Is It Better to Just Walk Away?

With the foreclosure wave fully in motion, many articles have popped up over the past few months, profiling families in default and telling the personal stories of homeowners, whose dream had gone bust when they couldn’t refinance to keep up with their rising mortgage payments.

Most anecdotes spoke of homeowners doing anything they could to try to stay in their house – taking a second job, negotiating with the bank, whatever it took to stay in their pride and joy and keep the keys.

Now,  it seems a new class of homeowners are cropping up who are turning in the keys, when they fully have the resources to pay the mortgage.  A recent Wall St Journal article highlighted a small, but growing trend of homeowners who can afford their mortgages, but are walking away from their homes – becauase it’s no longer worth as much as they paid. 

” …home prices have fallen so far so quickly that some homeowners in weak markets are concluding that house prices won’t recover anytime soon, and therefore they are throwing good money after bad. Also, many borrowers who bought in recent years have put down little if any equity.”  With very little cash down,  there’s no skin in the game for the buyer.  Makes the decision easier, doesn’t it?

From an investments standpoint, this somewhat makes sense to me.  Why keep pouring money into a moneypit?  However I woud hope that home buyers are looking to purchase a home - a place to hang up their boots, spend time with love ones, build memories, etc. – as opposed to an investment.  Of course, for those who are in a position where they need to sell (i.e. relocation, divorce, etc.), the circumstances are different.

But, it also seems to me that our society has created a mindset where it’s ok to walk away.  Spend too much on credit cards?  Declare bankruptcy.  Have second thoughts on your home purchase?  Go into default.  Marriage not so great?  Get a divorce.  The article notes that while a foreclosure becomes a “…strong negative on your credit report for as long as seven years, …the impact on a borrower’s credit score declines over time.”  Ahhh – just like a bankruptcy.  And I personally know of individuals who went into bankruptcy who received credit card offers within a few months and to this day, don’t seem one tiny bit affected by it.  They are still able to have a nice car and go out for good dinners.  So, at least from appearances, I can’t detect anything is different.

I don’t know what to make of this, except that it seems to me that there are quite of bit of folks who quickly bail when the going gets tough, rather than taking responsibility for their decisions and seeing it through.  Which is unfortunate.

Would you walk away even if you could afford to keep your home?