Should you walk away from your mortgage?
The president of the Mortgage Bankers Association, John Courson, has recently stated in an interview with The Wall Street Journal that homeowners who deliberately become default on their mortgages should take into account what message they are conveying to their family, kids and friends. While referring to the all time high number of defaulter homeowners, he maintained that it was their responsibility to make good decisions. However, he did not criticize the underwater homeowners who are left with no option other than foreclosure. In fact, he criticized those homeowners who are voluntarily and deliberately choosing to go into default on their mortgage due to hidden motives.
In a similar manner, Henry M. Paulson Jr, the former Treasury Secretary has said that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator and one who is not honoring his obligation.” Why voluntary default is being criticized and considered to be an abhorred decision is due to the glorious past history when people put their utmost struggle and did anything to pay their mortgage. They even abstained from major purchases such as a new car or worked from dawn till dusk to make regular payments.
Two major reasons are usually quoted to prove that strategic default is not only antisocial but also amoral. One, default results in foreclosures that drive down the prices of neighboring houses to a great extent. As a result, a person’s irrational decision causes so many others to suffer economic loss. Second, the strategic defaulter himself degrades his character because he previously signed a promissory note. Despite this criticism and objections raised against deliberate default, we cannot always simply regard strategic default as an abhorrent act. Sometimes, borrowers can find no solution except for going into default. At that time, they are justified to do so and nobody can raise social or moral questions against them.
What are the justified grounds for homeowners to go into default? A homeowner should ask himself the following questions and then make a decision about default.
Do you really owe higher than the actual worth of your property?
If you owe $300,000 mortgage and your property is worth only $70,000, it will take decades to come back and you would continuously suffer from financial worries.
Have you applied for a loan modification?
Given that you are really facing hardship, you have more leverage with your lender in connection with a loan modification. Since lenders of today are showing more willingness to write off the principle loan for borrowers as part of a loan modification, it is apposite to use this card well before deciding about becoming a defaulter.
Have you consulted a bankruptcy attorney?
Consulting a bankruptcy attorney will give a signal to your lender that you are seriously looking to avoid a deficiency judgment after abandoning your home. This will be a compelling ground to persuade lenders to modify the mortgage loan.
When seeing no positive results coming out of your efforts to save your home, then there would be no reason to become a destitute trying to retain the home at the cost of great sufferings. You can walk away from your mortgage after giving your lender a chance to evade such an outcome. However, opting for deliberate default as a last option will not be an anti-social or amoral decision.
A short sale may be for you!
If you are one of the above mentioned borrowers who can simply no longer afford to make your mortgage payments due to a financial hardship such as job loss, divorce, or relocation, and a loan modification has not proven to work out in your best interest, a short sale may be your answer. A short sale allows you to get out from under your mortgage without ruining your credit, not to mention the fact that you will be completely forgiven of any deficiency (the difference between the selling price and the loan balance). A short sale costs borrowers nothing since lenders pay the seller’s closing costs, including Realtor fees. Consult short sale advice from an experienced short sale Realtor to find out if you qualify!
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