Walking away from your house/mortgage

A couple of thoughts ...

1. If you ever want to work in any job that requires a security clearance or is associated with financial markets, law enforcement, medicine or the law, walking away from a mortgage will at least hurt your chance of getting the job and may kill it.

2. Your credit will be destroyed for 7 years, and many employers routinely conduct a credit check to evaluate you as a candidate.

3. There is a very strong movement to hold people responsible for walking away from mortgages and it is at least somewhat likely that once the banks sort out the current backlog of defaults, they start going after people personally on these debts.

A short sale is not held against you the same way a foreclosure is, but it sounds very unlikely you could conduct a short sale given the market circumstances.

All I'm saying is you should go into it with your eyes wide open about the consequences. I have a friend who lost out on a PR job with a major government agency -- six figures - because of his credit issues. It just wasn't acceptable to them because of the area they regulated.

 

He's right about the job stuff. I have a job where I deal with the federal government a lot and I had to get clearance in order to get hired and the biggest part of the background check was a very extensive credit check.

 

The credit thing is the biggest issue, but I'm also not sure it's the end of the world.

The foreclosure stays on your credit report for seven years, but your credit will start improving fairly quickly as long as everything else is good. Keep paying all your other bills on time, pay down your debt, etc., and your credit will start to improve. Really, the biggest issue is that you probably won't be able to buy a house for seven years. If jobs use credit reports and they have some wiggle room on it, you can probably disclose that beforehand and the reasons it happened and it might help you out. Other than those I'm sure most people going through it can manage just fine, especially if they are smart about their money.

On the business decision side of all this, is it better to have your credit intact but lose tens of thousands of dollars a year on a house that's ridiculously underwater or take the foreclosure and move on?

 

You've gotta pay to live somewhere. Rent is lost money. At least this way you're getting the tax deduction.

BTW, if you tell the bank that you're thinking of walking away, there's at least some chance they'd modify your loan. They might even write down principal. I'd at least try that before walking away.

 

Tax benefits and credit scores still might not be enough to offset the massive amounts some people could lose on keeping a property. In addition to a mortgage that isn't economical, there are also property taxes, upkeep, utilities, etc., that you have to consider. If you can afford staying in a house under your current loan, are stable in your job situation and don't plan on moving anywhere, definitely keep the house and keep making the payments. But there are a lot of variables for a lot of people.

And banks are notorious right now for not working with people, whether it's loan modifications, short sales, whatever. They could penalize you if you've kept current on your loan. They could determine your income is too high. They may just not even want to be bothered. It's a mess on both sides of the field.

 

I don't think they'd come after you. They don't have the resources to come after all of the people who are doing this.

 

And right now the banks are more concerned about the feds coming after them. There are serious criminal charges to be considered with the robo-signing. Thousands of felonies for each executive.

 

I concede that banks, for the most part, have lived up to their side of the deal. I could have worded this better. But these transactions are a two-way street and banks are just as much at fault for the mess. Sure, people shouldn't have borrowed money they couldn't pay back, but the banks shouldn't have made bad loans to people they knew couldn't afford them. Both sides took risks. So when those risks failed one side doesn't do anything to help mitigate it even when the other side fesses up and is trying to work something out.

I'm willing to bet a good majority of troubled home owners would be helped by a simple loan modification that would lower payments some and make the loans more stable. The banks would still get their money, although maybe not as much, and the borrower would get to keep his house. Wouldn't it be beneficial for the bank to keep that loan active in some way? But the banks will have none of it. If foreclosure is inevitable, there is little help in the way of speeding short sales and the like through or they make it all too complicated to get things done. Again, wouldn't it be more beneficial to get the house moved right away instead of waiting two years?

And let's not forget all their rule bending and shoddy record keeping on many loans, where it can be said they didn't live up to their obligations. Somewhere in all this the banks are making a business decision, so I don't see how it is wrong for homeowners to also make one. Banks are in no way innocent second parties in all of this.

 

Only thing that bugs me about the situation is that this is not an "I HAVE to move" (because of job loss or transfer or some other emergency). It's simply an "I WANT to move."

I'm a lot more sympathetic to the former than the latter. Can't always get what you want. Let the fiancee move in with you, and you can combine on housing costs until the market picks up in a few years. And you can still walk away at a later date, I suspect. No need to rush into it now because, frankly, it's a desperation move, and there's no need for a young married couple who are both working to make desperation moves.

 

Ya, seems like destroying your credit for a number of years is not the best thing to do at the start of a marriage.

 

The bank is, in the vast majority of cases, an intermediary that simply services the mortgage. It takes payments from the homeowner and divvies these up among the mortgage's owners based on their contractual position. The bank lives up to its obligations by enforcing the terms of the mortgage in the most advantageous way that is consistent with the law. If the bank thinks it'll be better off "working with" the homeowner, it'll work with him (or her). If not, it won't.

The homeowner agreed to the mortgage in full awareness that he (or she) could walk away ... with the usual consequences. The bank agreeing to the mortage was similarly informed, as were those ultimate buyers of the mortgage.

All of this is to say you shouldn't get caught up in the moral aspects of this. If, in your estimation, you will be better off walking away, walk away. That is your contractual right. In doing so, and ultimately living with the consequences, you are doing nothing more than living up to the contract.