Comments on: Is It Better to Just Walk Away?

By: The Newest Ploy: Buy and Bail | Redfin San Francisco Sweet Digs

The Newest Ploy: Buy and Bail | Redfin San Francisco Sweet Digs — Wed, 11 Jun 2008 04:30:30 +0000

[...] few months back, I pondered whether is was better to walk away from a house that is well under water. Yes, it will be a hit to your credit score but the other [...]

By: Jenny P

Jenny P — Tue, 08 Apr 2008 04:16:27 +0000

Thanks everyone for chiming in.

david gordon – Yikes about your friend! Her almost -50% equity would be very difficult to make up. Then again, if we ever see double digit annual appreciation, it would only take a few years. Is her bank willing to meet her halfway?

Artie V – Well said. I kept banging my head too. I’m sure mine is slighted dented by now. What I think they’ve done to make declaring bankruptcy tougher they will ultimately do to folks who can afford their mortgage but choose not to. I understand that in California, mortgages are non-recourse (i.e. they can’t go after your other personal assets). Maybe they will start becoming recourse loans.

David – Yep. I unfortunately think you have it right. If it’s not tech and the dot com, and it’s real estate, there will be a new flavor soon. Hope everyone just learns the lesson.

Anon – I agree with the terrible credit history. I guess it seems that some folks just don’t care or what they plan to do in next 6-8 years don’t involve credit (hard to fathom, since we live in such a buy now, pay later world). I think this would be the one and only reason I would not to walk away. I would want to be a homeowner again. Of course, unless I had such massive amounts of cash I don’t need to borrow to make that happen.

Farrah – good question. Any readers out there that can chime in?

By: Farrah

Farrah — Mon, 07 Apr 2008 21:05:20 +0000

I know that foreclosures cause serious damage to FICO scores. Does anyone know what the credit ramifications are of giving a home back to the bank when the owner hasn’t missed mortgage payments?

By: anon

anon — Mon, 07 Apr 2008 20:47:15 +0000

I sure hope that the first poster’s friend understands that along with “living for free for 6-8 months” comes living with a foreclosure history for 6-8 years–that means that buying another place is likely off the table, as is living in rental housing that runs credit checks. If your income is sufficient to cover all your costs in cash (and pay your rent in cash at the start of the month)–then sure, you might not feel the pinch too much. But consider whether you would really be able to get by without a credit card or car loan–with credit tightening across all sectors, you’ll need to be able to do that for the years it will take for the foreclosure to come off your record….

By: David

David — Mon, 07 Apr 2008 15:25:19 +0000

Maybe after enough losses (assuming there isn’t a huge taxpayer-funded bailout), banks might come to the startling conclusion that they should lend to people who can pay them back.

Of course that’ll only last as long as the people in the institutions do (maybe 2-5 years for your typical lifespan on the Street), and then they’ll all get turned over, and another kid out of his Wharton MBA will come up with a brilliant plan that looks suspiciously similar to lending money based on the idea some asset class (stocks, bonds, housing, Mexican pesos, Argentine bonds) always goes up.

By: Artie V

Artie V — Mon, 07 Apr 2008 08:16:29 +0000

Ultimately, I see all of this as the chickens coming home to roost, ultimately. I don’t mean to be insensitive, but everyone being bit by this mortgage crunch were part of the problem over the last 7 years of this housing madness.

For the folks losing their homes – these were the people that bought at prices WAY over what their income could support. For the past 5 years of home shopping, I banged my head looking at the median income, trying to understand how the hell are the Joneses able to win a bidding war on a 700k home when I couldn’t dream of buying at that price. Now I know; eyeball deep in adjustable rate madness. Have at it…

People dropping and running while they’re ahead; mixed feelings. This type of behavior is what makes it harder and harder to declare bankruptcy in the first place. I don’t think many people are doing this – relative to the proportion of legitimate bankruptcy filers, but surely something the industry will anchor on to further fetter us to the debt cycle. On the other hand, I have very little sympathy for the banks for their part in this problem and suffering these fools in the first place. These are the hardest ones to profile, since it’s easiest to loan money to people who seem like they don’t need it…

And yet somehow, the primary culprits (Realtors) are still able to make a profit through it all. Pity.

By: david gordon

david gordon — Mon, 07 Apr 2008 08:12:27 +0000

I just advised a close friend of mine to stop paying the mortgage on her condo in Sacramento. She paid $310k about 2 years and recent sold comps in the complex are around $160-170k. Just brutal.

Even though she can afford she doesn’t really want to be stuck there for another 7-10 years for prices to get back to her purchase price. She is still on the fence but I think I have her leaning toward living for free for 6-8 months and then letting them foreclose. Like I told her – I would do it if it were me!