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Should You Walk Away from Your Mortgage?

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UnderwaterA lot of people are “underwater” on their mortgages, that is the value of their home is below the amount they still owe on their mortgage. Other people simply can no longer afford their monthly mortgage payments and are on the verge of being foreclosed on. Regardless of the reasons, some homeowners are considering walking away from their home and their mortgage and it’s important to understand what the actual costs are going to be.

Why You Should Walk

1. It’s simple math. If your home is worth $100,000 and you owe $120,000 on your mortgage, you’re $20,000 in the red. You can continue to pay the mortgage, which includes interest and taxes that you’ll never recover, and pay $1.20 for something you know is worth $1.00; or you can walk away and save yourself a ton of money. The simple math screams that you should walk away because you don’t want to pay more money for the right to lose money.

2. It’ll save your finances. If you’re one of the many homeowners who simply cannot make the payments or are dangerously close to not being able to make the payments (and meet other obligations), save yourself the knife juggling act and take the biggest knife out of the rotation. By removing that obligation, perhaps it puts you in a better position to meet other obligations.

3. You don’t owe the bank anything. It’s a business transaction. They gave you an interest rate that was designed to protect them in the event you defaulted. You have no moral obligation to keep paying them just because you agreed to it. You can terminate the contract, return the house, and face the financial consequences afterwards. The house has become a parasite on your financial life, you don’t owe the parasite a free ride.

Why You Should Stay

1. You can still live there. With a home, you can always live there and there’s value in that. You might be underwater but if it’s not too bad, it might make sense for you to stick around and let home prices recover. Be sure to contest your property taxes so you give yourself some breathing room.

2. Walking will destroy your credit (for a few years). When you walk away, the loan will default and that will be reflected on your credit report. It’ll become harder for you to get a loan for several years and you should be prepared to be treated a little differently. Your credit score will suffer but after a few years the effects should diminish.

Ultimately the decision comes down to your personal beliefs and your specific financial situation, I just hope this article gave you a brief idea at the considerations on both sides. You have the make the decision based on how it helps you and your family, that’s who you’re responsible for, and not to base it on what others think or feel.

(Photo: mcgraths)

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96 Responses to “Should You Walk Away from Your Mortgage?”

  1. Evan says:

    Jim,

    I think there are bigger ramifications according to the State that you live in.

    There are some States that have recourse mortgages which means that even though you are done with the house they can come after you for the difference in what was owed and the short sale price.

    • Shirley says:

      That is true in CA.

      • uclalien says:

        This is not necessarily correct. California is a non-recourse state. But under certain scenarios, a non-recourse loan may be converted to a full recourse loan if a loan is refinanced.

        I am not a real estate lawyer, but based on my research, purchase money loans are non-recourse, but if you refinance, even if you don’t take a single dollar out, that loan is full recourse.

        • Shirley says:

          Aah, thank you for clearing that up. My comment was based on the experience of one young couple and they did refinance trying to get the payments down to within their means after he was laid off.

          Then when huge unexpected medical costs hit, they were no longer able to keep up and had to “walk away” but they are still liable for the difference in what was owed and the short sale price.

          • uclalien says:

            No problem. FYI, there is a difference between a short sale and walking away. A short sale means that the bank agrees to accept a sales price that is less than is owed on the mortgage. Walking away means that the borrower lets the bank foreclose on the property. The bank then attempts to resell the property to recoup its losses.

          • uclalien says:

            Also, as Valerie alluded to below, the situation you describe is fairly uncommon in CA. Banks simply don’t want to spend the time, energy, or money it takes to recoup losses in most cases.

    • HardtoSay says:

      In those states you need to be careful. If you are going to do that, you get paperwork from the back or mortgage holder stating that they accept whatever and consider it done at that point.

  2. Scott says:

    I loaned my daughter $85k to buy a $100k home. Required her to pay $15k down to make sure she was serious. In return, I gave her 1.5% lower rate than the going.

    If I had any clue she would walk, I would not loan to her, plain & simple. Can you blame the banks, now under these circumstances, to not loan much without government backing?

    I agree these are contracts only. Shafting the banks will change the future contracts by requiring more % down (should be 15-20% anyhoo) & maybe higher rates / fees & I don’t blame them.

    Morally, I think it is wrong, but morals are the last thing people think about these days when they’re broke (assumption on my part as I’m not there)

    P.s. My daughter has never been late and pays additional most months…2 years going.

    • uclalien says:

      The fact is that banks stopped doing their due diligence prior to handing out loans. This practice continues today, especially where the loans are backed by the taxpayers.

      Here’s an interesting historical note. Half a century ago, even a down payment as low as 50% was socially frowned upon. If banks were still lending responsibly, this would still be the case.

    • MikeZ says:

      No offence but the risk that she would walk is why you are charging her an interest rate. Absolutely for a person making one loan this is incredibly risky and isn’t a smart financial decision, although it is most likely a smart personal decision, unless you also contracted with a Private Mortgage Insurance company.

      Banks make thousands of loans and the risk that you would default is included by their actuaries in the rate. Banks can and do take out insurance that mitigates that risk.

      So if banks are doing their due diligence their wouldn’t be any effect of walking away from a bad loan, they should be expecting it.

  3. Jesse says:

    I feel like this article is misleading on several counts.

    First and foremost, “you have no moral obligation to keep paying them just because you agreed to it.” This line is about enough to make me unsubscribe from Bargaineering’s RSS feed. Apparently Jim feels that breaking your word is acceptable, because that’s what you’re doing when you walk away from a contract that you sign. Yes, people do it all the time in all aspects of our society, but that simply doesn’t make it right. Integrity is something that you can’t equate to dollars and cents, and I’m highly disappointed to see this article encourage such degenerate behavior.

    Next, the idea that the bank gave you an interest rate designed to protect them is nonsense if you had excellent credit going into your mortgage. They gave you an interest rate based on the expectation that you would indeed follow through with your payments, based on the fact that in the past you’ve kept your commitments to debtors.

    If you’re struggling to make your payments, work with your financial institution. They don’t want you to walk away, contrary to the idea that the interest rate protects them. Interest rates (even on poor credit applicants) aren’t likely to protect an institution from a 20% drop in property value over a couple short years.

    I do agree with Jim regarding the reasons you should stay.

    • Jim says:

      Do you have the same contempt for people who file for bankruptcy? I don’t think a mortgage and a personal promise to someone are on the same level. To the bank, it’s business and you should treat it the same way.

      As for the interest rate, that rate is based on expectation but not that 100% of excellent credit score holders will pay off their mortgages in full. Stuff happens and even someone with a fantastic credit score can default.

      I’m not saying “walk away” should be your first option but it is an option, just like bankruptcy.

      • Scott says:

        I think Jesse would agree that ones belief in right & wrong come into play here. If you enter a contract, you should pay if you can. Many are walking away when they technically can, that is wrong.

        Knowing the banks will not investigate one’s ability to pay is allowing people to walk and shaft the bank and fellow home owners by reducing the neighborhood to boarded up homes (as is my neighborhood in a very wealthy area in Cali). It’s a shame that ones take advantage of others / banks just because they thought it was a safe “bet” to own a home no matter the cost at the time.

        Many times bankruptcy is similar; people take bets on outcomes and when they happen, others pay for their mistakes. My father “hid” assets when he went through bankruptcy and I assume many others cheat the system there too.

        I know some are valid in walking, just don’t stay living in the home for 12 months waiting on the system to kick you out while banking the $$ under the matress.

      • Jesse says:

        Let me make it clear that I don’t hold contempt for people who do either. It’s not my job to judge. This isn’t personal, Jim. I just feel like this is some very poor advice, and regardless of whether it’s only “business,” it’s your word. If you give your word that you’re going to do something, you should make your best attempt to do it.

        Your recommendation of walking away is not presented as an option because you have no other choice financially; it’s presented as an option merely because you’re upside-down. That’s my issue.

        Bankruptcy is a bad practice as well in general. Sometimes things happen that are beyond your control, but many (if not most) people that file bankruptcy have landed there because of irresponsibility. It’s a lack of self control. There’s a reason you wreck your credit score for such things — it’s a reflection of how well you can be trusted to pay back a debt.

        I beg you not to take my posts as direct attacks or something personal, as they are not meant to be mean-spirited. I am simply shocked and disappointed to see this type of advice given here. I also appreciate your willingness to allow my comments through, and it says something about you.

        • uclalien says:

          @Scott & Jesse
          I think there is some confusion about what a borrower and lender are agreeing to in a mortgage contract. A borrower is not agreeing to make the required debt payments. He is agreeing to abide by the contract that is signed by both parties. In the contract, both the borrower AND LENDER agree that if the borrower does not or cannot make his mortgage payments, FOR ANY REASON, the bank may take possession of that home. In other words, defaulting on the loan and walking away from the home are well within the confines of the agreed upon contract.

          How can something be immoral if it’s written into the contract and signed by both parties?

          • MikeZ says:

            I was just about to post that. I fully agree. I mortgage certainly comes pre-written with the expectation that you will not pay and the consequences thereof. Further its not like a personal loan with no collateral. A mortgage is equivalent to going to a pawn shop. They agree to lend money based on the value of your collateral, If you don’t repay the money they keep the collateral. The Pawn Shop doesn’t care that you didn’t pay they win either way.

  4. Valerie says:

    @Evan: while that may be true in some states, I had read that banks aren’t wasting time trying to do that, because they generally get very, very little out.

    I am in agreement that there’s not really a “moral” case for staying in your mortgage. The bank gave you a loan in exchange for a house. If you stop repaying the loan, they get back the collateral (the house). I see it as business.

  5. TaJ says:

    I absolutely agree that there’s no moral dimension to a mortgage. It’s a contract. Contracts have clauses stipulating what happens when the contract is broken specifically because people sometimes need to get out of contracts earlier than the normal completion terms. This is normal, and indeed, expected behavior.

    Why do we expect that individuals and families are going to behave irrationally when groups and corporations quickly act to sever contracts that are no longer in their best interests? Why is it immoral for an individual or family to benefit from acting financially rational, but good if those same people benefits from a group they’re involved with or invested in doing so? Nobody complains about the immorality of owning stock in a corporation that’s gotten benefits from ending contracts early!

    • Scott says:

      What if one can pay the mortgage and choses not to?

      What if they stop paying just to live in it for a year for free even if they can pay the note?

      Just curious of other’s opinions on this…

      • John says:

        Businesses break contracts all the time simply because the terms have become unfavorable to them and not just because they cannot uphold their end of the agreement.

        There are consequences for doing so, of course, but the same (and arguably worse) applies to a homeowner that forecloses.

      • TaJ says:

        There’s a BIG difference between

        a) Defaulting on your mortgage so you can get out of a situation that’s no longer in your financial best interests

        b) Defaulting on your mortgage so that you can enjoy 18-20 months of rent-free living before you get foreclosed on

        The first is executing your rights under the mortgage contract, the second is cheating the system.

        If the banks hadn’t made such a hash of the land title system in this country, the second category wouldn’t even exist, so it’s a bit of an own-goal on their part. But that doesn’t mean it’s an ethical decision on the part of the family in question, even if it’s a rational one.

        • Jim says:

          I would never advocate the second one, that’s basically stealing.

        • uclalien says:

          I’m not advocating that someone should stay in a home after discontinuing their mortgage payments. But did you ever consider that perhaps it’s in the bank’s best interest to have the former home owner stay in the home rent-free rather than let the home sit vacant? After all, banks know they have a backlog of foreclosures. Simply letting these homes sit vacant is not in the best interest of the bank, former owner, or neighborhood as it would only bring down prices further and leave the door open for theft/vandalism.

          It is my belief that this is why banks don’t kick former owners out immediately after they have established that payment will no longer be made.

          • TaJ says:

            The long time delay between going delinquent and being foreclosed on is primarily due to the enormous numbers of foreclosures in the system and the severe documentation problems that the banks have created, as well as issues with mortgage securitization creating financial incentives for the people involved in the mortgage chain of ownership to draw the process out as long as possible.

            There’s no way to explain the full horror of the problem in blog comments; you should research it on your own if you want to lose all faith in humanity and our financial system. Though you may be better off not knowing…

    • cubiclegeoff says:

      I agree. It’s all business and should be treated as such. Rarely do we have people getting mortgages from banks who they know the loan officer really well, so that helps keep it as a business decision. However, even if you know that person well, it should continue to be thought of as a business deal, and not a personal one.

  6. zapeta says:

    If you didn’t buy too much house and like where you are living, the simple math argument isn’t worth much to me. I’d rather not have the hassle of uprooting and moving. However, if you can’t make the payments or you can’t meet other obligations, then walking away is just a business transaction. Businesses don’t have any problem defaulting on contracts so I don’t understand the moral outrage at people doing the same thing. The only thing I would do is make sure you can’t held liable for any price differences before you walk away.

  7. Steve says:

    I disagree that there is absolutely no moral dimension to walking away from a mortgage. Life is not black or white, come on now. Ultimately it is a personal decision and should be carefully weighed as such. To bring up the analogy of looking down on bankruptcy is not only inappropriate but problematic as well. Of course most people do not look down on those who fall on hard times and declare bankruptcy. But what about those that purposely rack up credit card debt right before declaring bankruptcy? Not every bankruptcy is the same, just as not every mortgage default is the same. The mortgage default rate of million dollar plus homes is actually higher than those of less expensive homes, I think ‘strategic defaults’ are a large part of this. I’m not going to judge, but I’m not going to whitewash all of it away either. None of this is black or white, even if the laws are.

  8. freeby50 says:

    I have a contract with my cell phone provider. If I cancel my service I have to pay them out of pocket cancel fee. Yet I’ve signed this contract for 2 years and “promised” to be their customer for 2 years and pay them monthly fees during that time.

    Is it immoral to break a cell phone contract?

    • Jim says:

      I don’t think so. Is it any more moral to try to find ways to get out of a contract like when they increase some regulatory fee by a nickel? :)

    • Jesse says:

      Your cell phone contract already has a provision for terminating the contract early. So no, why would it be immoral?

      • NateUVM says:

        Similarly, your mortgage agreement has provisions that come into play if you decide not to continue making your payments. By that (your) logic, walking out on your mortgage is still a legitimate, moral decision (just as quitting your cell contract).

        When thinking about right vs. wrong on this particular topic, we might want to consider the impact abandoning your mortgage might have on your neighbors. Does your walking away end up lowering your houses value (and your neighbors’ houses’ values) via the subsequent short-sale?

        • John says:

          Wow, great points.

          I agree and I believe that the moral dimension comes from the affect a foreclosure has on one’s neighbors. Otherwise, breaking a mortgage is not much different than breaking a cell phone contract.

        • Jesse says:

          Correct me if I’m wrong, but it’s kind of apples and oranges, isn’t it? You can terminate a cell phone contract, and as long as you pay the fee, there will be no negative repercussions because you’ve satisfied the lender. Try walking away from your cell phone contract without paying and see what happens…

          Similarly, I’m not aware of any “buyout” provisions in a mortgage contract. If there are, please forgive me, but the provisions for walking away from a mortgage are never positive in the creditworthiness sense, right?

          • freeby50 says:

            Is it immoral to stop paying your cell phone bill period? What if I choose to ‘walk away’ from T-mobile? Then what? Am I evil?

            Its obviously not the same thing and cell phones and mortgages are apples to oranges for sure. But the point is that we’re talking about a financial contract with conditions and terms that both parties agree to.

            I”m not arguing that its neat to “strategically default”. Jim wrote the article about walking away in general and didn’t specify the exact circumstances. He did mention possible situation of someone who couldn’t afford the mortgage payment.

        • Jesse says:

          Also, great point about the consideration for your neighbors. Never thought of that one.

        • freeby50 says:

          Certainly foreclosures and short sales can hurt local property values. So that is a negative impact from defaulting on a mortgage.

          I would argue that the my families financial interests generally come above my neighbors financial interests and I would expect them to have the same priorities. So if I’m faced with choosing between my families well being and negatively impacting home values in my neighborhood hten the choice is pretty obvous. But of course I wouldn’t wish unnecessary harm on my neighbors if I can help it. Just like I’d wish they’d mow their lawns, keep their delinquent teenagers off the road and shut up that damn dog.

          • NateUVM says:

            Of course your family’s interests come first… But we’re talking about moral obligations… Reasons for doing/not doing something that extend beyond your immediate interests.

            I’m sure we could all come up with examples when doing the moral or “right” thing doesn’t serve our base self-interests. That’s why there is the moral question in the first place… If it wasn’t self-serving, why would you even consider an “immoral” act?

        • John says:

          On the subject of moral issuses as well as contractual,I have some questions? If when the housing market was still great, and the equity in your house was at a significant plus, would the lenders feel an obligation to to help you out should you not be able to make the payments due to hardship or put you out on the streets knowing that they can capitalise on your investment? And If you’ve payed more money over the years of living in that house than than what you would owe at the end of your mortgage, did the lender lose any money?

    • govenar says:

      Maybe mortgages should have an Early Termination Fee, similar to cell phone contracts. (of course, people probably wouldn’t pay that fee either; maybe a court could order that wages be garnished to pay it?)

  9. Steve says:

    Forgot to add- your final paragraph does sum it up. It comes down to your personal beliefs and your financial situation. Whether there is a moral dimension to this, is also up to your personal beliefs.

  10. Diane says:

    I am unsubscribing to your blog.

    Walking away is the act of someone with no character and no understanding of what signing on to a contract is. There is nothing in a mortgage that says, “if you don’t feel like paying, you can simply not do so.” I certainly would never lend anyone anything ever again in any context if I knew that they had done this. Actions like this are doing us in at all levels – personal and national.

    • Shirley says:

      I feel that this comment is pretty simplistic and possibly written in a moment of anger or frustration.

      You are correct in saying that there is nothing in a mortgage that says, “if you don’t feel like paying, you can simply not do so. But there IS the understanding, whether it be specifically written or not, that if you don’t pay, we WILL take the house back. It’s not an offer, it’s a threat.

      I hope you will read the post by Augiebball @ 11/29/2010 and then see if you feel the same way about ‘everyone’ having no character if they have to short sell a home. Oftentimes it is not by choice.

  11. freeby50 says:

    Keep in mind that “walk away” and “strategic default” are not exactly the same thing.

    “walk away” is the broader term for letting the bank take the home back. That happens in a variety of situations including people who are broke and can’t pay the mortgage. In many cases people walk away when they have no ability to pay the mortgage.

    “strategic default” is a narrower case where people let the bank take the home even though they are financially able to keep making payments. By definition strategic defaults are people who are otherwise able to keep the mortgage but chose not to.

  12. Denise says:

    Hi,
    I was about 24 years when I bought a townhome, in 2005. We bought a fixer upper because we believed that we could increase its value to the rest of the neighborhood, and customize it to our likes and also enjoy making the changes. So that is what we did. Then we moved because my husband is in the military. Had the homes of our neighbors kept their value, just stayed worth what they were when we bought ours, we could have sold the house for about what we owed. Unfortunately, the houses were apraised too high at the time of our home purchase. And their true value was not known by us until five years later, when what the experts call “the bubble burst.” I submitted to the bank a form to shortsale, and they wanted to know why I thought I had a right not to pay them. Why am I left holding the bag? Why am I the one with no character? We had a buyer nearly a year ago that offered to buy the house for what we purchased it for. The difference between what we owe and what the buyer will pay will be covered by a program for the military; the difference is $30,000. But the bank refuses to handle the matter this way. They want a higher offer and can afford to wait for it, but my family needs to sell. And moreover, the house is not worth what the bank demands for it, it never was worth it. Why are the banks not held accountable for over appraising house values? Why are they not examined for trying to ruin homeowners? They were bailed out and yet they have no compassion for the homeowners. I do not have poor character. I had a contract with what I thought was a trusted institution, the bank. I never would have entered into a contract had I known that the price of the house I was going to buy was inflated. Buying a home is not like investing in the stock market, at least it shouldn’t be, and certainly not without presenting itself as such.

    Sincerely,
    A fairly educated American daughter

  13. MB says:

    I agree: no moral requirement. This is a business deal. The bank still has the house, plus everything that you’ve paid to live there. For the really angry people, no one is just walking away from their mortgages that they could easily afford to pay. Walking away from your mortgage, as Jim discusses above, does have ramifications. You lose any equity that you had in the house (if any remains). Your credit rating gets dragged into the dirt. You are unlikely to buy a house again for a very long time. Who would say, “Gee, I could continue paying for this house but I think it’s a better idea to lose the 30K that I put down and ruin my credit because I just don’t feel like paying this bill anymore?”

    Surely the banks have the professional ability to appraise real estate. I mean, who goes around saying, “Oh, sure, I’ll lend you hundreds of thousands more than the collateral is worth?”

  14. Augiebball says:

    I purchased a town home in a large town home association outside of Chicago in 2006. I had just graduated from medical school and was about to start a 3-year residency program. I was also about to get married, but I purchased the home prior to our wedding so the bank only considered my salary when deciding how much I could afford to spend on our home. The Realtors, financial advisors, newspapers, friends, family, etc all said, “Buy, buy, buy.” The advice I was given was to buy and then if I needed to move I would at the very worst break even after 3 years. I was naive to the entire process and I’ve learned much over the subsequent years. I figured though that the payments could never be too much because we now had my wife’s salary and the bank told us mine was more than enough to cover the mortgage, taxes, insurance, etc.
    Ultimately, I matched into a fellowship program in New Orleans and had to move after my 3 year residency was complete. My homeowner’s association refused multiple requests for an exemption to the association’s “no rental” policy so my wife and I moved to New Orleans and left our town home empty. We obviously tried to sell it, but with home values dropping and no one lending, there wasn’t a market for our place. Unfortunately, because of the association’s actions to refuse to allow owners to rent in order to ride out the storm, many of my neighbor’s were already in foreclosure which didn’t help my ability to sell one bit. Over the subsequent year, my wife and I drained ever bit of our savings paying the mortgage. I felt that I had agreed to a contract and wanted to do everything we could do to pay our debt. But, when our savings ran out we approached the bank for a loan modification. They refused. People think the banks are welcoming with open arms when borrowers approach asking for assistance with their financial stresses. That is not the truth at all in my extensive experience. The banks in the U.S. have been swamped by the massive number of distressed borrowers. They do not have the capabilities, nor the manpower, to handle all of the paperwork. I faxed, re-faxed, faxed, re-faxed the same documents over and over again and the bank continuously lost and misplaced paperwork. When they’d finally receive one document, a prior document would have expired and they’d need me to send them a new copy of that one. This went on and on. The bank then sent me a letter suggesting I pursue a short sale. I hated the thought of not paying off my debt in full, but ultimately decided that I had no choice. I had an empty home, no savings, and I am living 1500 miles away for the next 3-5 years of my training. I found a Realtor who specialized in short sales and he quickly found me a very generous offer from a pre-approved buyer. The bank spent the next 3 months requesting document after document. After hearing nothing for almost 60 days except for requests for more documents, a “negotiator” called one day to tell me that our account was being closed because I hadn’t kept my paperwork up to date with the bank. I have faxed, called, pleaded, begged with the bank to let me know as soon as they need a document and I send it in immediately. They unfortunately cannot keep up. The buyer ultimately walked away.
    Now, 6 months later, I have a new offer (for half of the original offer) and I’ve noticed that the bank is a bit more in tune with how to keep track of the paperwork. I’m optimistic we’ll get a sale and the bank will agree to waive the remainder of the balance.
    The reason I’m writing all of this is simply to tell you my story. I feel guilty and hate that I had to “walk away” from my home, but I simply could no longer afford it and the bank was in no way trying to work with me to help me keep up on my payments. It is very hurtful to read the comments on here suggesting that I am somehow immoral or irresponsible for how this has all played out. I have done my best to hold up my end of the bargain, but unfortunately because of a bunch of things beyond my control, I have been left with no other choice but to short sell or foreclose. I’m keeping my fingers crossed that the bank will finally be willing to “help me out”.

    • Jesse says:

      Augiebball, you did everything you possibly could. My comments weren’t directed toward you. You handled things the proper way — no reason to feel guilty. You are being responsible. You are absolutely NOT what I’m talking about here.

      It’s the notion that there’s nothing wrong with walking away just because you’re upside-down, even though you can make payments. It’s the idea that it’s all business, so hey, who cares?

      Let’s cheat the system — it’s just business, nothing personal. Let’s steal. Heck, let’s outright murder and kill (literally) our competitors in the name of business. After all, it’s all about business, and if it’s in MY best interest, I should do it.

      Sounds pretty silly, doesn’t it? “Oh, but you’re taking it to extremes!” Where do you draw the line? What happened to word is bond?

      If we all turn to greed, we’ll be in a much worse financial situation than we already are. And while we’re at it, let’s all flippantly break contracts because the consequences of bad credit for a couple of years are worth swallowing.

      Yes, there are times when one cannot honor a contract; there are times when one must file bankruptcy. I get that. But behind every business transaction are other human beings with families to feed and provide for.

      • freeby50 says:

        But Jim’s article isn’t about “walking away just cause your underwater and no other reason at all cause you want to and you are simply trying to scam some money out of the system with no regard for anyone else etc. yadda yadda I hate puppies”.

        It was about “walking away” for various reasons that he didn’t go into specifically. In the first paragraph of the article he specifically cites someone who can’t pay their mortgage and talks about walking away “regardless of the reasons”.

        But everyone focuses in on the “under water” and “walk away” and then declares how immoral it is to do that.

        • Jesse says:

          Maybe you should re-read the article then, freeby50. Here’s the very first point out of the gate, copied and pasted:

          “1. It’s simple math. If your home is worth $100,000 and you owe $120,000 on your mortgage, you’re $20,000 in the red. You can continue to pay the mortgage, which includes interest and taxes that you’ll never recover, and pay $1.20 for something you know is worth $1.00; or you can walk away and save yourself a ton of money. The simple math screams that you should walk away because you don’t want to pay more money for the right to lose money.”

          • NateUVM says:

            So….NOT for “no reason at all,” but to cut your losses, to stop throwing good money after bad.

            You seem to be forgetting that there ARE provisions that are taken if someone ceases to make payments on their mortgage. It’s almost as is if ceasing payment is a legitimate, legal option that is provided for in the contract.

            The mortgage agreement is a business contract between (simply) you and your bank. You break the contract, like any contract, and you pay the consequences, per the contract. There is no morality in any of that.

            Is it amoral to stop paying your heating bill?

          • freeby50 says:

            Theres a list of pros and cons about the idea of walking away. An item on the ‘pro’ list is that your home is underwater. That is not the sole reason that someone would walk away but a reason why walking a way is favorable.

        • freeby50 says:

          Its like if a woman was considering marrying a man. She might build a pro/con list for the decision. On the pro list she might have things like : he’s got a good job, he is nice, he is funny, he’s handsome. On the con list she may have : he smokes, his friends are weird, he plays video games too much.
          Then people declare : You’re an immoral gold digger.

          This article is a pro/con list about the possible decision of walking away. It doesn’t say why someone is in the situation to think about walking away. It doesn’t say any of the items on the pro/con lists are primary or the reason to consider walking away. The items on the list are benefits or downsides to the act of walking away. They are not reasons for the decision. These are CONSEQUENCES not causes.

          So no, the #1 item about being underwater is not THE reason to walk away and it does not justify walking away. Its just a thing on the list of favorable reasons for walking away.

          • Jesse says:

            “You seem to be forgetting that there ARE provisions that are taken if someone ceases to make payments on their mortgage.”

            I’m not forgetting. Of course there are provisions. The point is when you sign your name on a mortgage contract, you’re agreeing that you will make payments. It’s really that simple. There aren’t two options, one that says you can make your payments and one that says you don’t have to. There’s one option: you make your payments. And if you don’t make your payments, here’s the stuff that will happen.

            I’m failing to see why people are trying so hard to rationalize this.

            You can go out a murder another human being. There are provisions in our laws saying that you’ll face prison if found guilty. Does this make murder amoral? Absolutely not! By living here, you’re passively agreeing to abide by our laws. Break those laws, and you pay a penalty. Simply because there are provisions if you do commit murder doesn’t make it OK.

          • cubiclegeoff says:

            You sign a contract that says both, you will pay this amount and also if you don’t there will be repercussions, not just that you will pay this amount.

            And I’d consider our laws a social contract – which is a very different contract and system, not a business contract like a mortgage. If social contracts fail, society fails. If a mortgage contract fails, the bank takes the house you hurt your credit and life moves on.

          • Jesse says:

            “You sign a contract that says both, you will pay this amount and also if you don’t there will be repercussions, not just that you will pay this amount.”

            I’d like to see what mortgage contract you have, because I put in a call to a VP at our mortgage company to be sure that the contract states that you’re agreeing to make the payments. He confirmed that it does indeed. As I’ve stated multiple times already, of course there are repercussions. There are many provisions in the mortgage contract, failure of payment being one of them. But the fact that there are provisions doesn’t mean that it’s acceptable. The provisions are there just in case you do the unacceptable per the contract.

            The “social contract” example was meant to be symbolic, not a parallel example. But obviously the consequences of mortgage contracts failing are much greater than you make them sound. We only have to go back a few years to see what happens when about 5% of borrowers walk away from their mortgages. :)

          • cubiclegeoff says:

            I agree, you’re signing a mortgage that says you are agreeing to make the payments, but the mortgage you sign also says what will happen if you don’t, and by signing you agree to understand the repercussions.

            I’d be curious to know how many people actually walked away from their mortgage, rather than were foreclosed on because they couldn’t afford their mortgage. My guess is that it would be a small minority compared to the number that just couldn’t keep up with payments or tried to work with the banks.

          • NateUVM says:

            I am stunned, STUNNED to find out that a VP at your mortgage company would suggest that you are don’t have any option but to continue making your mortgage payments.

            Clearly, Jesse, you’ve found the final arbiter of this dispute…

          • Jesse says:

            NateUVM, please show me a mortgage contract that reads the way you say it does. I’d love to see it.

          • Jesse says:

            By the way… the guy is a friend, not some stranger I just rang on the phone. He was shooting straight with me on a lot of other things in the conversation, many of which were bad for his business. Don’t be too bothered simply because the contract agreement wasn’t one of them. ;)

          • Jesse says:

            And one last thing… please stop twisting what I’m saying. The contract does only provide one option in order to not break the contract, and that option is to make your payments. If you don’t make your payments, the contract is broken.

          • NateUVM says:

            Jesse,

            1) I don’t care that this person is a close friend. They’re biased. They may not admit it, or even be aware of it themselves, but by the very fact that this is how they live their lives, they are biased towards the dogma of their profession. As such, my sarcasm stands.

            2) I fail to see where I’m twisting any words. However, I will at least point out where you’re twisting mine…

            You state that I said that there are “two options,” between paying a mortgage and not. You also tried to draw a parallel between breaking a contract (e.g. mortgage agreement, cell phone bill, etc…) and commiting a capital crime (specifically, murder). Not sure how anyone could have a decent conversation dicussion contracts and morals if that’s the direction you intend to take it. Talk about disingenuous.

            Look, contracts are rarely written with the intention of having its provisions broken. However….most, if not ALL, contracts have specific consequences built into them. If not implicitely, then tacitly, or at least there are societal restraints associated (e.g. a plummeting credit score).

            The whole point of this post was to say that there are reasons why a person would chose one way of the other, and that, ultimately, it might depend on how you viewed this moral question that we have been debating, ad nauseum.

            Chose a side, but please stop saying that there aren’t options for a person to consider.

          • cubiclegeoff says:

            I would consider the clause about default being the other option to paying.

    • NateUVM says:

      It sounds as if, though, you aren’t describing a situation where you “walked away.” You continued to negotiate with the bank and worked out a settelement of sorts (the short-sale).

      What we are talking about is when people simply stop making martgage payments and walk away from the situation, entirely. At least, that was my impression.

      I don’t think anyone was questioning the morality of your situation. Not sure anyone could.

  15. dmeanea says:

    This would have been a really good Devil’s Advocate post, Jim.

  16. dmeanea says:

    I disagree with the premise suggested in this post that businesses have no moral obligation to act responsibly, and thus individuals shouldn’t either. The attitude that morals don’t come into play because “it’s a business transaction” is a major reason we’re in the mess in the first place. Just because you CAN do something doesn’t mean you SHOULD, whether you’re a business or an individual.

    • NateUVM says:

      The post wasn’t advocating one way or the other. It merely presented some of the considerations for chosing one course over an other. You’ve latched on to one of the arguments for walking away and assigned its sentiment to the entire post, which, I think, is misleading, at best.

      At worst, you just didn’t read the post.

  17. Hiltrishwes says:

    If in general people can’t be “trusted” to keep a contract then in general we will have to decide to not trust anyone ever.
    Of course this is a moral issue! Morality is based on rightness and wrongness, which is based on absolute values given to us by God. As God does not break contracts, neither should we.
    Bankruptcy and disaster could happen to anyone, but those should be exceptions, not the new rule.
    But b4 we even come to the issue of morality, this is just an issue of common sense and practicality; do we really want to live in a society where we can never be sure if someone will keep their end of the deal?
    The long term problems a general lack of trust will create are immense.
    People have been borrowing and paying back more than what they borrowed since banks were invented.
    Just because the banks are using dishonest weights does not give us moral permission to back out…”let the buyer beware” comes to mind.
    Contract means “try to keep it”, if you want someone to loan you money and you may not pay them back if things get tight, that should be a red flag to self that maybe you better not enter into the contract in the first place. We are cheapening the terms.
    We have cheapened the terms.

    • cubiclegeoff says:

      The whole point of a contract is because people can not be trusted, that’s why they exist and they’re legally binding. It is also why contracts have clauses related to different possible outcomes, if you pay the amount specified over the time specified, eventually the contract will be fulfilled and cease to exist. If you don’t, there are ramifications in the contract. There are biological reasons why we are skeptical of others and why we really don’t have trust in others. It’s not a breakdown of our society, but rather biological reality.

  18. Tom says:

    One thing about the impact to the local prices for the neighbors – during the housing bubble run-up, many of those same neighbors benefited from an increase in the value of their homes due to the influx of new purchasers in the neighborhood.

    While it may be unpleasant for them to now see the backside of that trajectory, for long-term residents it should be “easy come, easy go”.

    • Shirley says:

      I have to agree with this thought. We bought our home many years ago and at the top of the housing bubble its value was 10 times what we had paid for it. That was a real shocker!
      Now it’s value has dropped to 6 times what we paid and we’re still quite happy with that.

    • NateUVM says:

      Not everybody purchased before the housing bubble came to be. Some bought at the top and are still able to pay for their mortgage.

      My suggestion about neighbors’ home value was merely to say that, while walking out on your mortgage may be a business decision between you and your bank, there COULD still be moral consequences to considers vis-a-vis said home values. It was not to say that there ARE those moral considerations…that’s up to the individual. That, and, the scenario should be considered independently of when that individual and/or their neighbors purchased their homes.

  19. Augiebball says:

    Thanks for the positive comments. You have no idea how stressful this entire process has been and how isolating it has been as well. It’s embarrassing, but hopefully the bank will accept the offer we currently have on the table for a short sale and we can end this nightmare. If not, unfortunately, the foreclosure the bank is pursuing will likely go through. I really wish they’d be willing to just sit down and talk, but it’s impossible to get anyone on the phone or in person who A) knows anything about my “file” and B) is in any position to make an actual decision about anything.

  20. Don C says:

    I actually have mixed feelings on this. Fortunately, I am in a position where I can still pay my mortgage. Unfortunately, the value of my house is much less than the outstanding value of the house. The thought of “walking away” never crosses my mind since I am still able to make payments. I beleive that over the long haul, the value will go back up.

    For those that can no longer make their payments. I really feel bad for them, but they should not get a free house or get out of debt card by walking away. They should have to pay tax on the cancellation of debt income for the portion of the loan forgiven and should get terrible credit for the next 7 years. If there is no real punishment, there is no deterent for making really bad financial decisions (i.e. entering into mortgages they had no business signing).

    • govenar says:

      “pay tax on the cancellation of debt income for the portion of the loan forgiven” – That sounds like a good idea. I did a quick search, and it seems like that’s how it used to be, before the Mortgage Forgiveness Debt Act was passed in 2007. It seems kinda crazy to me that an Act like that would be passed, and that states like California have non-recourse mortgages.

    • MikeZ says:

      “If there is no real punishment, there is no deterent for making really bad financial decisions (i.e. entering into mortgages they had no business signing).”

      I don’t see how it was the individual’s bad decision here, I’d lay it almost entirely on the banks. I assume when you bought your house you didn’t have any reason to think its market value would go down. Based on all the evidence you had it was probably a good assumption. It is also the bank’s responsibility to predict the home’s future worth. Further the bank had more evidence than you had access to. The industry knew what sort of loans were being made to people in the area and how tenuous those situations may have been. Why is your house worth less now? I assume it isn’t because your trashing your own house, but rather an oversupply of housing on the market because the banks screwed up and made some poor decisions. So I don’t see a moral problem with walking away from an mortgage that is underwater when it is the bank that caused the issue in the first place. Now if somebody bought a house, intentionally set fire to it, and then walked away that would be a different story, but that actually is a crime and will get you sent to jail.

      As for taxing the cancellation of debt that just seems like a really odd concept for a loan with collateral. If I made you a personal loan and you walked away, you got money which should probably be considered income be taxed. For a Mortgage when you walk away you take nothing. The bank doesn’t walk away emptyhanded, it still has the house.

      • BruMar says:

        The punishment is cause and effect …

        We are all feeling the effects from the stupidity of people in how they got a house for a flip or just because they qualify. I didn’t get mine as an investment but for the reason that it was going to be a home that I can afford and live in till I die. Both ignorant homebuyers/own and greedy banks are to blame. Them housing market is based on supply and demand as you have eluded, the demand was grater then the supply which created the bubble. I worked for a while in San Diego as a fire sprinkler installer and had a demand of 8 years worth of work for commercial and residential buildings. We the people created this … if we didn’t demand cheap homes we wouldn’t have got them (no interest or no down loans.

        If we go to a business and get bad service and keep going back then was asked for it. If you go to a lender for a loan and get a bad loan offer and settle on it, then you assume the risk.

        • MikeZ says:

          Personally I have a nice mortgage (currently 4.375% fixed), and owe about $125K less than the home is worth so perhaps I’m coming at this from a different perspective. I made the decent choice in a house in a nice neighborhood, got a good loan that I could afford to pay and have been paying on time for 10 years.

          However if suddenly the oversupply became so great that I owed more than the home was worth. I’d feel no compulsion about walking away. I don’t see how I would be to blame but it was a problem with society at large (or even the bank’s fault for making bad loans that cause the oversupply). If it is the societies fault then why should I as the homeowner foot the cost instead of spreading it to society at large by defaulting?

      • Don C says:

        Say someone gives you a loan for $100,000 to buy something. You are legally obligated to pay it back. If someone pays it for you, you have derived an economic benefit, (i.e. income). Say you buy a house with your $100,000. 5 years later the value goes down to $20,000. You essentially pay down the loan with someithing that’s only worth $20,000. You are still legally obligated to pay the difference. If the bank forgives it, you have derived an economic beenfit from the relief of a liability. It’s the same thing as if the value of the house increases (remeber those days?) You sell the house and pay off the loan, and keep the difference. The excess is income. Granted it may be tax free due to exclusions under the internal revenue code, but its still income.

        Now let’s say the bank makes you pay the difference. And you go out and get a 2nd job (if even possible these days) to make the extra money to pay off the $80,000. That’s income subject to taxation. Why should your neighbor get off tax free and not have to work or pay tax on the $80,000. It’s not fair.

        • MikeZ says:

          So suppose somebody walked away from a mortgage where they actually had positive equity. Would they then be eligible for a tax credit due to the loss in equity? Currently this isn’t the case either.

          In your example If we assume the homeowner hasn’t built up 20% in equity (based on the original value) The lender is requiring the buyer to pay for Private Mortgage Insurance (PMI). This insurance specifically protects the bank in case the buyer walks away. If the bank has no loss where did the income come from? The obvious answer is the insurer but if you tax insurance payouts does that mean you have to pay taxes on the insurance claim when a tree falls on your car?

          On a more basic level it just isn’t clear that the loss in value is solely the mortgagee’s responsibility. If the proposal was to tax at 50% of the difference so 40K in your example I’d be more apt to agree. The loss in value is as much under the bank’s control as it is the mortgagees. Further the lender can and does take out insurance to protect themselves. I really consider a mortgage as more equivalent to a trip to the pawn shop. For a pawn shop if the value on the collateral isn’t what the lender thought it was its entirely the lender’s fault.

        • MikeZ says:

          One more thought on this. Assuming I buy a house for $100K and it devalues to $20K and I walk away. leaving me oweing a $100K mortgage.

          I can see your point that there is a net $80K forgiveness by walking away from the mortgage and may be taxable. BUT this is also coupled with an $80K loss (of home value) which should apply as a tax credit. So in the end it should be a complete wash.

          • Don C says:

            Losses on personal residences are not currently deductible on a tax return. Maybe it should be?

            Why would a bank be resonsible for an the depreciation on an asset I choose to buy? This of a car loan? The neder can car less if the value of the car is less than the loan balances, so long as they get paid the difference.

          • MikeZ says:

            Isn’t that why car loans have higher interest rates? I’m sure it happens all the time that somebody gets in an accident totals the car and shafts the bank. We just don’t here about it because its more common.

            I’d say for a mortgage the whole premise is the bank can get its money back if the lendee stops paying. Otherwise why do they bother appraising the house, or require you to buy homeowner’s insurance, or pay property taxes? The whole concept of a mortgage is that it is a good investment if it wasn’t the bank wouldn’t hand you a quarter million dollars.

        • freeby50 says:

          “It’s not fair.”

          No its not.

          Who said anything about fair?

  21. BruMar says:

    There is a bigger picture than stay or walk away for your own financial interest. You don’t only hurt the banks that loaned the money for your home but the investors, when you don’t pay your monthly payment the investors don’t get their dividends. If a person that owns that investment needs that money to make their home payment they might default too. If that investment is in a retirement fund then that is on hold. Cities and States don’t get their money from lack of property taxes and project and businesses funded by them are affecting negatively. That is the moral issue … not to the bank but to your neighbors.

    • cubiclegeoff says:

      Banks make loans understanding that some will default. Shareholders invest hoping to make money, but understanding that they may lose their whole investment. Investments don’t have a guarantee of income, and if they’re foolish enough to put all of the money they depend on on investments that have that risk, it’s their own fault. They buy into the policies and business plan of the bank, which includes the understanding that not all loans will be paid. Property taxes would still be owed by the bank once they own the house. I would think the loss of property taxes from a huge decrease in overall housing values is more significant of an issue.

      It may impact your neighbors but a lot of things in our control and out of our control can do this. People can’t continue to have the expectation that nothing changes and everything will be in their favor forever.

    • freeby50 says:

      ‘the investors don’t get their dividends’

      Which banks are having problems paying their dividends? From what I’ve heard most banks are making tons and tons of profit nowadays and just benefited from a big fat government bailout.

      • NateUVM says:

        Agreed. I have no sympathy for any banking institution that a) fails to take the proper actuarial precautions to prevent themselves from ruin or b) fails to properly assess the financial sovlency of the parties they loan money to.

        For my part, I am not going to worry about the banks if/when I am ever confronted with the miserable situation described in the post. I will, however, try to consider the impact my leaving would have on my neighbors. It may not be the most important input, but I won’t be thinking about the bank’s bottom line, that’s for sure.

  22. Steve says:

    A lot of what is considered ‘right’ or ‘wrong’ is also cultural. In some cultures, a certain amount of backtracking and deception are seen as gamesmanship and perfectly fine. That is okay, because everyone understands that and is playing by those rules- it’s not only buyer-beware, but buyer-be-absolutely 100% vigilant and take nothing for granted. That’s fine, it’s like sticker prices at the car dealer- 90% of the time both parties know that’s not the ‘real’ price.

    I think the discussion in this thread represents not so much absolutely morality, but a question of- what kind of culture (which is more or less a social agreement by an entire society) do we live in, or think we live in, or hope to live in?

    I personally prefer to live in a society where even a handshake agreement means something. Not legally, but just having some confidence that the other party actually intends to and will reasonably try to fulfill their end of the deal. It’s not quite morality we’re dealing with here, but it’s also beyond just the legalities of your country.

    Also, it is important that the other party (the banks) also live up to their end of the deal. But to varying degrees many banks have failed on their end as well, which leaves us in a personal and cultural quandary. I think in the bigger picture this reflects the rise of the corporation in our culture. That’s not a bad thing in itself, but now everyone has a hand in maximizing profits and ‘shareholder value’, and unless we do it with open eyes something gets lost in the process. Actually, it was never there to begin with- despite the touchy feely “we care” commercials and slogans, there is no humanity in a corporation which is a legal entity that definitely is morally bound to no one (only legally.)

    Also, practically speaking- if from now on, the benchmark for paying your mortgage is strictly “does it make financial sense?”, mortgage defaults will inevitably rise as strategic defaults become more common, and banks will simply have to ratchet up interest rates to compensate for greater lossses due to defaults.

    I don’t think anyone is ill-meaning in this thread at all, the discussions reflects the ambiguity of the times.

  23. Cyndi D. says:

    Just like life, every situation is different. The morality issue lies in the intent, NOT the action! My husband has worked 12-14 hours a day in construction for as long as I can remember to support and feed our 5 children. We moved 11 times in 9 years buying, fixing up and selling junky houses on the weekends just to make ends meet. When we bought the house we’re in now, (A 3bd.1ba for a family of 7) we invested enough sweat equity to refinance and use the $ to buy a lot free and clear with the intention of building a house for a profit and finally getting to a place financially where my husband might have time to play with our children before they move out.
    Well, due to the banks irresponsibility, the market crashed. Hence our hopes of getting ahead, or even recouping our losses left when the banks refused to give us a construction loan, despite our stellar credit and reputation. We ended up stuck with the lot since “raw” land became useless unless you can build with cash. Wishing to do the right thing we continued to pay our overextended mortgage and ended up using credit cards, the food bank, a garden etc. just to feed ourselves. Just the bare necessities mind you. No vacations or dance lessons or even health insurance, they have always been beyond our reach.
    Fast forward to today. After 2 years of using our tax returns and credit cards to pay our mortgage, we hit a wall. My husbands job in the building industry was suffering and he was forced to take a pay cut & lost all his bonuses To make matters worse, the self employment income we used to receive from building houses is gone. Having exhausted every resource to pay our mortgage we called our bank, Wells Fargo, to apply for a loan modification. They stated that they would not consider us unless we were 3 months behind. Having prided ourselves in always paying our bills on time and being moral people, this made no sense, so we confirmed this with several lawyers, made sure we qualified under Obama’s HAMP program that the tarp funds were received by our bank for, and proceeded to default for the required 3 mos.. We used the partial amount I had set aside for the bank to hire a lawyer to cover our bases and then we cried and prayed a lot!
    After 3 mos. we thought the nightmare was over when we were given a “trial modification”. Mind you, I could write an entire page on the scandalous way the bank has dealt with us and many others but, I need to go to bed eventually so I can care for my children tomorrow; besides I have had more sleepless nights than I can count since this mess has started. If you want to know the truth about the way the banks conduct themselves just google Wells Fargo and loan modification, but be sure to get a cup of coffee and a tissue.
    To be brief, after a year of faxing documents, writing countless hardship letters and waiting on hold only to be transfered or hung up on while my toddler sits in front of the T.V. or pleads with me to read to her while the dishes and laundry pile up. I am only deeper in the hole still with no real answers.
    I am left wondering why the partial mortgage payments I have been paying for the last 9 mos aren’t being credited to my account. And why is it my bank assures me consistently that as long as I pay them and am in loss mitigation that the foreclosure they strategically demanded just to consider me for their program is on hold. Then why did I receive 3 trustees sale notices by certified mail ? And that is only the beginning!
    Where is the banks moral obligation in this? All I ask is that they give it to me straight. If they can’t or won’t modify my loan, Just tell me so I can move on with my life. Don’t lie to me so you can suck me dry on the way out. All of your arguments assume that the bank is acting ethically. Don’t kid yourself, they only care about their bottom line so why shouldn’t I do the same? So much for trying to do the right thing! For who: is the question. For some fat cat who goes on vacation while I live on top ramen and cry myself to sleep. I used to care but now have learned my lesson, thanks for nothing Wells Fargo!
    And what about the moral cost to my family for trying to do the “right thing”. Is my husband’s stress induced heart attack and the resulting hospital bill a justifiable cost to do the right thing? What about my children’s falling grades because I’m to busy jumping thru hoops to help them when they need.
    I understand what you are saying, that people ought to keep their word and that we should all hold a moral obligation for the greater good. I agree theologically, but realistically, AT WHAT COST? There may be some that simply walk away because they can, but there is a lot more that are just plain stuck. Don’t generalize. We are one of the more fortunate, we are underwater and will probably be better off financially in the long run; but there are many who are in worse situations, do some research before you speak.
    What about elderly who are living on social security that just got cut who apply for a loan modification after paying their payment for 20 years only to be denied and foreclosed on. Or the couple who lives in the home their family has owned for generations; they re-fi only to end up with some medical bill that leaves them asking, “should I save my house or my spouses life?” Do you think Wells Fargo will give them a modification? They won’t. There are thousands of stories like this. Why do you think they are being sued!
    What happens to the bank really! They got their tarp money, They will get a mortgage insurance settlement plus all the good faith payment I made in hopes they would help me. Oh and they get the house We nearly built with our own two hands.
    What they’re really taking is our memories, our neighbors, our security and our sanity! What about the human cost? Before you judge any one please walk a mile in their shoes. It’s just not that simple.

    • Vicki says:

      Amen Cindi! We too have gone through Wells Fargo’s ‘loan modification’ process. They put us on a trial modification which worked great for us as the payment was reduced to a price we could afford, unfortunately after 3 months they informed us we didn’t qualify for that one and the ‘hardship’ letter writing, faxing documents etc. started over again. For those sitting in judgment, we purchased our home in the fall of 2007; in the spring of 2008 the company I worked for went out of business. I have worked in advertising for over 25 years but the economy had already started slipping and jobs were scarce. For the past 10 years of my career I’ve made in the $60k – $80k range so believe me when I say, losing that income hit us hard. We are today 3 months past due on our mortgage and once again looking at dipping into our 401k to pull 3 months worth of payments out. We’ve been dipping into our savings to survive these past 2 years. We are struggling to come to terms with what to do, as the job market is still dismal and while I have done some consulting work over the past two years, there’s been no steady income. Our home loan is $205,000 (the original loan was $180k but the loan mod added the past due payments to our balance) and the home is worth $150k if we were lucky to find a buyer. Eventually we will have drained our 401k and will have no recourse but to walk away. I’m currently in the process of convincing my husband that we should walk before draining our savings. Quite frankly my biggest concern is, will we be able to rent an apartment with bad credit?

  24. Jhood says:

    I am in the same boat as Vicki. I recently graduated from college trying to get a better job but instead things back fired. I ended up leaving my current employment because I found out I had cancer and once I started chemo I could not work because I was too sick. So now I am unemployed collecting unemployment which is not half of the income I had and my husband is still working but its not enough. we make just enough to get by each month with our mortgage and other bills but its everything. We owe 270K on our home and its only worth $175K compared to other homes selling in our area and the payment is half of our take home pay. The savings has gone, credit balances has gone up we are to the point of just walking away while our credit is still ok. we have tried to modify with our bank but because we are not past due we have not received any help. We are to the point we dont know what to do. Should one just try to stick it out until the home prices come back up or give up and move on to start over?

  25. JayDub says:

    There is a clever saying: The definition of promiscuous is anyone who has sex more than you. Please stay with me–I am not trying to be vulgar. My point is that cutting your huge losses versus continuing to sacrifice everything to keep your mortgage payments current is all relative. My condo neighbors have all recently bought similar units for about 1/2 of what I paid for them. I was furious when dozens of my former neighbors let their homes get short sold or foreclosed upon. I watched as the new neighbors (who bought the short sold and foreclised properties for fire sale prices) insisted on reducing security, landscaping, and cleaning of the common areas because, relative to their mortgage payments, the home owners association dues are “too high.” I have literally watched this building slide into something I never bargained for. So should I feel bad for my neighbors that I don’t still feel like sacrificing my quality of life so they can maintain theirs? I have done that for the last five years and I am exhausted, beaten, and am afraid I am going to have a nervous breakdown trying to keep my neighbors happy in their homes. I have gotten rid of my car in an effort to save money but am finding, after a year of that, I have to start caring about me.


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