Today there is an article in the Star Tribune discussing options for homeowners that are underwater. Today this is a commonly discussed topic and one that shouldn’t be ignored. The first couple in the article talk about their decision to walk away from their home. The article discusses their reasoning for walking away and they give some strong reasons why they did.
My problem with this is that these are insanely well educated people that have decided to screw their lender and the rest of us and still believe that they have “acted as responsibly as we could have.” One is a doctor, the other is an adjunct professor. One of their reasons is that they “barely change the light bulb in our own house that we are living in, let alone being caretakers of another property.” So why did you buy a house in the first place? There are probably 100+ property management companies in the Twin Cities, did you even try calling any of them to discuss the rentability of your home?p
Another of their justifications is that they don’t live on credit and so having a severely damaged credit score is “a small price to pay.” Small price for them maybe, but not for the rest of us.
While they are now free of the burden of making payments on a house as they contractually agreed to do when they purchased their home, the problems have just started for their lender, their (former) neighbors and the American Taxpayer. There’s a strong chance that at the end of the day the loan is owned by Fannie Mae or Freddie Mac which means their choice to walk away means that the rest of us will end up paying for their decision.
The foreclosure process in Minnesota is a slow and arduous one, so it may be 6, 9, or even 12 months before the bank takes the home back through the process of foreclosure. In the mean time, an abandoned home has a much higher risk of vandalism and crime and can also deteriorate quickly if small problems are not fixed. Further, abandoned homes don’t help the neighbors around them that have decided to honor their obligations or the new neighbors that have come into the neighborhood for the first time.
For many, the circumstances that led them to foreclosure were unforeseen, unavoidable and make foreclosure their only option. These people have all of my compassion and sympathy. For people who take the foreclosure path simply because it is more convenient for them have my anger.
I don’t mean to imply that this family is doing something illegal but I do claim that what they are doing is immoral. I would think a doctor and a teacher who most certainly know better would choose to do better. They are far from the only ones doing this but each person that chooses to do this ends up putting a greater burden on the rest of us who do honor our obligations.
If you or someone you know is facing foreclosure, you should seek FREE counseling from trained housing counselors. The Minnesota Home Ownership Center is your best place to start.
I agree. It does a lot of harm and probably no good at all. Walking away from your home because your paying for a house valued below what you bought it for is something people would just have to accept. People should not rely on real estate as being their only investment. Its an investment that has it’s dark days too just like stock market.
When I bought my house, the contract was pretty clear. I either pay the bill or I lose the house. Turning a house back into the bank and walking away is just a business decision, not a moral one. The bank knew there was a chance the payments wouldn’t be made, the law knew there was that same chance, hence the wording in both the contract and the law. The fact that default actually happens is just one of the options presented in the mortgage contract. It does not mean someone is ‘screwing the lender’, the lender knew full well, in advance and in writing, that could happen.
As for credit score, if I can turn that in for say, $100,000, I’d do it today send me the check. It’s just a number, one made up by a company I don’t do business with.
I am glad that we have a Realtor taking the high road on this choice. (not) The mortgage contract is very clear on the consequences for non-payment, they get the house. I think plenty of homeowners were “screwed” by their realtors, appraisers, and lenders during the bubble. I am doing the same thing and considering I am about 30% underwater on my place and the odds of this market ever reaching the artificial highs during the bubble are about as likely as me winning the powerball, I am all for it. How moral was it for realtors en masse to suggest that real estate never loses value or that we would risk being priced out of homeownership forever?
Chris,
In something like 40+ years till 2006 national median sales prices had not fallen, and that is a stat that many of us agents used, myself included. In hindsight it is easy to see the excesses of everything in the run-up to the housing market peak but there were very few people out there sounding warning bells at the time. There was a lot of outright fraud (intentionally inflated appraisals, false mortgage apps, illegal flipping, shell buyers, etc) but the majority of the sales during that time were still based on market fundamentals and were legitimate. Pretty much every type of market in the world has boom and bust cycles; it had just been so long since America had seen a housing bust that it seemed so unlikely.
While most foreclosures in Minnesota are Foreclosure by Advertisement and the 1st mortgage holder cannot sue for a deficiency, junior lien holders can. Mortgage holders rarely but are able to do a Foreclosure by Action, in which the borrower may be stuck with the remaining unpaid debt. That is why regardless of the situation all people who face the possibility of foreclosure should speak to a housing counselor like the Minnesota Home Ownership Center.