- You can live in the house for 6-12 months without paying a mortgage, which allows you to pay down any other outstanding debts, such as credit cards. If your credit cards are maxed-out, your credit score is likely not much higher than 600, but if you can pay off that debt, your credit score can improve to 780.
- Foreclosure walking away can be less damaging to your credit than bankruptcy. A foreclosure is one mark against your credit score. Mr. Maddox said that a foreclosure is like having an F on a single trade line of your credit report, but if the other items are all current and your other debts are paid off that would be like having an A on the other sections of your credit report. Credit can be more difficult to establish after a bankruptcy than after a foreclosure.
- Some government loan programs such as FHA will allow you to purchase a new home again in as little as 3 years after a foreclosure (if there was a hardship)
- To his knowledge, none of Mr. Maddux's walk-away clients have ever said that they lost a job, couldn't rent, or that their lives were ruined because they walked-away.
I want to thank Mr. Maddux for his time and expertise.
Another piece in USA Today takes a less positive stance on walking away:
"It's increasingly a more important factor driving the foreclosure crisis," says Mark Zandi, of Moody's Economy.com. "As we move forward, the job market will stabilize, and the big thing will be strategic defaults. People are going to determine it doesn't make financial sense to hold on to their homes. That's going to be a significant problem. Strategic defaults mean foreclosures could be high for a long time."
It's not just economists who are concerned about strategic defaults.
The mortgage unit of Citigroup says one in five borrowers who defaults does so willingly, even though they're able to pay the mortgage. "It's a very large number, and it's a very, very significant risk to the housing recovery," says Sanjiv Das, CEO of CitiMortgage, adding that new government programs to curb strategic defaults may be needed.
Growing acceptance
"The most disturbing aspect of this is that it's becoming acceptable to do," says Joel Naroff, an economist with Naroff Economic Advisors. "What does that mean down the road for housing and the economy if people are happy to walk away and destroy their credit? They're saying, 'Why pay a high amount if they can get something, even a rental, for less?'"
Because of the time and expense involved in completing a foreclosure, borrowers who decide to walk away often wind up staying in their homes for months after they stop paying their mortgage.
In most states, lenders can go after homeowners for past-due payments, but many fail to take such action when borrowers abandon their properties, because the legal costs are so high.
University of Arizona law professor Brent T. White has a more practical view of walking-away:
"The government was encouraging people to buy, telling people that it was a good investment to buy. Real estate agents pushing people to buy, banks pushing people to buy," White said in an interview. "And then when the market collapses, the homeowner alone is left holding the bag and forced to bear the burden. And so I think we need to talk about the disproportionate burden that is falling on homeowners."
As of this summer about 15.2 million mortgages in the U.S. were "upside down" -- meaning a borrower owes more than the property is worth -- show numbers from First American CoreLogic, which tracks housing data""".
"Everyone is concerned about what happens if people actually do walk. The market is going to crash, and maybe that's the case," White said. "And maybe not. Maybe if people start to walk, lenders would start to modify their loans, and we might have decreased foreclosure rates."
"We are propping up the market on the backs of the middle class," he said. "If we are going to prop up the market on the backs of the middle class there needs to be some kind of bailout for homeowners."
And if you are concerned about the morality of walking away, take a look at the following points:
Avalon writes: "Mish, I'm very disappointed that you don't think people are morally obligated to try to honor their agreements. Just because it's legal doesn't make it right."
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
1
1
1
