A new friend writes: "How many people walked away from the homes in which they only had $500, $2,500, or $5,000 as down payment? But that's all they lost. And how many people lost their $40K, $60K and $100K?"
My reply deserves it's own post.
It's not the amount of the dollars that are invested that is important or the percentage of Loan to Value, LTV, Leverage. The concept is the same regardless! They, the home buyer, solicited and accepted a loan, they agreed to make 360 payments over the next thirty years. They anticipated both appreciation and amortization to accrue to them! They had no intention of sharing any of the benefits of ownership with anyone least of all the bank.
Some deadbeat, who has lost his house encounters a TV "news" man, does he say, "I quite my job, I stopped making the payments, I lost my house?" No he says the bank cheated me! There is nothing new here, Hitter did it, Herod did it, Stalin did it, and on and on...
We have allowed it to become Politically Correct to blame someone else for our problems. It has become almost a badge of honor to claim you've been wronged by a bank.
Just because your mortgage exceeds the value of your property is no reason to walk away! There isn't even a real problem unless you try to sell. The payments don't change because the property loss value. The house doesn't suddenly get smaller. Your lifestyle doesn't change. The urge to walk away comes from out side sources telling you how bad you are being abused! But, where is the abuse, nothing regarding your relationship with the bank has changed, except for your willingness to honor your obligations!
The strange thing is that you'll end up paying more to rent a lesser home, in which you'll have no equity either, and no chance at appreciation or security. Even if you don't believe we'll ever see appreciation again amortization alone will pay off the property!
What about security? Your payment will never go up beyond what you agreed to if you're an owner, even one with no or negative equity. As a tenant your payment, your very right to stay in the property has to be renegotiate normally every year. What if you really do have economic troubles? Tenants, depending on where you live can be evicted in as little as five (5) days after your payment was due. Home owners normally have five months to a year or more before facing final foreclosure.
Maintaining your obligations is common sense in addition to maintaing your personal honor.
Bill
William J Archambault Jr
The Real Estate investment Institute
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