To Bail or Not To Bail on Your Home?
If the value of your home is less than the amount of your mortgage does it make sense to keep making your payments or should you just walk away? If you can’t get the bank to reduce the principal of your loan, what should you do? Well, no one can tell you that because every…
If the value of your home is less than the amount of your mortgage does it make sense to keep making your payments or should you just walk away? If you can’t get the bank to reduce the principal of your loan, what should you do? Well, no one can tell you that because every situation is different, but, as The Times points out this weekend, the penalties for defaulting on your mortgage may not be as onerous as they once were. First of all, more and more banks and saying OK to short sales, in which the owner sells the house for less than the value of the mortgage; secondly, even if you go into foreclosure, the bank is unlikely to chase you down to make up the difference between the sales price and the mortgage amount. If the lender does forgive some piece of your debt, however, some states will still try to treat the forgiven debt as taxable income. Lastly, some legal experts expect that the credit rating agencies won’t hit you as hard for a foreclosure now as they might have in the past. It just seems obvious that a foreclosure in 2008 or 2009 doesn’t have as much information value as a foreclosure five years ago, said legal prof Todd J. Zywicki. Are any readers currently underwater and considering voluntarily bailing on their home?
Thoughts on Walking Away From Your Home Loan [NY Times]
Photo by Jennscrzy
Well, I guess it once again boils down to don’t buy something you can’t easily afford.
Everyone’s going to have to get used to the fact that credit isn’t magic. You DO have to pay back what you borrow or suffer the consequences.
lechacal- but don’t you think there is a differnece between a realistic house buy and a McMansion buy? Those houses were stupidity from the foundation up- but they don’t make up the majority of the market and actually i wouldn’t walk away from my McMansion because I would never buy one of those :-). I do see your point though- but how do you think that relates to someone who was more realistic and bought a good, solid, affordable house in a good community to raise a family in? My thought on McMansions is that they are vanity purchases and pretty much the architectural rendition of the MREB.
I agree, sebb.
“[Well, maybe some relevance for shoddy condo owners who IMO are not really part of brownstone Brooklyn, despite their physical location].”
Thank you. Someone finally says it.
dittoburg: I am around but i don’t want to sound like a broken record.
daveinbedstuy : I still believe we will hold much better than the rest of America.
True enough lechacal, but your “imaginary McMansion owner” pitiable that he may be, doesn’t have much relevance for brownstone Brooklyn. [Well, maybe some relevance for shoddy condo owners who IMO are not really part of brownstone Brooklyn, despite their physical location].
fsrq, I understand the walkaway maths but what bank in their right mind would be willing to lend you money to buy another house knowing that you have just stiffed another bank on the house you walked away from?
Chicken: Yeah, really, more or less. Practice varies by state and the documents for your loan, but that’s the general rule on this side of the pond. Many homeowners don’t understand this.
DIBS – not entirely true – if you can ‘walk away’ and get (either rent or buy) a comparable home for significantly less it MAY make sense to dump it – this is likely not the case anywhere in the Northeast where values have not declined enough to make this arbitrage pay but there are places in Fla and CA where it might – and while I agree your credit score is going to be destroyed, in terms of certain things like renting or car purchases the desperation of the rentor/sellor will likely result in over looking low scores to see if a one-time default is truly indicative of a deadbeat or just unusual circumstances – it already happens with student loans – which so many people fail to pay that private businesses often overlook it. Dont expect to qualify for a low-interest credit card this decade.