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Just Walk Away

Unbelievable..............

Is walking away from your mortgage becoming the next biggest trend?

We all know that the sub-prime crisis has had an incredible impact on homeowner's losing their homes due to increasing rates. People just flat out cannot afford the higher payments and are "forced" into foreclosure.

We also know that home values have been plummeting and people cannot even refinance because they owe more than what there homes are worth. Again, being "forced" into foreclosure.

How about the rest of us? HEY, JUST WALK AWAY!

Is this the next socially acceptable, easy to do trend to hit our industry?

Consider this:

Skipping out on a home has been made easier, thanks to the Mortgage Debt Relief Act of 2007. Now the IRS cannot go after you for the dollar difference of your mortgage balance and what the bank sold the home for.
Experian (a consumer credit rating agency) recently reported that many homeowners are choosing to pay off credit cards and other consumer debts before making their mortgage payments. Huh?
People with the capacity to pay their mortgages are now choosing to just walk away because they feel they've lost the equity value in their homes
Heck, this "trend" has even spawned a new company called YouWalkAway.com. For $1,000 the company will help you to ditch your mortgage!

I don't know...I'm worried about the continued declination of home values from an ever increasing rate of foreclosures. I'm worried about people and their growing attitudes of "just walking away"...it's the easy and acceptable thing to do. I'm worried about the long-term affects on our economy, banks, lenders and the entire real estate market.

I can't yet see the light at the end of the tunnel on this new phenomenon and that just plain makes me WORRIED.

Sherri Sherpy

MN Mortgage Mom

Posted by Sherri Sherpy on 02/07/2008 09:35 PM

Comments (31)

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31 Comments on Just Walk Away

FEB

2008

Hi Sherri. Thanks for typing out what a lot of us have been thinking. I can't believe there has been a total abdication of responsibility on the part of many homeowners. The Relief Act is like a get out of mortgage jail free card. I suppose short sales are better than foreclosures, but it's a very disturbing trend. Keep speaking the truth!

Thank you, Mike. These "trends" and attitudes that I keep reading about just flat out baffle me. It makes me incredibly sad that one of the greatest possessions most strive to own is being tossed out so readily by so many homeowners...easy fix, easy out. Let the banks take the loss...we don't care. I just don't understand that mentality and I fear what it could possibly do to our economy!

Most persons will eventually walk away from the homes. Prior to the Great Depression the most widely used loan was the balloon note. The difference back then was most persons put up 50%...in the 80's in Huston when folks walked away they had put down 10-20 %...they held on until the last! Today they are going to walk, and not look back! No Money Down? Not to worry! I will remind you what when these loans were questioned...every loan officer I know said "Not to worry!" "Will never happen!"

Jim, you make a great point...yes, today nobody has any "skin-in-the-game". Everybody (it seems) has 100% financing and with the huge loss in values, it's an easy out.

FEB

2008

I noticed that people seem to be doing this.

I was talking to some folks and they were just giving it up... they got a month behind... it's NOT that they can't afford it... they just don't want to do it anymore!

I could not believe that!

Hi Sara, I know, it IS quite unbelievable. I just have to imagine that this will further hurt our values across the country and continue to put banks and lenders is more of a crisis. It will be interesting to see how widespread of a problem this will become.

FEB

2008

"you walk away.com." Has this been used by anyone you know? They claim it's not a scam because you sign nothing over to them and they promise you nothing. Anything would be appreciated. THX

People need to step up to the plate and take responsibility for their actions. When you purchase something you need to pay for it. I know some situations are tough and you end up with no money because of a job loss. But for someone to just decide not to pay for their home is unbelievable.

Herman: No, I do not know of anyone who has used this website/company. I have to believe that in this free enterprise, it's an opportunist sniffin' a goldmine knowing there is a potential of a LOT of money to be made!

Vicki: I couldn't agree more! I recently heard that our national foreclosure rate has hit 1.7% (that in itself is HUGE) and is expected to reach over 4%. I wonder how many of these walk aways that have the ability to pay, will contribute to this percentage!

MAR

2008

I dont see a problem with it.

These people were lied to by their realtors, their loan originators and the home appriasers who duped them into paying way more than the property was worth, and suckered them into "creative" financing.

Its good that the pain is being spread around. That way more people learn a lesson from this mess.

Yikes....That is a very worrisome thought process, Jake. I feel bad and sorry you feel that way...

APR

2008

How can anyone justify the unconscionable attitude of "just walk away?" As a consumer, as a debtor, I understand sometimes life can get tough financially. Unexpected circumstances can turn your world from prosperity to hardship - I've been there myself. But as someone who has worked in finance at a job dealing with foreclosures, I also see the "lending" side of the issue. I do whatever I can to help anyone in a foreclosure situation, because ideally banks/lenders don't want to be residential property owners. Yes, short sales might be an option, but not always. Yes, a deed in lieu might be an option, but not always. But those individuals who purposely seek to cheat lenders out of money lent in good faith, to devise ways to not pay their mortgages and live in their homes free of charge for as long as possible, then think that when they walk away their debt magically disappears, that is ethically reprehensible and irresponsible. Some ONE, or some ENTITY, is going to bear the burden of that debt, and consumers should not believe that lenders don't feel the strain of loan losses, because they do. If more and more people begin subscribing to this "you can walk away" attitude, have those same people not thought of what that attitude might eventually do to our economy as a whole? In the long run, it WILL matter, and it WILL affect us all. It may start on a broader scale with businesses, but that will trickle down to affect individual households in future. Anyone who has any knowledge of basic economic principles should understand that.

APR

2008

The idea of home ownership is to have some equity to build on. The combination of nothing down, payments that don't amortize, and depreciating values has taken away the ownership. Without equity, the purchaser does not own anything. Once they realize that their payments are more than they could rent the house for, they are gone. It is a simple economic decision. The people with equity will stick it out for the most part, but those with no equity will continue to walk away.

Sherri: This is very intersting... I'm glad our market is not like all the rest the media keeps talking about. Our home values never went threw the roof like some areas. Yes we still have some issues with foreclosures... but who don't.

MAY

2008

I have been reading blogs on this topic for the past 2 hours and from what I can see the general concensus is that the "owner" who is willing to walk away is morally and economically reprehensible. What I'm not seeing much of is a general understanding that in many situations the "owner" is swallowed up by not only the ARM or the variable rates mortgage, but by an economy that is sinking while the country sits by and does nothing of any value to fix the core of the problem. We ARE in a recession and we are fast approaching a depression. Many of these people are walking away because they literally have exhausted all other means of SURVIVAL. Gas prices have nearly doubled in the past year and with that so has the price of literally everything else. Groceries are through the roof, clothing cost is on the rise, insurance costs, basic utilities, you name it.... it just plain costs more. Everything is on the rise EXCEPT payscales and people can't afford to live now. Walking away is the option people are taking to make life better for themselves and their families, yes there will be more economic repercussions in the very near future for the whole of society, but it's what the "owner" can do now to save their families. It's not a matter of the "owner" trying to stick it to the "lender" it's simply survival and the "owner" will do whatever it takes to survive until they can see a better way.

The housing market claimed another victim recently when California Congresswoman Laura Richardson's Sacramento home was foreclosed upon by her mortgage lender and resold at auction to another mortgage banker. Richardson (D) won election to Congress last August in a special election to fill the seat of the deceased Los Angeles area congresswoman Juanita Millender-McDonald. Although she is from suburban Los Angeles, Richardson purchased the home in Sacramento after she was elected to the California State Assembly in November 2006.

When our own lawmakers are walking away, what sort of example does that set?

Tina in Virginia

JUL

2008

We need a congressman or congresswomen walking away from credit card debt. Then, we common citizens would have all the support from Capitol Hill.

JUL

2008

I was brought up that when you purchased a home, planned on being there for a period of time, not a year or two. My first house was a foreclosed for $10,000, to which I sold it about 10 years later for $27,000. From the proceeds I purchased a property for $38,000 and assumed their mortgage. However, a year later my life changed and was able to sell it for an amount where I was able to get the "down payment" back and proceeds paid off the mortgage. I have lived in my present home for over 30 years and the mortgage is paid off! Yes, I have equity but I did not look at it to "flip" in a few years time.

Being in real estate sales, if you are able to read a abstract on a property, you will see there are sales that seem high for that time period and sold for less at another date. In the 90's properties were getting several offers, but not like it has been in recent years where demand for properties were high and supply was low. Also realize, the stock market was going through the roof, investors started putting the "cash" into real estate and loans were easily obtainable. I do not think you can blame any one entity for the current mess, but like a house of cards it was bound to fall down. When I came into the real estate buisiness, I was told there was a 7-year cycle. We have reached the top of the bell curve and are now on the downward side.

Be patient, the equity will build, just not as great as in the past few years. Make the mortgage payments - dont' walk away just because everyone is doing it.

While there are people that get taken advantage of and just plain can't make the payments, there are quite a few that just shirk responsibility and let the house go.

It will get much worse before it gets better. People are not taking responsibility for the things they do or the troubles they get themselves into. Do i get stressed because i may not have enough cash to pay the bill? Ye i do. But i know i'm not going to walk away because that was something we were told not to do.

AUG

2008

Insanity.

Recall the time line. From the 50's forward the amount home payments have consumed from wages as a percentage has grown from 18% up to the 40% catagory. Home prices have been overvalued for a long long time. This was inevitable. They eventually have to come in line with wages and the economy. For you all to say its reprehensible for someone to "walk away" is reprehensible to me. These are strictly business dealings that people have entered. They took a risk on the purchase of a home. The lender took a risk by securing that loan with the property. If the property goes down and the lender defaults, well that is business. We all took a risk. The banks fueled this mess by continuing to try and make more and more cash, so they relaxed the lending standards. Which in turn drove up the prices because the market was flooded with new buyers. Now they reap what they sow. Prices will fall, not only here but they are falling in Europe and Asia too. We are all in for a new world now. It is all about survival. If they had lemon laws for home purchases, we would all be qualified. This was an orchastrated push to drive home prices up and get more money in.

I say... don't walk away....RUN!!!

Dr,

WOW...I am almost speechless (but not quite!). It is people like you that amaze me. I am not talking about those who have fallen to rising rates because of the subprime mess. I am not talking about those who have legitimately fallen into very hard times...we all feel the proverbial "pinch" these days. I personally know people who have had to walk away and my heart goes out to them. I wish it didn't happen to anyone. Perhaps you need to re-read my post??? For that matter, read it a 3rd and 4th time. Clearly, you don't get it.

<I say...don't walk away...RUN!!!> So, are you also one of those people that condone not paying your monthly utility bills because they are too high and it is "an orchestrated push" by the big energy companies to drive up prices??? Are you one of those that don't pay your taxes because the government is part of "an orchestrated drive" to wipe all of our bank accounts clean? Are you one of those who believe men and women should just WALK AWAY from their child support obligations because it is "an orchestrated push" to take advantage of the parent who has to pay that? Are you one of those people that go out and purchase a brand new shiny car and just walk away because you don't "FEEL" like making your payments anymore?

Yes, we are in a housing market mess...I think we can both agree on that. Crooked lenders, investors, secondary markets, homeowners...we all take a bit of responsibility for this situation.

But to just walk away because you want to?

Do you not see the forest through the trees? I'm talking about the trend of attitudes out there that simply shirk their obligations because it "feels good today". Instead of the short-sidedness, take a look at what this housing market mess is doing to us as a country and our economy. And to fuel it even more with such laxadazical attitudes will make a bad situation even worse.

I feel sorry for you.

But to just walk away because you want to?

NO, because you have to. Bad investment, sorry but I don't hang on to a losing investment. Utilities are not investments, they are services.

I think you need to see the forest throught the trees. You need to understand the term "investment".

As to what it is doing to the economy, well the banks are the ones who decided it was ok to make it extremely easy to get money and gave it away like candy. So blame them, not the people who are trying to make a good business decision to save them from future calamity.

And for your information, I do get it. You obviously dont. Next time your investments in stocks, gold and other things fall by 50%, and have no hope of comeback in the near future just keep them and eat it, because you want to. Hell with that. Your obligations to a bank are not mine, thats for sure. IMO you are the problem, not the cure.

P>S you should look at my post again too. Maybe 2 or 3 times. History shows where we are headed. Count on it.

Ha! You offer very good comedy, Dr!!! I wish you well in all your future "investments". (By the way, you may want to stick with T-Bills and CD's...that way you don't have to worry too much about blaming the world for life's downturns...heaven for bid that anyone would hold one's self high enough to his own responsibilities or accountabilities) And forget any obligations, too. Thank goodness, for you that this is a free country...you can walk away from anything, anytime you feel it will give you warm fuzzies. Good luck to you! LOL

AUG

2008

Thank you. And FYI. I fall into your first paragraph of people you talk about in your post. Extremely hard times. Does not change how I feel though. Even if I didnt have to get out, if I stayed we would be in the doghouse for 15 years.

If you notice, I don't blame anyone for anything. I hold myself responsible for my actiions and for the protection of my familly and our future. YOu however go off on tangents and do not seem able to focus on the reality of the situations.

Does the term contractual agreement hold any credence with you? It does for me! We agree to terms and if broken there are penalties. I see knowhere in there where it says "YOu have a MORAL obligation to pay" or you will be condemed to death forever.

And personally I don't consider this country all that free. Used to be, not so much anymore.

I do appreciate your banter, and understand your point of view. But you must see what is going on by now. The government with its bailouts is now manipulating the free market. That is not good. Every time they stick thier hand in it messes everything up and it is usually too late anyway. Nothing they have done would help me either. Not even the "debt relief act of 07". If we can';t get this too work, we get hit hard. And we are not investors. Just your average homeowner.

And hey, what about this..... You say we are obligated to pay. How bout this. The banks and lending institutions saw this happening. They continued to loan money. They lowered the standards to loan more money. All this so they can make more money. Now, being we are talking about "obligations", dont you think , (since you like obligations) they would have an "obligation" to tighten lending practices early on?

To slow the growth that they knew was out of control, comparing it to rents and wages? Or another "obligation" to purchasers to warn them that this was an out of control spike and would fall back? Or some others but thats good enough to get my point across. We have the same obligation they did. NONE.

We have a contract with ramifications if broken and thats all. AND....... Thanks for your responses!!!

Well, Hallelujah! We are on the same page! Your comment on the government? Couldn't AGREE more. The less the government interferes, the better. AGREED.

Your situation: Even though I am a bit disturbed by your attitudes regarding walking away, I do wish you and your family well being. I've seen too many friends and colleagues in the same situation. And it is heart-breaking. But as you recall, my original post was not about those who have fallen on hard times. Quite the contrary...

Being in this industry, I can cite numerous times that I have heard this story: John and Jane Doe want a new house. They don't like their small home anymore. They have cashed out on all the equity to buy their "toys"...cars, boats, vacations, you name it. So now they can't even sell because they owe more than what their house is worth. So you know what they do??? They "pretend" they are going to turn their current home into a rental property...providing a fake lease to the lender so that they can finance a new and bigger home. Once they move in, they just WALK AWAY from the previous home...let it foreclose. I am sorry and I really don't care how "easy" the money is to get...THAT IS SHIRKING RESPONSIBILTY AND OBLIGATION. It is this kind of activity that makes me wonder, "what are we about?" Do only what is good for ME? Who cares about the ramifications? And yes! What about morals??? So what if it is not "written" in the contract!

Blame: Unfortunately, you do place blame...throughout your comments, you are consistently blaming the banks. As you recall, I have stated that lenders, banks, secondary markets, subprime lenders and the like are not angels. They have absolutely participated in creating this mess. But do we make ourselves and look at our fellow people and say that we are all so stupid? You act as if no one has a brain...because the money was given easily, everyone in this country lost all rationale and they played no part? If you were offered cocaine because it was free, would you take it? If you could steal that 50 thousand dollars from the small town bank because it was easy and were guaranteed you would never get caught, would you do it? Morals, Responibilites and Obligations! Game on, DR! You cited house payments in relation to wages up to 40%...does no one know how to do the fast math and understand that perhaps he or she can't afford that house? Yes, the banks, government and whoever else you want to blame opened the flood gates and made lending way too easy. But do we not, as consumers, need to accept any part in this? We can just WALK AWAY because it is easy to do?

There, my friend, we shall agree to disagree.

we agree more than you realize. In my "blame the banks" what I am saying is that they took advantage of people and their desire to be better than they can afford by laxing the standards. Thats why I say they reap what they sow. And due to this, the snowball effect is happening.

As to the comment about payments to wages and people saying no.... well, everyone wants to own a house and being that wages have not kept pace with mortgages its tough to say no when, if you say no, you will never own a home.

The one thing I stand by is the fact that the banks created this mess by loaning money out on loose standards. Had they stuck to previous models this would never have happened because most of the people that got loans and drove the prices up would have never qualified. So yes, IMO it is the Banks own fault. They drove the bus, we were all just there for the ride!! (Had to put that one in!! LOL)

I will say this, I am sure, you know far more than I on most of this. I am just going by research and reports on what has happened in the past and present so I can mitigate the damages to us now and in the future. Had I been smart enough to do this before we purchased we would not have purchased. Water under the bridge. LIve and learn.

My big problem is the present... Now that our mortgage has not only eaten every bit of savings we had, (work slowage, lack of work, and we were a full doc loan) And we are falling behind. Do we continue to live check to check with 4 kids and no money and no life and try to wait it out, or do we give in and quit and end up paying massive taxes. Thats what we are faced with. And no the relief act does not apply in our situation. We, I guess would be considered insolvent at this point.

I know that ^^^^^ is different from what Ii have been saying, and I do believe what I have been saying, it's just a hard thing to do. No-one wants to make a bad decision. Or in our case one bad decision following another.

And you and your metaphors..........

Ha! Yes, I am big on metaphors...two daughters with stubborn, "thick skulls" and at times, it is my only means of getting something through to them!

Don't give up hope just yet...Call your mortgage company, explain what is going on in your life and the possibility of having to potentially walk away from your home. Ask them to consider a Loan Modification. Because of this huge housing mess and banks losing money to the tune of billions, they are more willing than ever to work with people.

Case in point...just last week, one of my colleagues was working with a client who wanted to refinance. She couldn't. Like so many others, she owed more than the home was worth. My colleague advised her to talk to her mortgage company about a Loan Modification. Needless to say, she was very successful:

She had 2 mortgages. On the first mortgage, they dropped her rate from 8.125% down to 7.125%AND converted it to a 30 year fixed (she was on an ARM). On the 2nd mortgage, (and this one is huge) they dropped her rate from 11.125% down to 5.625% AND also converted it to a 30 year term.

The best news of all, she is now able to afford her payments and keep her home. With no costs involved and no need for a refinance.

It may be worth a try. I wish you well!

We're in a country where the EASY way out is preferred! I just had a seller tell me if we don't have a contract in 15 days he's walking away from the house. He already is in the next house and doesn't care. He'll let it go...

AUG

2008

I think that people walk away from their homes because the banks often leave them no choice. If banks could / would create more loan modifications & work closely with their borrowers who are currently experiencing home loan problems, then a great number of these current foreclosures would never have to hit the market. I think this is a great lesson for us all: homeowners, Agents, & Lenders. We all need to be a bit more committed to working thing outs, rather than just bailing out at the first sign of trouble.

-Peter H.

I couldn't agree more, Peter!

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