Are You Thinking about Walking Away?

Walking away from your mortgage is not as easy as you may think!

The housing crisis has become a major problem in the United States. There is no arguing that point. As a result of the problem, however, many homeowners have walked away from their homes and let the banks regain control of the property without paying for their obligations. This is happening because of two things: the job market has made it so people can no longer pay their mortgage payments and because many homes are more now than what they were worth when they bought the homes.

Another phenomenon that involves people just walking away from their mortgage is called “buy and bail.” In this situation, the person who is considering walking away from their mortgage gets another loan and convinces the lender that they plan to rent out their current home. The money they get from the rental will be enough to cover the mortgage payments on their second home. The only problem is that once they get approved for the second mortgage, they walk away from their first one and leave it up to the bank to clean up the mess. Because of the lower mortgage rates, they often get lower payments on their new home.

Walking away from a mortgage might seem easy, but there are some tough consequences to making this decision. The most obvious of the consequences is the credit problems that the person will incur after walking away from their loan. But there are more consequences as well. The one who bails out will also be responsible for tax penalties and they may also go through some jail time as well because they could be considered perpetrating a fraud. Because of the number of people going through this, some banks have decided to sue those borrowers for their personal assets in order to repay some of the money that is owed to them.

Borrowers who have just “walked away” from their mortgages, however, are the minority of people who get in trouble with their mortgage debt according to Kurt Eggert, a professor at Chapman University Law School in California. He says that the bankers are trying to shift some of the blame for the crisis on the borrowers in order to get the focus off of their responsibility for the escalating problem.

Another problem is that many of the walkaways are actually investors who own several houses rather than actual owners who occupy the homes. Between 2006 and 2007, 66 percent of the homes that were just left behind were owned by people who bought homes in hopes of fixing them up and selling them for a profit.

Do you know anybody who is walking away from their mortgage or considering it? What is their story? Did they just fall on some hard times or were there some other factors that contributed to the defaulted mortgage?

Comments

  • johnsonrik

    November 24, 2010

    You should walk away if you have, like Tishman and BlackRock did, convinced other chumps to take on over 80% of the original equity and structured a whole bunch of primary and secondary lenders on top of that. Two California pension plans lost 3 times as much total money as the partners who created the deal. Wouldn't it be great if we could shovel the risk of our debts off on unsuspecting bank executive pension funds?
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