When is it OK to walk away from your home?
Posted
Feb 19 2008, 05:33 PM
by
Karen Datko
Rating:
It's a sign of the times that Web sites have sprouted up telling people how to walk away from homes they can no longer afford or -- in some cases -- are no longer willing to pay for.
While some sites trumpet offers to buy homes from stressed-out owners, another one sells a foreclosure kit. California-based YouWalkAway.com says its kit will enable you to stay in your home "for up to eight months or more without having to pay anything to your lender!" It also says: "With our money-back guarantee, you get it all for only $995."
The list of services provided is stuff you can do on your own if you're so inclined. And the steps won't eliminate the damage foreclosure does to your credit score. Writes blogger Sam Glover at Caveat Emptor, "Foreclosure ain't pretty, folks, no matter what this Web site would like you to think."
All of this raises questions in our mind: In the wake of the mortgage crisis, is foreclosure becoming a more acceptable option? Should it?
Bloggers observe that some people choosing foreclosure can actually afford their mortgage payments but don't want to keep paying on a house that has lost value. These people are "upside down" -- they owe more on their homes than the houses are worth. CalculatedRisk writes that "one of the greatest fears for lenders (and investors in mortgage-backed securities) is that it will become socially acceptable for upside-down middle-class Americans to walk away from their homes."
Blogger Mike "Mish" Shedlock, of Mish's Global Economic Trend Analysis, argues that people shouldn't feel bad about backing out of the contract. He writes, "If banks can make 'business decisions' to ignore risks, to lend money with no down payment, and fire people at the first sign of trouble without any remorse, why shouldn't consumers be able to do the same?" (Another blogger, Dad Talk, even suggests that the mortgage crisis would end quicker if more people decided to walk away.)
RacerX at Life, Liberty and the Pursuit of Money disagrees. He writes: "For us it is worth the effort and harm to our budget to try and pay our debts. No matter to whom."
While, according to one expert, foreclosure does less damage to your credit score than a bankruptcy or multiple missed credit card payments, numerous bloggers note that struggling homeowners have other options, like a short sale or reduced payments.
Dan Caplinger of The Motley Fool writes that banks want to avoid foreclosure, which gives homeowners some power at the bargaining table. "For most borrowers, the better course of action is to try to negotiate more favorable loan terms with your lender," he says.
Writes Argonautica at Save Invest Retire: Foreclosure "is not a decision to take lightly. If you are in trouble and thinking about doing this, make sure you thoroughly think through the ramifications and consult a professional to figure out the pros and cons you probably didn't think of on your own."
