On Walking Away
Is it okay to walk away from your mortgage for no other reason than it doesn’t make financial sense to keep throwing your hard-earned money away? There’s no universal answer here, but in most cases, the answer is “Yes.”Importantly, the reason is not that “Wall Street deserves it” or “We’ve got to teach the banks…
I had some seriously good tamales for dinner.
“As to securitization and community banks and thirty year mortgages, some people haven’t been around long enough to know that before securitiztion the only loan you could get was a fixed rate thirty year loan that would most likely be made by your community savings bank where you did your banking and that until the 1970s the fixed rate of interest would be around 5%.”
You got me Denton! I was in diapers and really into graham crackers at that time. But securitization worked reasonably well for a good period of time before running off the rails more recently.
I also know the shutdown of the securitization market recently has been responsible for a most of the contraction of credit that’s caused so much economic damage lately–and that if the securitization market doesnt at least stabilize it’s going to be a very tough slog from here. And sadly the community banks are not going to be able to save us.
Now, it’s time for a few beers, no?
“Anyone think it’s a good move to just stay there, regardless of the credit problem?”
Some people are taking the lawyer pov, some the moral pov. In my case, (and I have a few agreeing with me) I was arguing that whether or not it is a ‘good move’ from any numbers of pov, that if a person signed a doc saying he would pay back the money, that he should indeed stay and pay back the money, if he was able to do so.
I’m not a lawyer but I’ve either owned or been partners in a biz for any number of years, and I am respected in business because I keep my word. So, even if I were under water by any number of dollars, in my opinion, I would continue to pay. Because I gave my word I would pay.
It’s that simple.
I definitely didn’t mean to insult anyone (except maybe myself by showing my ignorance about how foreclosures work) and i wouldn’t know that anyone is a lawyer. . .
Several people (like you) made statements that professed legal knowledge and others seemed to by saying said the opposite. I have no idea who is right (and I still don’t).
The point i was making is that the answer to this question about what the bank might do is probably a lot more pertinent to someone making this kind of decision that the moral compass of the ‘stoner community.
Sterlingsilver;
Maybe before you insult people who are trying to have a discussion, you should read what they actually wrote.
The answer to your question was discussed above, when folks talked about recourse versus non-recourse loans. The word “recourse” is meant to characterize whether or not the bank has the legal right (i.e. recourse) to go after the mortgage holder’s other assets to make themselves whole. Also, for your info, some people who posted above ARE lawyers.
I’ll let the great ethical minds on brownstoner ponder the moral question .. .but as a non-lawyer i’m not understanding 2 contradictory things folks are saying. . .
1> if you default on your mortgage the bank gets the house. . . and that’s it
2> if you default on your mortgage the bank can come after you for the difference between the value of hte house at a foreclosure sale and the amount of the mortgage.
If 1> is true than it would be a no brainer if you were way underwater to just split, whehter you were in dire financial shape or not. Think about if you had a 1M mortgage on a house that is now worth 800K. Anyone think it’s a good move to just stay there, regardless of the credit problem? Most folks with brownstones have enough cash to ride out a few years with crappy credit.
If 2> is true then forget what I said above because the bank could get a judgment against you for the difference
Maybe someone who is a lawyer (unlike most of us pontificating on this site) could clarify
Denton;
Sorry, gonna disagree with you on this. Default IS considered as a contingency in a mortgage contract. The bank factors it in when they set the terms and conditions of the contract, including the interest rate. The person who walks away is not committing a crime, nor is he defrauding the bank. He is living up to the terms of the contract: he defaults, the bank gets the house.
Now if you want to talk about the character of someone who would do such a thing, that’s another story. Do I think that a good number of people who walk away are amateur douchebag flippers? Absolutely. However, they are held to account (which, as a conservative is what I would stress). They lose the house, and their credit score is trashed (which will probably cost them real $$). More importantly, the credit report serves as a notice to anyone who would do business with such a person about what manner of man they are dealing with.
Sorry guys, if the bank wanted the house, it could have bought it in the first place. It didn’t need to loan you the money if it just wanted the house. The so-called second part of the contract is a penalty for you not living up to what you promised to do. The main purpose of the contract is for you to keep the house and pay your loan, which you promised to do.
this is like saying it’s ok to knock an old lady down and steal her pocketbook, because if I get caught I know how much time I will spend in jail.
Yeah, Denton, there are two parts to the contract you put your name on. It says that you keep you house as long as you keep paying. If you stop paying, the bank takes your house (and suffer all sorts of other consequences). You agreed to that part just as much as the first part.