More Walk Away From Mortgage Troubles
When you walk away from a mortgage obligation, your bank forecloses on your house. If you want to make it easy on them you can move out and send them the keys, but some prefer to stay in the home as long as possible "rent-free". It's a growing problem with falling home prices -- because the refinance or sell options are gone -- and borrowers find that they're stuck with a loan they can't afford.
Is intentional foreclosure better than the alternative? If you ignore the ethical issues some come out ahead if they just walk away from mortgages. Sure, you pay a price -- your credit will suffer because a foreclosure will appear in your reports for 7 years. But what's the tradeoff? Suppose you put no money down on a $300,000 home and made payments for a few months. Now the home is worth $250,000. You either repay the $300,000 (sooner or later) or you just walk. If the loan is a non-recourse loan, banks are unable to pursue walkers for losses.
In a few years you'll be able to buy a home again. Furthermore, you won't ding up your credit by missing multiple credit card payments, defaulting on your auto loan, and declaring bankruptcy. Some walk away from mortgages as soon as they see trouble just to get the clock ticking -- the sooner your start the sooner your credit will improve.
Let me emphasize that I don't endorse the strategy of walking away from mortgages when things go sour. The strategy exists, and it's getting used more often. Indeed, opportunists are moving in to profit from the practice: YouWalkAway.com has a kit telling borrowers how they can walk away from mortgage troubles for the price of $1,000. Also, there is evidence to suggest that some borrowers choose to quit paying mortgage loans even though they can afford to make the payments.
To find out more about the trend, see some of the recent coverage about folks who walk away from mortgage troubles:
Alternatives to walking away from mortgages:
- Debt Workout Programs
- Deed in Lieu of Foreclosure
- Borrow money at P2P lending sites like Prosper.com
Comments
Never heard of people walking away from a mortgage on purpose. Can’t believe they could do that with a clear conscious! So glad that I’m not in that position and hope to never have to be there - knock on wood.
I have heard that people know they are loosing their homes, go and get any and all equity from the home and also stoppaying hte mortgage. The Banks are only getting what they deserve for approving people for mortages Banks knew the people couldn’t afford.
I think the best way out of a mortgage is the short sale, or finding a good investor to buy it out from you for the remaining balance on the home.
A short sale is a horrible idea, you can be taxed on that amount forgiven by the bank.
As for it being a matter of conscience, I would argue that the banks should have protected borrowers better during the lending process.
What if your home needs repairs and you find out the home inspector (recommended by the bank) did a horrible job by not finding things before you bought the house. Now you need $15k to replace the roof and plumbing, but you can only get $4k on a home equity loan.