Mortgage Morality

With homes losing value, and short sales / foreclosures affecting market trends and pricing, is it a “smarter” financial decision to just walk away?

Most people look at short sales and foreclosures as a process reserved for those who are in financial distress.  There is a growing trend, where many homeowners are just calling it quits and walking away, even when financially stable.

This has been highly disputed by both sides, some calling it a case of mortgage morality.  Just because you can, does it make it right, especially if you’re able to make payments?  One thing you should know before even considering it, is if your loan is a recourse / non-recourse loan.  Traditionally, the majority of residential loans are recourse loans, meaning banks can come after you (garnish wages, bring suit, etc.)

Reviewing your mortgage documents will be a good start.  Your mortgage is essentially a “promise to pay” and depending on the state you live and whether there are laws that restrict deficiency judgments you will want to sit down with your attorney. Whether you walk away completely, or try to short sell your property, there will consequences to your credit history and available credit.  This could be the breaking point for many who depend on credit for day-to-day expenses.

In Chicago, only 6% of homes that closed in 2009 were foreclosures, but there is a direct effect on trends and pricing for every additional property that becomes distressed, especially in areas with low demand.  B-, C class neighborhoods that did not fully evolve and are already having difficulty with inventory will be faced with an extended stabilization period.  Homeowners in these areas who choose to stay will have to live in their homes longer to recoup costs.  Those walking away risk damaged credit and potential risk of finding housing in the future.

Walking away is a personal decision, whether you believe it or not.  There have been many on each side who chose to stay, and others who chose  go.  There is no win-win scenario for the homeowner.  But remember, purchasing your home was a very personal experience and unless you are investor / REIT / institution, the home you have was not just purely a financial choice.  The most emotional experiences sometimes are not the most financially sound decisions.

Sherwin is a REALTOR® in the Chicago & Suburban area with @properties. Questions can be forwarded to Sherwin Sucaldito

”Mortgage Morality” by Sherwin Sucaldito is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.
Based on a work at Realty Evolved