19 Replies Latest reply on May 23, 2011 1:48 PM by JerryD

    Mortgage, walking away

    Golf7
      Has anyone walked away from their home because it was so far underwater (Our mortgage balance is 230k - home is listed for 155K! (Working on a short sale) I am getting ready to retire and am contemplating walking away now so I can rebuild my credit before I retire. I am 64 now and plan to work until 67-68.  Any thoughts or advice...
        • Re: Mortgage, walking away
          Chrysalis

          Walking away from a mortgage, or any other debt obligation, may not be illegal but it is morally reprehensible. When you purchased this house you loved it! You just HAD to have it even though you didn't have the cash to buy it. You went to the bank and said, "Please, please loan us the money to buy this house we just HAVE to own! You will make us so happy, and we PROMISE to pay you back with interest." Now you are not only screwing the lender, your foreclosed property will lower the home prices in your neighborhood for years to come. If you had lost your job and really couldn't pay the mortgage, that would be one thing. But you just don't WANT to continue to pay your mortgage. Shame on you!

          I also have to wonder what you were thinking when you bought the house. With a remaining balance of $230,000 I assume you have not owned the house for more than a few years. We bought our condo when we were both in our late 50's. Knowing that retirement was not that far off for us, we were looking for a place where we could live for the rest of our lives. We chose a condo instead of a single family home precisely because it was cheap enough for us to pay it off before or shortly after we retired--so no mortgage payments during retirement. If you did not plan to stay in your house for the rest of you lives, why did you commit to such a large mortgage? Were you hoping to flip it in a couple of years and make a killing? Well, that plan didn't work, did it?

          Choosing to honor your committments, avoid damaging your neighborhood property values, and live with the consequences of your risk-taking decisions requires a strong sense of personal integrity. Most homeowners are underwater right now, particularly those who bought within the last 5 to 8 years. Others on this forum are trying to find ways to honor their committments by renting out their home, or refinancing at a lower rate, or offering a seller-financed mortgage, or something. You may call them chumps. I call them people with honor and integrity and I admire them.

          • Re: Mortgage, walking away
            jkom51

            I can understand your desire to walk away. However, I will say it would be virtually impossible to 'rebuild' your credit rating in such a short time. It took us almost 12 yrs, step by step, to rebuild our credit after a bankruptcy. We kept our house, and were also still working at the time.

            This will stay on your record for a full 7 yrs. Rebuilding your credit by using gas cards, secured charge cards, etc., will still take time. Banks are much more cautious now than when it happened to us.

            Are you absolutely sure you will not have to pay the remainder on the mortgage? The IRS also tries to tax you on this remainder even if the bank doesn't require it back - are you aware of this and have you investigated whether it will apply to your situation?

            Also, what do you plan to do with credit in retirement? This is an honest question. A damaged credit rating will affect apartment rental (many owners do check credit records, although most don't), as well as buying a car at reasonable interest rates.

             

            • Re: Mortgage, walking away
              charadrius
              Under those circumstances, I'd walk away.  I wouldn't consider it any more morally reprehensible to walk away than for a bank to foreclose on a home, which people seem to accept.  It's the banks responsibility to provide loans in such a way that they don't lose money.   The bank failed -- you don't owe them moral concern.  While legality and morality are two different things, in this case I would only pay attention to the legality.   Issues of credit rating are another story.
              • Re: Mortgage, walking away
                cowboybob
                Banks walk away from debt all the time.  Following is a quote from a NY Times article. If I were you I would simply consider it a business decision.  No need to bring a phony type of morality into the equation. If you are worried about credit issues, weigh that into your decision.

                "Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with. But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials. Former Treasury Secretary Henry M. Paulson Jr. declared that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.” (Paulson presumably was not so censorious of speculation during his 32-year career at Goldman Sachs.)"
                • Re: Mortgage, walking away

                  Guess it doesn't matter to you that you are hurting your neighbor's equity in his home, in case he needs to sell it within the the next year or five. Maybe you don't like your neighbor, perfectly understandable. Still seems low and despicable to walk away just to hurt your neighbor's home value.

                  Nevertheless, the morality is not phony just because the banks are doing it (remember your mother telling you, "just because your friend is doing it, doesn't mean you should."?); so now our standards of personal behavior, morality and ethics are lowered to the bank standard? I'm likely not holier than 'thou' but I'll bet I have no trouble exceeding the banks' standards for ethics and morality.

                  • Re: Mortgage, walking away
                    tozenne

                    I'm not sure why you care much about your credit rating if you will have assets after walking away from your mortgage.  I would hope you aren't thinking you'll buy a new car sometime soon, or need to take out a loan for an costly vacation.  I have an excellent credit rating, but it hardly matters because I pay all my bills when due--nothing would change if my credit score were poor. 

                    You do need to check if there is recourse in your state for the unpaid balance. 

                    • Re: Mortgage, walking away
                      kam252
                      Why can't you rent the house instead of walking away from it. If you rented it for 4-5 yrs the real estate market should be better than it is right now. Then you could sell it for more than you could right now. Real estate usually comes back up eventually. Don't ruin your credit by walking away from the house and your financial responsibilities.
                      Karen, Massachusetts
                        • Re: Mortgage, walking away
                          nevertoolate
                          I believe that trying to rent it out might be a good solution. You get a lot of nice writeoffs your income tax, so that it may turn out to be profitable. If not, you have as much right to walk away from a mortgage as the banks have the right to try to destroy your credit..
                          • Re: Mortgage, walking away
                            wyldchyld

                            Walking away from a mortgage isn't the most honorable thing; however, sometimes, there are circumstances beyond one's control.  In early 2009, I was laid off from a job I believed to be secure.  I had only 6 years to go before retirement.  I had just purchased my first home, as a widow, 2 years prior.  I was elated.  After making a couple of mortgage payments from savings, I quickly decided I could no longer keep up the payments.  My financial advisor told me that unless I was passionate about my house, and planned to live out my days in that house, I should use neither my savings, nor retirement funds to make those payments.  He told me I would need those funds during my retirement years--thus the reason for having those accounts in the first place. 

                            In the end, the bank began foreclosure proceedings.  I did sell my house in a short sale, approximately $100K less than I purchased it two years earlier.  Yes, my credit is damaged, and the short sale will remain on my credit history for some time.  After the short sale, I moved across the country for a fresh start.  I just purchased a modest home with a partner.  I had to pay cash as I was unable to obtain a mortgage despite having adequate income flow.  The loan officer's exact words were, "we all know why this happened.  Your credit is "tarnished" but will recover.  In about two years, you should have no problem obtaining a mortgage."  As for purchasing a car, as someone above mentioned, you would be far better to purchase a used car, again using cash or even borrowing.  We all know the value decreases significantly once you drive off the lot.  Sometimes, you don't always have a choice in the matter.  Don't let people make you feel guilty if walking away is what you have to do.

                            • Re: Mortgage, walking away
                              sherylbug
                              During the bubble, people made crazy buying decisions because they thought the market would go higher forever.  Now, people are jumping ship because they think the slump will go on forever.  Crazy.

                              Back in the early 90s I made my first real estate purchase.  It was a condo for $120,000 and the buyer had to bring $40,000 to the table because the market was down.  Down, but not at the bottom.  Within a couple of years similar units listed for $100,000 weren't selling.  But a few years later, before the height of the bubble, I sold it for $275,000.  Because I was concerned about the continued drop in prices early on I paid off extra principal every month, which means that after 10 years I got to keep a nice chunk of that price.

                              I bought my current house for $350,000.  I didn't make a huge down payment because it needed work.  Sometimes I wish I'd just put my money in the bank and waited, but as long as I can pay the mortgage I will continue to do so.   And in my area I'm fairly confident that while there may not be another bubble prices will recover substantially within a few years
                                • Re: Mortgage, walking away
                                  JerryD
                                  Shery makes a good point. In 17 years, our previous house more than doubled in value. However, early on I was sure that there were long periods where I would have lost money if I sold, especially if I included the selling costs. It matters greatly how long your horizon is and then on when you sell.
                                • Re: Mortgage, walking away
                                  Patgrick

                                  I do struggle with this...if you are walking away just because it is underwater, that is not right.  If you are unable to meet your obligations, then that is a different matter.  As others have pointed out, there are implications (taxes etc) to you taking this approach.

                                  I do commend you on trying to do a short sale.  You should honor your committments. 

                                • Re: Mortgage, walking away
                                  macduffpat
                                  Walking away would be the wrong thing to do on every level.
                                    • Re: Mortgage, walking away
                                      JerryD
                                      If by "any level" you mean under any circumstances, I can't agree. I certainly feel that walking away for convenience or short term gain is not right, but one in desperate circumstances has to do what ever it takes to keep going for yourself and especially your family.
                                    • Re: Mortgage, walking away
                                      Longlaker
                                      Golf7 said...



                                      Has anyone walked away from their home because it was so far underwater (Our mortgage balance is 230k - home is listed for 155K! (Working on a short sale) I am getting ready to retire and am contemplating walking away now so I can rebuild my credit before I retire. I am 64 now and plan to work until 67-68.  Any thoughts or advice...
                                      If the value of your house had increased in value would you sell it & share the profit with thebank?