Thinking Of Walking Away? Don’t Do It!
April 18, 2008
Reuters it reporting on the recent phenomenon of “walking away.” It’s what happens when you just pack up and leave the house before the foreclosure is finished. Increasing numbers of Americans are simply walking away from their houses and mortgages.
Reuters claims that rapid house price falls in many parts of the United States will soon leave as many as one in five borrowers owing more on their loan than the house will fetch, removing at a stroke the single most powerful incentive to keep up with payments.
Though mortgage lenders can go after borrowers for deficiencies after the house is sold at foreclosure auction, few lenders take this expensive and low-yielding option.
Mark Zandi of Moody’s Economy.com estimates that 10.6 million homeowners will have zero or negative equity by the end of June, or 21 percent of first mortgage holders. That often leads to homeowners just walking away from the house - the thought being that there’s no sense in paying a $300,000 mortgage on a $200,000 property.
Data from real estate firm RealtyTrac not only shows a rapid rise in overall foreclosures, but also suggests a rising number of walk aways. Home foreclosure filings surged 57 percent in the 12 months to March and bank repossessions soared 129 percent from a year ago, according to RealtyTrac.
This information flies in the face of logic. If you were told that the entity looking to throw you out of your home may not have filed the foreclosure properly, and that you could stay in your home for up to a year or more without having to pay a dime towards the mortgage, why would you leave? The value of a year’s worth of rent payments is not insignificant after all.
In addition, defending the foreclosure often leads to significant alterations to your mortgage. Perhaps the bank will lower your interest rate. Maybe they’ll forgive some of the total balance due. So many options are available that it seems a waste to throw in the towel before the end.
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[...] by selling, an increasing number are opting to let the bank take the home in foreclosure. Called walking away, this may not be the best course of [...]