what the nation’s needs are – something we know is impossible. Capitalism relies on people trusting that contracts will be upheld and fulfilled – something we know breaks down from time to time but is generally correct and will occur.
Interestingly, it is at moments of crisis that anti-capitalists cry that the system is “broken” and can’t be fixed. Capitalism and markets do go through moments of crisis, true. But that is why we have a diversity of methods of investment and savings – we can prepare for the bad times. Sadly, very very few of us do. So when the bad times come, we choose to BREAK THE CONTRACT and thus break the system, and call for alternatives.
No alternatives work properly….yet we clamor for them. Why? Because in the 1% of the time that the system does not work, we panic and view the alternatives as fully functional, ignoring their long history of dysfunctional behavior. The safety these systems represent is not matched by their history.
Break the contract, break the trust. Break the trust, break the system. Break the system, and 99% of the populace loses – politicians gain, and we’re all worse off for it.
I am told that in capitalism, the rich are the only ones who benefit. I respond, when the government gets involved, only politicians benefit. What’s the difference? When the market is applied, lots of people get a piece of the pie. When the government is applied, corruption increases and only a specified few get a piece of an ever shrinking pie.
Good luck with all that, you folks who intend to walk away. You make it worse for yourself and you make it worse for everyone.
Rick, you are awesome
@Customers revenge:
The whole system works because it relies on people to meet their agreements, if they are able to do so. For the most part, laws of this manner are there to protect the customer when they *can’t* pay, because you’re right the banks would take no qualms about suing you for the difference if they had to foreclose upon your house if you lost your job, or were for some other reason unable to pay. Therefore various laws exist to prevent this from happening.
But taking advantage of laws designed to protect those in hardship when everything is going just fine for you is no more ethical than the banks going after those unable to pay for the difference on their homes. You agreed that the house was worth a certain amount, and agreed to pay the bank. Perhaps you should have done better research before agreeing to pay, or agreeing how much the house was worth.
IMO the worst case scenario in all this is if to many homeowners able to pay their mortgage stop doing so willingly, the banks will lobby to remove the customer protections that are being abused, leaving those that are truly unable to pay vulnerable.
-MBirchmeier
Wow! I think that even just terming it “walking away” sends the wrong message. When you buy a house, get a mortgage, you sign your name to a legal contract. You are purposely determining that your name is mud when you “walk away”. The fact that it is 2 years before you can buy a new house, or 7 years before your credit gets cleared, or that the bank may have lost the papers is completely irrelevant.
I can’t believe that I sound like a conservative old fart ranting about personal responsibility, but as a young, progressive, liberal, I believe that if the fabric of legal contracts frays so much that people believe “There are no wrong with walking away.” from a legally signed contract, then civil society is not possible and debtor prisons will return.
Here is the answer to your question. With a question——-
Did you sign a contract or other paper with your personal signature (which gives your honor, and your full faith and trust) when you bought the house, thereby agreeing to pay the loan in full? If you DID NOT sign such paper(s) you have no obligation and can walk away anytime. However if you executed the contract with your signature, then you are obligated to discharge the loan in such manner as you will fullfill your agreed to terms. Another course of action is your proving that the contract you signed was in some way illegal or flawed.. This would require a real estate/banking lawyer to examine and present the flawed mortgage contract to the court. In the case of an illegal contract you would be set free of the responsibility of repayment, and could exit the home free and clear of the mortgage.
H Spencer
WOW! I wish the world was that black and white…
Banks, Wall Street, investors of all kinds – walk away from agreements for financial reasons. Morgan Stanley is strategically defaulting on 5 properties, as I type this, because it would be a BAD FINANCIAL DECISION to continue to pay on upside down mortgages. This happens in commercial real estate on a regular basis. Why do you believe that we as individual homeowners have to abide by a different set of rules?
Kyle: I don’t understand why there are two wrongs. There are no wrong with walking away. The bank agreed to everything, just like the buyer agreed to everything. If the buyer lost their job and couldn’t pay then the bank gets to fire-sale the home without regard for the buyers well-being.
If the bank lent the buyer 100% of the money for the house then how can the bank not have the vast majority of the risk? The bank exacts an interest in payment for the risk and profit on top of that. I would not for a second bust my hump and sacrifice $100,000 to preserve the bank’s profit. Remember, the customer is devastated too.
The bank should have lent then 50% or 75% of the money so the risk would be much less to both. The buyer shouldn’t have done it. Now they both learn.
I think the bigger concern is, a year down the line, after the home is foreclosed upon and is sold by the bank, are they going to come sue you and demand the difference? Chances are they are in most states. What would you rather have a $400,000 loan on a $300,000 home or, a $155,000 unsecured loan owed to a bank because you left your home, and it was sold at auction for less than the retail value?
This person says they can still afford to pay the mortgage. So where’s the debate here? He should continue to pay. All the arguments about the banks making money off of borrowers, or making poor business decisions doesn’t erase our responsibility to live up to the terms of our agreements. Two wrongs don’t make a right. This person – apparently of sound mind and of his own free will – promised to pay, and is still able to do so. He has NO business walking away from that contract and sticking the taxpayers with the bill just because he’d rather not live in a home that’s worth less than he wants it to be worth.
If the family were truly unable to pay, that would be a different story. There’s absolutely no excuse for the person in the example to walk away.
I think it is pure crap for the banks and for anyone on here to say anything about people being backwards in their loans is wrong to walk away, we have been in our home for 7 yrs, we pay 1700/month and are still physically able to pay the mortgage, however, we are currently backwards in our home and it pisses me off. We have lost over 80,000 in value in our home. For many a years it has been said that your greatest investment is in a home, but what if it is no longer an investment? I than think it would be safe to say screw the banks. We currently owe more than 40,000 dollars more than what our home is worth, and I say that the government should make the banks, since this is mostly their fault that we are into this crisis, forgive the amount that a homeowner is backwards on their home. Why should the homeowner be at a loss? why can’t the bank take that resposibility? We have never been late nor skipped a payment on our mortgage even since being backwards, trust me, it has gone through my head to do it when I see a house with same property size, same sq. footage, bedrooms, bathrooms ect…. that are going for $100,000 less than what we owe on our house, it is sad. The banks put this country into a financial ruin and should pay for what they have done.
I think they should walk away and rent, not take out another loan on the parents’ credit. I’m boggled as to how someone would still want to borrow money after this experience. Now as far as ethics, I guess the ones that apply in this case are just like bankruptcy. It’s legal. I don’t see that people think it is a big deal (I do). If I were forced to do a bankruptcy, I’d do so, but I think it is taken very lightly. The main point of bankruptcy’s existence is that the debtor does not have to pay his debts. And that is a big, loud point that means that is a fact, even if one does not file.
As far as the incentive of others to keep up with obligations and live within their means, when many of their fellowmen do not, I don’t entirely understand the relationship. People define themselves by their own behavior.
It’s pretty easy in my mind, you walk away. The bank made you a loan secured by the house reserving themselves the right to make a busload of money off your back and still own your house. So fine, they can own your house. The bank would never extend any favours your way so don’t worry about any ethical considerations when it comes to paying. The rules are the rules as far as the bank is concerned, no need to feel bad for their feelings.
To those who say the homeowner gets only a slap on the wrist: No, the howeowner is plenty punished. They’ve lost all their mortgage payments so far, their home, their credit, etc.
Think about it, it’s $100,000. I could buy the average American’s labours for 2 whole years for that much.
One last comment:
What ever happened to personal responsibility in our nation? Our politicians have allowed us to get away with being irresponsible for so long, that nobody understands that “it’s not my fault” is not an excuse, nor is it a solution.
Blaming other people, or casting the burden of blame on others, is criminal. Walking away from a home casts the burden of blame on many other people – homeowners whose property values fall, and banks who suffer the loss of income.
Obviously spoken from someone thats house is paid for… Like to see what his reply would be if he was $150,000.00 in the hole on his house virtually overnight! Be singing a different tune then I’m sure…..
I forgot to add one part:
I never view my home as an investment. To me, it’s a place to live. I list it in Quicken at the purchase value, no more, no less. If, when I sell, it goes for less…then I will suddenly see a loss.
What got many people in trouble was that people would update the Quicken (or whatever they used – the calculator in their minds) to show the fair market value of their home and saw “untapped cash reserves”. I know this, because my wife used to talk about the untapped equity in our house. To shut her up I opened a HELOC which I never touched. I did it so she felt like there was access to capital. But in reality, the HELOC to me was an albatross. In fact, today it’s a problem because it shows up on my credit report and if I go for a refi, I’ll get slammed.
So I’m shutting down the HELOC.
Houses are NOT investments. If they turn out to be one, terrific, good for you. But treat them like one, and you’ll get burned.
There is one huge problem with walking away – something larger than any you mentioned.
The problem is this: we regularly pay for things that are worth much less, immediately, with borrowed money.
We buy a car on a loan, and the minute we drive off the lot it’s worth 1/2 what we paid for it.
We sometimes borrow money to purchase hard goods such as washer, dryers, lawn mowers – which are worth less as soon as we use them.
We sometimes pay for vacations with loans (it’s a bad idea, but we do) – worthless the minute they are done.
So the problem isn’t what the VALUE is at the end of the loan. We get loans for lots of things that are worthless at the end of payment of loan. The problem is how we view our homes as investments.
Homes, typically, are good investments. In fact, buying one now may be a very good time. But thinking of them AS AN INVESTMENT is a bad thing. Why?
Well, I own a home and I own a rental property. The rental property get “depreciation”. Well…so does a home, but we don’t get to take it off the taxes, do we? I will have to pay taxes on the depreciation once I sell the rental unit (unless prices fall quite a bit more). But I don’t get that advantage with my home. In fact, I pay alot more on the upkeep of my home….so the home is actually costing me quite a bit of money to maintain.
The investment side of me says that this upkeep is paying to make the home worth more when I sell. But in this market, that’s a losing game. So maybe I should stop the upkeep? Of course, that’s quite stupid. But that’s the same stupidity that applies to walking away from a home. If you walk away, everyone loses, not just you. You may see a short term gain (net worth rises an artificial amount, and it is artificial because you aren’t actually realizing this gain), but you cause long term damage to the housing market, the community, and your credit score.
As a landlord, I would NEVER rent to someone who had a credit rating (yes I run credit checks) which had a “walk away” on it. Sorry, it’s not happening. Means you’re a huge risk.
You can continue to live in the home and then, at the end of the mortgage, you can sell the home and you’ll have equity. That equity MAY BE LESS than you paid initially. But if that’s the case, chances are the prices of many other things will be less, too….so it could be a realistic gain (house price falls 20%, but other commodity prices fall 30% – you’re ahead when you sell).
The best thing, if you’re meeting the payments, is to stay put. If you’re not meeting the payments, approach the bank and set up a rearrangement. They all do it….and with the new crappy law that just got passed, you may get significant relief (at the cost of my tax dollars). My sister lost her job and immediately drove to the bank with her mortgage, laid out the scenario, and they worked out so she only paid interest for a period of time – extending her loan term, of course. This saved her significant cost for 3 months until she found a new job, and then was able to revert to the old mortgage terms.
They say this is difficult, and I’m sure it’s a bank by bank thing….but it CAN be done.
I say difficult times need smart and creative people and solutions. Too bad our politicians, who claim to be so intelligent, are really dumb as dirt and are trying to make us all poor as dirt.
I agree staying in the house is the best option for all people barring extreme circumstances only
Here is a question to ponder:
Can the bank come back after you personally to fix the $140k difference?? Say this person has $200k in 401k from his employer. If he goes into his bank sets the keys on there desk and says “sorry, I’m done with this property”, moves into a rental with his family, what are the non-filing for bankruptcy ramifiations? He could call his lawyer and work out the foreclosure process with the bank. But in any case, wouldn’t a person with ANY other assets be forced to give them up in the process of backing out of the loan(s) committment?
I feel the mortgage lender should be able to take these to cover the loan balance difference. But with this huge stimulus package, which I’m sure working tax payers who can afford a home in the first place will get screwed twice in this case 1) property value falling from what they worked for and 2) paying more taxes in order to fund the current (and probably future) stimulus/bailout packages.
It really takes a lot of time AND effort truly to educate yourself in order to make it from a paycheck to paycheck lower to middle class lifestyle, to that next level of middle-class or upper-class. There also is very little effort needed to live off of government handouts week-to-week. Here is to hoping that people keep finding the motivation to educate themselves continually and budget wisely, instead of giving up and becoming the uncaring mob waiting for future government handouts.
What a conundrum…
No, it’s not ethical to walk away from a mortgage, but many others weren’t ethical in creating this mess either. Is it acceptable to tell people they should have just not bought because of the high costs? That they should have seen this in advance?
From a personal standpoint, walking away from your debt is never ethical. That’s not to say it will not be the only way out, but from the overview standpoint, the look at if, why, and when to walk away is too personal and detailed for generic answers.
One thing you have to keep in mind when just “Walking Away” you could still be held liable for the difference in your mortgage and the final foreclosure sale price of the home. The mortgage company could pursue you for the difference and then bankruptcy may be the only option.
The home isn’t owned by the people alone, it’s owned by the banks and in small part by the home’s residents. It’s the bank that agreed to buy that home for $500,000, and agreed to let you live in it, repaying the debt over time. If you look at it from the point of view of the BANK making a stupid decision, not researching the area, making bad assumptions about growing home values, and deciding to invest in the property, then the question of who is at fault, and what is ethically right, becomes a bit more complex. I think from a populist point of view, it would be more ethical to continue paying on the mortgage, just so that the bank can keep making its money, and keep supporting the economy as a whole. On the other hand, it’s kind of unethical to get someone involved in paying for something that wasn’t really worth what it was claimed to be worth, and forcing them to stick with it when they have no personal/financial interest in it.
I agreed, banks make their money on people who do not know the consequences. I purchase my home on a construction loan and the builder did not live up to the contract but the bank gave my money to the contractor knowing that he was taking my family for a ride. When I complainted to the bank (Central National) they wrote a letter stating it was our problem. Now I am stuck with a home that is falling apart. The construction loam was three hundred and fifty thounsand dollars. The foundation is separating my ceiling from the walls. My mortage is $2,200,00 per month. The house is unsafe. Now! Should I just walk away. My husband and I are retired miltary and this was to be our last home. Everything we had went into this home. My mother and my 7 year old son lives with us. This is how the the the Central National Bank treat’s retiree.
I own a house that’s underwater and I intent to stay. I don’t like people who walk away from theirs. Right or wrong, they can walk away and it makes sense for some of them to do so. Banks should be punished too for their uncontrolled greedy for quick money.
The real solution is it shouldn’t be so easy for them to walk away. Credit history should be longer at least. Banks should learn a lesson (ha, like that’ll happen) not to lend to just everyone. Investors shouldn’t invest on stuff that they don’t understand. …
There was a very interesting response on the Freakonomics blog to this question. It basically said, stop paying your mortgage. You will then get a notice of default. Once you get this notice have a lawyer write a letter to the mortgage servicer asking them to produce the mortgage. Chances are your mortgage has been chopped up into securities and the servicer will not be able to produce it. If this is the case, you will live essentially for free for a time. Then declare bankruptcy. You will not be able to buy a home for two years, but you will be able to substantially repair your credit in that time. If your house gets foreclosed, forget it. It will take 7 years to repair your credit.
I’m not saying that I condone this behavior. However, plenty of people bought high “knowing” that you can never lose in real estate. The historical data shows that housing prices essentially track inflation, the exception being the last decade. If you bought your house at $400,000 and it’s now worth $200,000 assuming 3% inflation it will take you 24 years to break even.
What would you do?
On the one hand: I don’t get to “walk away” from my stocks when they go down by 40%, so neither should someone who bought an obviously overpriced house. And this will come out of my pocket about as directly as possible – it sticks the losses with the banks, and the losses at banks are being covered with taxpayer (my) money.
On the other hand, if the system is set up that way, I can’t blame someone who takes advantage of it. It varies state by state if you can get away with it though. In some states, you would still be liable for the balance of the loan. If your credit is shot though, you might be able to do a one-two punch and declare bankruptcy to wipe out the balance. (Though bankruptcy laws are tougher than they used to be.)
The primary purpose of a home is to live in.
That seems to be one of the biggest things homeowners in this situation failed to realize (You could probably have an entire series of posts on the biggest things investors/banks failed to realize in this situation). The primary concern shouldn’t be how much the house is worth, but rather how much the house is worth to you, living in it from month to month. Even though new cars depreciate the second you take them off the lot you keep paying the bill, mostly because you need a car and it’s worth it to you, just like a house should be.
As for walking away… I can understand why people are doing it, but that doesn’t make it right. If you were viewing your house primarily as an investment and not a place to live, it’s not fair to stick the bank with the consequences of your bad gamble. The banks wouldn’t have seen an extra cent if your home appreciated by $200k, why should they lose more when it goes down $200k.
-MBirchmeier
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!
You are so right….we had faith in them and lost all our investment of a life time….this is the worst feeling in the world, like a death as you leave all your money behind and all the work, hopes and dreams…..only to face the cold judgmental world because you did what anyone who has a brain would do to even attempt to re-build a life keep your enemys close!
I truly appreciate the concept of what is “fair” and what is “not fair” with regards to our friends and neighbors. I think most of us want to do “what’s right”. Whatever that means to each individual – however, when we are discussing financial transactions, contracts and B2B or B2C agreements. The emotional value driven “fair” idea needs to be put aside.
The bank will make necessary profit-driven decisions without a thought of what’s “fair”. I have a hard time with “right & wrong” in this situation – walking away is often the “right” decision. Some people WILL NEVER regain equity to the amount in which they purchased their home. Some will not for more than a decade.
What if they have to move for a job (the only one they can get in this tough job market)? Do we punish that family or shame them for taking the job and making tough decisions?
To me, it seems like littering on the side of the road, but on a larger scale: doing the wrong thing now costs everybody more, later.
ok the car analogy doesn’t work. A car loan is a straight interest loan, as you make a payment the amount of the loan decreases considerably, usually in line with the value of the car. A mortgage has the homeowner paying all the interest and very little principle up front. There is no significant decrease in the amount owed on the house as payments are made. I’m not even sure if paying down the principle a significant amount each month would keep people in their houses in this since house prices have fallen an incredible amount, over 50% in my neighborhood.
Cars can depreciate to a $0 value. Houses and land usually not, unless the land becomes unlivable for some reason. Comparing car loans to mortgages isn’t valid, they are just not the same.
What happen to the rest of Sallie’s statement?
I’ve heard it said time and time again that the U.S. is one of the few places in the world where it’s almost laughable how easy it is to walk away from a home. Many of the people that are now foreclosing on homes are not doing so because they can’t pay, but because they don’t want to. The mantra “my house is worth half of what I paid for it, why should I pay so much every month?” repeats again and again. I think this is an ethical question and the answer in my mind is simple – if you could afford to pay for it then, you should continue paying for it now. Unfortunately, we have a system in which buyer’s remorse is translated to abandonment and a mere slap on the wrist.
Mr. self-righteous, huh.
No, actually I completely understand why people would walk away from their homes. I just feel that given the same option, I would try to do everything in my power to honor the obligation I made. Would I walk away too, if push came to shove? Yeah, probably.
My thoughts on the subject have evolved since that comment in February of 2009, but I still feel there’s some sense of social obligation to honor contracts we’ve made, especially since our actions don’t only affect others, but the economy as a whole.
I have no problem paying the bank back if they had gave me what I pay for. They help the contractor by releasing my money without checking if the work had been completed. When I conplaint all they could tell me that they will look into it. The contractor drew $40ty thousand just to paint the inside of the house. Guest what after two years the paint is cracking. To make matters worst they said it was my problem. Now banks would not lean money if they were not sure they would make a profit. They did, they now own the housing complex; which the contractor purchased. But my home is falling apart as I type. It is unsafe to live in.
Yeah, unfortunately there is a lot of that down where we live. Construction was going up so fast that no one cared about quality control and what was actually going up.
“Now banks would not loan money if they were not sure they would make a profit.” No doubt–same goes with insurance companies, and some of the other “necessary evils” we have in our financial system. The thing that sucks (and it’s like a dagger in the heart to those who have been screwed by the system) is that we’ll still need banks and insurance after this whole mess is over to get our NEXT houses, cars, etc…
Ethics.. funny topic because it is the LACK of ethics that made the housing market the way it is now. People called and banks would not work with them so they walked. I bought my home 6yrs ago. I now have 3 kids that I did not have then. My home has gone down in value 80K. I am backwards. We had fixed up the home to sell it and now can not do so. We are getting ready for another slew of 3-4million foreclosures and foreclosures will continue for the next 5yrs. My family needs a larger place. IF I am lucky in 5 yrs I MAY be able to sell but I wil of spent 108K for my house. That is poor investing and poor decissionmaking. Lets not talk about ethics.. lets talk common sense. OH… and I was in the mortgage industry and I had a very good loan and I still got screwed because of all the bad loans the BANKS did and now you want me to feel SORRY for the decissions I have to make. I DON”T THINK SO!
I don’t envy your situation, but it’s interesting how you and others in a similar situation have so much anger toward the banking system. I’m not saying that the banks are without fault, but everyone involved in the home purchase process has some degree of understanding of what they were getting into…
The era of skyward-racing prices made us all a little blind to the realities of basic financial principles. I know family and friends that fell into it head-first too, and it was not fun after the fact.
I’m not asking you to feel sorry–I think in the end, human nature will dictate that everyone will look out for #1 and do what’s best for them. Heck, millions of people are now paying off their credit cards and letting their mortgages default.
But I still believe that when you walk into that bank branch and ask for money, the expectation is that you will pay it back, not follow the winds of the real estate market.
[But I still believe that when you walk into that bank branch and ask for money, the expectation is that you will pay it back, not follow the winds of the real estate market.]
When you obtain a mortgage (the ask for money part) you are doing it with the house iteself as collateral. The deal is – you give me the house, I make payments until you are paid back, and if I don’t/can’t/won’t pay you back, you get to take the house back. As so many others have said, this is not an ETHICAL issue, it is a business decision and the banks are 100% NOT willing to play ball with consumers.
I agree 100%….It is a very hard decision VERY HARD! This was done with the best intent and being stuck in a 50,000 and up extra debt… and people are eating noodles to get by, there is no shame in walking out!….I am going to stop paying this month and start saving….the banks will not ever loan us money again, not after a bankruptcy and a forecloser….It is a choice for survival!
Why is it okay for a bank use ethical if a buyer walks away, but what about a bank like Centeral National is un-ethical?
I say bullshit…your advocating that it is ok for corporations/banks to walk away from billions yet the little ol consumer has to get stuck with a bad loan, bad investment and basically an irrecoverable debt. There is no more ethics involved here people…banks and corporations walk away with YOUR money on a daily basis and why should you even consider fretting about ethics? Ha ha…what a joke…this is purely a BUSINESS decision; like the banks and corporations, it just makes good business sense. Don’t walk away…RUN!
I say RUN very fast indeed!!!! you are so right!
Also…Has everyone heard yet ….The Government is going to take all the stressed empty homes and make them into rentals….what crap! no more American dream to own your home!….its a take over thats been long in the making….open your eyes people. great info on housewire.com.
Bought this home/house 1 year ago.. sight unseen! Everyone lied from Mortgage company to owners to both agents..Including mortgage company getting VA appraisal that was @ least $15,000 over. It’s been a Nightmare. Unable to sue pervious owner for Mold, rusted out Evap. cooler, infestations, leaks in walls.. +++ He was Killed in car accident! Unbelievable. Now today, 4 home for sale in one block.. If Q won’t work with me to short sale.. I will walk away.. This PTSD senior Veteran has had enough.. I have invested over 12,000 and still .. disfunction in this home is more obvious than ever. My life is more important than the struggle I’ve encountered. You see.. there are reasons!!