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.
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.
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.
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.
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.
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.
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