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.
My two morgages about equal my home value. I’m retired and want to sell, but not wth a loss. It’s too late in life to worry about my credit. I would travel and rent. Why shouldn’t I walk away?
Why not!the banks already make their money,ipay them 3,300 amonth for 3 years +30,000 downpayment and they foreclose me anyway plus gov is giving them more money people do the rigth thing WALKAWAY
This is to Heath,John,Chris,and Raul: You can make all of the excuses you want,but the fact of the matter is this is WRONG! You are just trying to make yourselves feel better by rationalizing that the banks have enough $, that you want to retire, blah,blah,blah. I’m so sick of people who don’t take responsibility for their mistakes(AKA-YOU!) If you dealt w a bad banker-ITS YOUR FAULT, If you got into too much debt at retirement time-ITS YOUR FAULT. Life isn’t fair! You made an agreement and there are plenty of excuses why you should do this…BUT THEY ARE ALL BAD!
Seriously Anne, how can you be so judgmental of others in today’s economy? Obviously you haven’t been hit by these hard times, and apparently you don’t feel bad for those who have. Did it ever occur to you that a person’s situation might change if they loose their job and their income is gone? I don’t like those who expect a free ride, but this economy has really affected so many good hard working people who have been left with no other choice.
Using a calculator i found on one of these walk away related sites, it hit me that it will take us 13-to maybe 20 years OR MORE to get our equity back to ZERO. Are you telling me I have to slog it out and make my family suffer. The alternative is much more attractive. Do a short sale, or walk. What’s the worse that can happen? I have to take a hit on my credit? Credit got me INTO this mess. I’d rather pay cash from now on. Besides there are desperate lenders. I have never missed a payment on anything but we are barely hanging on. I got sick and had to run up my debt and now we’re unable to refi, and do you think HSBC gives a rat’s butt? Of course not. They are charging us usury rates and they will write off the loss and find another sucker. The game is RIGGED people, wake up. Stiff the banks and don’t feel bad about it.
Do you even know how the credit system works? Do your research. YOUR SIGNATURE FUNDS THE LOAN! The bank loans ZERO $. Once you sign the contract, they convert YOUR PROMISE TO PAY INTO CASH. Then they take that FUTURE payment and loan out TEN TIMES that amount. It’s called Fractional Reserve Lending. And it is a MASSIVE SCAM. I kid you not. So don’t talk to me about ethics! The banks can eat me.
walk away now, i hope every home owner does.screw the thief bankers,let em get a real job,credit is a big SCAM
2 1/2 years ago we had a salary of 3,000,000 and decided to buy a 4,000,000 house. We put 1,000,000 down, put $250,000 into updating it, only took out a traditional full doc loan (no seconds) and were planning to pay it off in a few years. 4 months after we closed all hell started breaking loose in the financial business, lost job got 1 year severence. Meanwhile our stock portfolio took a huge hit and we could only sell our house at 2.8 million. There is no financing for jumbo loans. Every month our money bleeds out. We did not go in over our head, we did not get a mortgage or house we couldn’t afford, we didn’t fudge our salarys, we put down a huge downpayment. Well, I am not going to let what is left of our savings melt away since now my husband only makes 150,000 not cutting it for a 17,000 per month mortgage payment, We took our pain, the bank will have to take theirs. I don’t feel bad about it, we were planning to stay here forever. We will stop paying and stay as long as we can to maintain it and then buy a small home cash or rent until the market comes back around. It only makes sense, or else we could continue to pay $17,000/month rent (plus another 3,000 month in taxes) for money we will never ever ever get back.
How can you people bash others in this position. They did not produce this problem by paying all their bills and playing by the rules. The fact of the matter is the banks and lenders completely screwed all loans and now are pawning houses off for nothing. The mortgage companies have decided to sit on the money given by government (tax payers money/my money) and will not negotiate with borrowers in any way. I for one would not spend $3,000 dollars a month on a house that is worth $1,000. It was their decision to sign the paperwork to pay a given amount, but it was the LAME ASS BANKS decisions that screwed them over. Only decision left is to walk away, save yourself from total devastation and continue to pay all the rest of your bills. You people are ridiculous expecting a first time home buyer to just forget about the rest of their life because they signed a piece of paper. Obviously no business owners commenting here! WAKE UP it isnt the borrowers fault the Banks completely undermined them and destroyed their future plans!!!!
I’m really glad I found this article & your comments. Like “walkingawaysoon”, I put a huge down payment $100k on a $400k home, paying $2300/mo expecting to retire & live in forever. My home is now worth $180k at best with today’s values. I lost my job a couple of months ago & my bank is NOT working with me. I’ve been on countless calls & nothing! I’ve had a spotless payment history for the last 20 years, never late, and with the same loan company (Countrywide) until recent take over of BofA. I am not a quitter & have never felt it is someone else’s duty to clean up my mess. However, with absolutely NO negotiating with BofA, won’t even take a partial payment & told me “we can’t modify your loan because you are unemployed” (I get the maximum unemployment & offered to pay 1/2 of it each month until I find a job)…I’m too am throwing in the towel soon. I’m absolutely heart broken and am completely upset my credit is now going to be ruined because I can’t get any help. It just doesn’t pay to be an honest, hard-working person in the US. For those of us that are and have been, we get it in the end WAY more than those unmoral cruds that just walk away after no money down and didn’t pay a dime each month. It’s just not right! But in my case…that bank wants my money…let ‘em have it in another foreclosure!!!!
I have been unemployed full time for a year now. I work very little and have used all my savings and even borrowed from my parents. This is my first home. I have excellant credit. But I am sick of trying to scrap every cent to pay my morgage and then worry about the next bill. I do not want to borrow from family anymore (I have yet to pay back). I have nothing left. Can’t get a full time job to save my life in this state (MI). My home is holding me back from looking and going elsewhere. I can live with family and put stuff in storage. I am planning to walk away in a few months. I will pay the next few months while I pack and get everthing out and then I am gone.
The only thing I am confused about is what exactly do I do? I plan to stop paying and then what? Do I just wait for them to come to my door to tell me to leave? Do I go and give them the key? I have heard they get lawyers. I can’t afford one.
No matter what I am leaving with my self respect.
My debt to income was high, 31%. Then IRS hit me with $1,700 due to tax service error. Then $980 in auto insurance came due. I went to Chase for a loan mod, had a Chase Banker check all my paperwork, he faxed it in. Month later they say they didn’t get what they needed. Sent it in again, $2 per page to fax it myself this time. Month later get another call, they didin’t get what they needed. Wifey, going through meno, took the call. . .lost it and told them to get off their as**s and look around for the dang papers, they already have 2 copies of everything. Month later I get a loan mod denial. Then wifey’s job cuts her hourly 25%. I’ve never been late on anything, but everyday somebody else throws another cup of water in my sinking boat. I got wifey another job, got her 25% back. I go on 60 hour weeks. Things are starting to look better. Today I get another dun from IRS, nuther $1,200 back taxes. Tax lady must have made another mistake. And wifey only worked 16 hours last week. I got her two more jobs, all she had to do was take the tests they sent to her email and she would have had a better job. Wifey deleted both companies email tests. Mine is not a flip house, I’ve been paying on this mortgage 15 years. Trouble is wifey and I combined now make less than half what I alone used to. I need a refi at less than 5% tack costs on the back end. After 40 years of marital bliss I don’t know the woman I’m living with. Like she’s gone crazy on me. I too old for this crap. It’s like the world waited for me to get old and is kicking me when I’m down. I don’t know why Chase can’t refi the WaMu note at a lower rate. They’ve got all the history they need and it’s cheapest for them to do it. If wifey acts at work like she does at home she’ll get her butt fired. Then I’m outta business and we’re on the street. I’m sorta having a problem keeping a positive attitude through all this. Now Chase raised my VISA card interest in spite of never being late on anything. Creedy SOB’s, looks to me like they want my house. I’m too damned old to be a startin over.
Cheers,
Its a business decision, not a moral issue.
Executives make bad business decisions so they lay off 1000’s of employees to lift their stock values for the share holders. This also allows them to collect on big bonuses.
And no body piles the guilt-trip on them for all the employees who paid the price.
If it is a good business decision for you to walk away from your mortgage do it. When making that decision do not listen to moralists.
Thanks for your comment Steve.
I’m in the process of a voluntary foreclosure. I first went through the emotional and moral delima of losing my home and the ego hit of a foreclosure.
After talking to my financial advisor and reading hundreds of posts on the topic; I have finally been able to set emotions aside and see this as a financial decision.
Walking away will put my family in a strong position in two years. Staying will probably destroy us financially…not to mention the stress it is putting on the marriage.