The statistics are all over the place, but it is clear that not only are mortgage delinquencies and foreclosures skyrocketing, but millions of homeowners are "upside-down" in their mortgages; that is they owe more to the bank than their houses are worth and a report this week predicted that number would be growing exponentially.
More and more the talking heads on television have suggested that these upside-down homeowners should cut their losses and hand the bank the keys to the castle. Some have even suggested that cash-stretched and equity-poor debtors should continue paying the credit card bills even as they stop paying the mortgage. The rationale? The house is already a dead loss and continued credit card access will help the homeowner get back on his or her feet.
The attitude was unheard of in an earlier day. An obligation was an obligation and there was none as important as the one that kept a roof over one's head. But there is a lot about the current financial crisis that has changed the attitudes of many Americans toward that mortgage payment.
First of all, many borrowers feel as though they were taken for a ride by their lenders; talked or fooled into mortgages they couldn't afford. Even though borrowers were often complicit in the misrepresentation involved in their loans, they feel aggrieved by the process and not responsible for the result.
Then there is the mob rule effect. The media is so full of reports on the foreclosure crisis and there are so many anecdotal reports of people mailing keys to their lenders (CNN Money says it is called "jingle mail") that it has taken on the cover of "everybody is doing it," and many people are.
Well we have said it before - there is no situation so dire that someone can't figure out a way to make a buck off of it.
The newest wrinkle is a company that assists homeowners with the process of walking away from their mortgages. You Walk Away, LLC. asks visitors to its website "Is foreclosure right for you?" and follows up with five questions to help a homeowner make the decision:
- Are you stressed out about your mortgage payments?
- Do you have little or no equity in your home?
- Have you had trouble trying to sell your house?
- Is your home sinking under the waves of the real estate crash?
- What if you could live payment free for up to 8 months or more and walk away without owing a penny?
Those who self select - "well gosh yes, that bit about living free for 8 months is the clincher" - and who qualify by answering some simple questions about their situation, are offered the opportunity to purchase a You Walk Away plan. For a subscription that costs $995 the company will:
- Send a letter to the lender that promises to stop collection telephone calls.
- Provide subscribers with a free 1/2 hour consultation with an attorney to make sure the foreclosure has been properly filed.
- Inform the homeowner of the exact number of days he can continue to live in the home payment free and update that schedule regularly.
- Enroll the borrower in You Walk Away's affiliate credit repair plan which they claim has removed thousands of foreclosures from clients' credit reports.
- Appoint an experienced You Walk Away advocate available to answer any of the borrower's questions throughout the process.
- Provide information on state laws that, in select states, will prevent the bank from attempting to collect deficiency money.
It appears that the You Walk Away plan, unlike a Deed in Lieu of Foreclosure, does not stop the foreclosure, just mutes some of the aggravation and uncertainty that usually accompanies it. A Deed in Lieu, if the bank is willing to accept it, may be a more credit history friendly solution and it may be possible to obtain assurances in writing that the bank will not pursue a deficiency.
All of what You Walk Away does is probably legal; possibly it is effective (although the promise of credit repair is always a red flag); but before you plunk down the nearly $1000 fee, please contact a non-profit credit counselor in your area.
One of the questions that you need to ask a counselor is whether, in your state, a lender is able to go after the difference between the value of the house and the balance of the loan. You Walk Away started in California (it is reported to be expanding quickly into other states) which does have an anti-deficiency law, but not all states do.
A list of reputable credit counselors can be found at http://www.hud.gov/, check under "At Your Service" on the home page.