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!!!!