Your Castle Real Estate
Call Us: 720-289-0260

House Under Water: Walk Away?

If you’re house is “under water” and you’re not sure what to do, give me a call and I can help you sort through your options.
 
Here’s an article from the Wall St. Journal…
 
“When it comes to their mortgages, many Americans are asking themselves whether it’s better to stay or walk away.
 
As the housing market continues to drag, a growing number of homeowners in Arizona, California, Florida, Nevada and Michigan, where home prices have plunged, are considering what’s called a “strategic default,” walking away from their mortgages because they believe it’s in their best financial interests.
 
A standard mortgage-loan document reads, “I promise to pay” the amount borrowed plus interest. And some say that promise should remain good even if it’s no longer convenient. George Brenkert, a professor of business ethics at Georgetown University, says borrowers who can pay — and weren’t deceived by the lender about the nature of the loan — have a moral responsibility to keep paying.
 
Walking away isn’t risk-free. A foreclosure stays on a consumer’s credit record for seven years and can send a credit score (based on a scale of 300 to 850) plunging by as much as 160 points, according to Fair Isaac, which provides tools for analyzing credit records. A lower credit score means loans are likely to come with much higher interest rates, and credit-card issuers may charge more interest or refuse to issue a card.
 
In neighborhoods with high concentrations of foreclosures, “it’s going to be really difficult to prevent a cascade effect” as one strategic default emboldens others to take that drastic step, says Paola Sapienza, a professor of finance at Northwestern University.
 
Driving this phenomenon is the rising number of households that are deeply “under water,” owing much more than the current value of their homes. First American CoreLogic, a real-estate information company, estimates that 5.3 million U.S. households have mortgage balances at least 20% higher than their homes’ value, and 2.2 million of those households are at least 50% under water.
 
Banks warn they may get tough with strategic defaulters by pursuing legal claims on a borrower’s other assets. ‘We will try to reduce people’s payments if they have a hardship,’ says Thomas Kelly, a spokesman for J.P. Morgan Chase. ‘But we have a financial responsibility to get people to pay what they owe if they can afford it.'”
— James R. Hagerty and Nick Timiraos The Wall Street Journal, Edited By NIKKI WALLER