Skip to comments.Walking away from a mortgage might make sense
Posted on 09/26/2010 7:41:50 AM PDT by Oldeconomybuyer
Millions of middle-income home- owners are struggling to pay down bloated, underwater mortgages while wealthier Americans are simply mailing in the keys to the mansion and calling it a day.
It's time for average Americans to start seeing their mortgage papers for what they are: records of financial transactions, not moral documents.
In a free-market society, an individual homeowner is not responsible for the strength of the nation's housing market. If anything, walkers may stimulate the economy, by spending a portion of the money they were sending to the banks each month.
Take a look at your finances and decide for yourself whether homeownership makes sense. A better decision for the future of your family may be to rent, pay off your credit cards, and put the savings in a college fund for your children or grandchildren.
Walk away from your house if it will be better for you to rent. And remember, walking away now doesn't mean that homeownership may not work for you later.
(Excerpt) Read more at mercurynews.com ...
Who’s going to rent to them? Their credit will be destroyed.
Gee, everybody wins when people walk from their mortgage, and it stimulates the economy too...yeahhhhhhhhh/s
That tells you all you need to know.
How will walking away from your morgage affect your credit score and ability to buy a home in the future?
Someone will rent to them but it probably won’t be a very nice place.
Lindsay, the Ph.D. candidate, should know that the federal government taxes “forgiven” debts as income.
All those refi's to the lower rates didn't hurt either. The other bozos used the rates to bump up their living standard, but....some of us used it to ensure that we could stay where we were.
Choices, choices....they all have consequences.
On Friday, the Feds reported that 95% of all new mortgages have been issued by Fannie and Freddie Mac, the govt system with NO regulatory control. Private banks issued just 5% of all new mortgages.
What this author (a Ph.D. candidate at Stanford) suggests would more than damage the private banks and further strengthen the govt financial entities.
Further, I cannot ever remember an author recommending purposeful default.
Ok, you walk away from a $1,500 mortgage payment so you can rent a $1,500 a month apartment?
As a landlord, I learned long ago to look at the *reason* for personal bankruptcy on an individual basis, divorce for example is a common reason why bankrupt but otherwise potentially excellent tenants are looking to rent.
Unfortunately, defaulting on a badly underwater loan often makes good financial sense, and if a applicant is currently employed and current on other obligations, it may even be a plus as other property managers may not be taking a closer look, and rejecting potentially desirable tenants out of hand.
If she is advising a deed in lieu she is being irresponsible not to also mention this will have as negative effect on your credit as a forclosure
A good friend told me she’s ‘giving’ her house back to the bank next year. I wonder what that could mean????
I agree. Some circumstances occur that are beyond a person’s control.
Zero Hedge is predicting QE2 on a vast scale which will cause a large wave of refis.
Dumbing responsibility & accountability downward. We are led by a lawless/corrupt man & he begets a lawless congress. We will become a lawless nation - joining the lawless/corrup world.
A depressed area like Detroit is a good example of a place where walking away from an underwater mortgage in order to move out-of-state and look for work is a far more rational choice than burning through your savings to keep the house while hoping that the local economy will turn around.
I personally know of a case in Scottsdale, AZ where someone bought an expensive condo as an investment. He took out a mortgage for $600K. The place is now worth around $300K. Rents have also dropped. So how long should someone hang on to such a property that is bleeding them dry each month? If you sell it for $300K, where do you get the other 300K to pay off the mortgage?
What some are doing is not paying the mortgage, waiting for the foreclosure, which probably takes over a year these days, and using their funds to buy things they could not afford when they were hampered by a living expense. BTW, when they don’t pay their mortgage, which includes a tax escrow, whom makes up the taxes? Who bails out the mortgagor? Me and my family, that is who. Some has to pay, and I don’t want it to be ME.
I am beyond tired of paying for someone else’s mistakes by buying more home than they could afford or having over extended their finances or for kids they cannot afford, or for government provided entitlements that are nothing more than theft from those who pay taxes.
This article is insane.
And think about this - if a homeowner walked away from his/her mortgage, should this person be allowed to have other mortgages in the future and if so, should he/she be allowed to make a profit on selling a future home?
An author, I forgot the name, was attending a Royal function in England. He asked on of the Ladies in attendance “Would you sleep with me for $1 million?”. She giggled and replied “Why, of course.”. He then asked “Would you sleep with me for $20?”. She very indignantly replied “Of course not! What kind of lady do you think I am?”. His repsonse was “Madam, we have already established what kind of lady you are, we are just haggling over price.”.
In the end, integrity, your word, is all you have. To walk away from an obligation you are capable of paying says exactly what kind of integrity you have.
If you won’t is a lot different than if you can’t pay.
If you just don’t want to pay for the bad deal you made walking away can be a solution if your sense of ethics is low enough and you don’t mind sticking others with your financial loss.
Nothing is free.
If the purchaser reneges on their obligation the loss is sustained by other consumers and/or taxpayers (aren’t they the same people?).
But isn’t it discriminatory to allow only home owners to renege on their loans? After all, what about the people who would have bought a house but didn’t (like the blacks who got reparations for farm loans on farms they never owned.
What about people who are upside down on other types of loans? What about people who bought something that no longer satisfies?
For true equality the financial institutions and the federal government will also need to make arrangements to allow others with poor judgment, poor luck or poor taste to walk away from other losing financial obligations.
- Lost a pile at a gambling casino?
- Got a car that you no longer want?
- Need to throw a big wedding reception beyond your wherewithal?
- Want to take the girlfriend on a world cruise you can’t afford?
- Want to buy a fast food franchise but you’re living on welfare?
No problem - Be a Progressive Thinker!
Take a loan out to pay for whatever you want and walk away from the loan payments.
I agree. If you have a car that went down in value, you don’t just give it to the bank? People need to honor their commitment.On the other hand, this nation must abolish the federal reserve bank, which creates the economic boom and bust cycles. Interest rate of almost zero % is like stealing our money!
Even if you are long term. If you recently bought and can buy the house next door for half the price the thoughts probably occur.
"Why doesn't the middle class walk away? There are several reasons. Many individuals I interviewed feel as though their contract with the bank is sacred. But nothing was sacred to the mortgagers who hawked predatory loans and the banks who sold loans to the highest bidder. In fact, Morgan Stanley, one of the major traders in mortgage-backed securities, recently walked away from several of its San Francisco buildings."
"It's time for average Americans to start seeing their mortgage papers for what they are: records of financial transactions, not moral documents. "
“Sure it might make sense...if you don’t mind reneging on your legal and moral obligations.”
Well my house is paid for, so I don’t have a direct stake in the issue, but I don’t believe there is a moral or legal obligation involved. It’s a business deal, nothing more. The buyer is betting (with encouragement from the “experts” that the prices will continue to go up, and the lender is betting that he will be covered even if you default. Also BTW, the buyer is paying the lender interest to cover the risk of a default, so there’s no “moral” issue when interest is paid on a loan.
As for the moral part, he lender didn’t loan you the money based on your “word”, he loaned it based on his ability to foreclose if you didn’t make the payments... And if he foreclosed and the property brought more than you owed, he would keep the extra cash.
As for the “legal” part, that’s what bankruptcy laws are for... There’s nothing illegal about going bankrupt.
Unpaid taxes usually results in a tax lien which is generally paid by a new purchaser before clear title can be transferred. The property may be sold to pay the tax lien after some period of time.
I am not certain you or I ever end up paying the lien.
Sure it makes sense, now that honor and personal responsibility have been declared null and void by the leftist, ruling class. Any time you buy a new car, you’ve paid dramatically more than the thing is actually worth. So should all of those obligations also be “walked out on???”
Moral obligations, sure, but what legal obligations? You’re not taking the house with you.
"In my research on homeowners in default in Santa Clara County, I have spoken with many individuals who are cashing out 401(k)s, borrowing from friends and family and using credit cards to pay their mortgage. Sadly, homeowners who are least able to pay their mortgage, whether because of unemployment or a ballooning adjustable-rate mortgage, sacrifice the most to keep their mortgages solvent. If this trend continues, expect to see increasing levels of wealth inequality for many years to come."
And some people didn't. So what's your point?
It is not the best thing to do - but getting out from under the mortgage payment and living cheaper can equate directly to personal and family financial survival... If foreclosure is a highly likely - then walking out early means retention of cash reserves... assuming the family finds a cheaper way to live... The consequences are about the same... Hitting the bottom means hitting the bottom... A loss of a job brings consequences - loss of a home... It is not immoral to lose your home if you lose your job and cannot get another one.
I get the impression that a number of posters on this thread are quite naive and have never gone through tough times... Tough times happens even with the best of intentions and actions to do otherwise.
Consequences of a Foreclosure or Walking on a mortgage - the IRS Regs. considers relief of debt as income... Under a foreclosure or walking away a 1099 is likely to be issued by the mortgage for the unpaid balance of the mortgage - this could be a huge amount - say $100,000 or whatever... You are then obligated to pay Federal Income Tax on that amount as added to your income for that tax year.
For all you folks that think there is nothing wrong about this behavior, please add that statement to all of your load applications....
After all, if you fail to make your views known, you might then be a liar, or is telling the truth now “optional”?
Exactly. But you might be surprised how many self-described conservatives in this forum will disagree with you.
Knowing that the bank would prefer having the home occupied than vacant, they'll plan to either live in the home for free or for those who own another home, they'll rent out the foreclosed home and pocket the proceeds. The backlog in courts is such that they can easily rent out the home for 12 months this way. Depending on the area and court backlog, the less risk averse may go for a second year renting and pocketing the proceeds..
Unless you lost your job or your job required you to move. Guess those people are bums, though.
That way, new connections in that walnut sized mass between your ears may be made, thus leading to a New Life of Enlightenment for you!
Ta-ta, I'm off with my cup of coffee, my kid and my wife to luxuriate in the beautiful view of the fog over Capitola out my front window, have a nice Sunday....
There are people who have defaulted on their mortgages, who are quite able to foot the bill but choose not to do so, in the full knowledge that banks are being very slow to foreclose and evict ... hey, more free money! Live rent free in a great house for a year or more! That the house has negative equity is a further perverse incentive.
If they are working and the foreclosure is the only black mark on their credit they will have no trouble finding rentals. In fact the investor who buys their foreclosed home would probably love to have them as tenents.
Your wrong... Interest is paid to them for the risk they are accepting.
Yes, but (I’m a landlord too, but am new to it) if a prospective tenant is brave enough to start ignoring a big scary bank, what’s to keep him from ignoring me, a brand-new “small and meek” landlord?
I decided someone who just decides one day to NOT PAY THE MORTGAGE will just as easily decide one day to NOT PAY THE RENT.
So I went with someone else, with just as good a job, but safer and with great credit.
But you’re right; these two were *far* better than the next set of tenants that came behind them in my rankings. What a nightmare some people are. Someone actually wanted to move in with 8 dogs!
OK, so I was right. Those people are scumbags who deserve to be homeless, so long as they crawl past your front door so you can laugh at them, declaring your superiority over them.
That doesn’t strike me as particularly helpful, but to each his own.
Morality in business? A contract has terms, including penalties. That’s called making a deal. If you incur penalties, you haven’t broken any moral code. You’ve incurred penalties that were part of the agreement. A bank knows their is risk of default in a mortgage loan. I am sure they charge enough to cover the risk. A person should do what is in their best interests, as long as it’s legal.
- Robbing a gas station