What are the cons/pros in walking away from your mortgage? Should you allow your property to be foreclosed, mail your keys to the bank – or not? Over 5 million people own homes currently valued at 75 percent or less of what is owed.
“It would cost about $745 billion, slightly more than the size of the original 2008 bank bailout, to restore all underwater borrowers to the point where they were breaking even, according to First American.” – David Streitfield, New York Times
Depending on exactly how much you owe, here are cons to consider:
Hanging On to Your Home
- You have a history with your home – memories that can’t be replaced by new walls – and you can still afford to pay.
- You have friends in the building or neighborhood. If emergency strikes, there’s a close neighbor you can call to rush you to the hospital, watch over your kids and feed your pet.
- Your children love their neighborhood friends and school.
- You can’t part from your pet, and your current building accepts pets.
- The cost of a move (it could reach 4k or more) – added to the new rental + deposits – could throw you back into debt.
- If you default, it will be difficult (albeit not impossible) to purchase a new home in the (near) future. It might also be harder to qualify for a job and/or to purchase a car. While the distant future could be brighter, the here and now might be extremely painful.
- Rental prices rise when you least expect it. Even worse, if you’re renting from an owner, the owner could sell at any time – throwing you right back into moving mode.
- The stress of moving could make you sick. Plan to lose up to six months of your life in the process – packing, unpacking and adjusting to your new home.
- If you move to a condo or HOA that’s facing severe financial problems – and thus the “great deal” – you could find yourself up against a Board that’s also out of control, along with a hostile “unneighborly” environment.
- New “things.” Somehow old things never quite fit a new apartment. Little by little, the bills add up. Will you be required to paint and/or repair? Factor it in. A friend downsized from a condo that she owned to a less expensive rental unit. A few weeks after she moved in, water poured in from the unit upstairs. She’s now living with water damaged walls, toxic mold and long-term battles with several insurance companies. Her former condo life looms like a distant dream.
Here are ten pros:
- You can’t afford to continue paying. Full stop. You have no choice.
- Your family and friends argue that it’s the bank’s fault. They should never have loaned you the money in the first place.
- You’re ready to downsize, don’t care how you live and want to use the money for your retirement.
- The economy is likely to get worse before it gets better. Housing prices will fall further. Time is on your side.
- You’re faced with an impossible choice. Pay for medication, your child’s college tuition, etc. versus your mortgage.
- You applied for loan modification assistance from your bank, but they turned you down.
- You’re not eligible for the government loan modification program and/or are unwilling to accept the terms.
- Your condo or HOA is facing another major assessment. You can barely afford the mortgage, but not the mortgage + assessments. (A woman wrote to say that she has been borrowing against her credit cards to pay her assessments and is now deep in debt.)
- You’re exhausted and sickened by the stress of dealing with your mortgage.
- Your mortgage battles have destroyed any remaining emotional attachment to your home. Home has become a place that tortures your heart and makes it impossible to sleep at night.
Wild Card – Paying an attorney to stop the foreclosure:
“Ripoffs of homeowners have become so commonplace that state bar associations from Florida to Arizona are warning their members of the many ethical pitfalls awaiting those who exploit the mortgage crisis. The California State Bar launched a task force a year ago to examine thousands of homeowner complaints about foreclosure lawyers. Currently, the California Bar is investigating more than 400 attorneys who are suspected of ripping off thousands of homeowners across the country. The organization that licenses and disciplines California’s more than 250,000 lawyers already has suspended or obtained the resignations of 15 lawyers while disciplinary charges are pending.” ~ Paul Elias, Associated Press, as reported in the Washington Times, February 14. 2010.