When Walking Out on Mortgage Is the Wrong Answer

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RISMEDIA, March 18, 2008-(MCT)-There’s a terrible idea apparently spreading amid the mortgage meltdown that the best solution to foreclosure is to stop paying your mortgage and abandon your home. There are even companies springing up that help homeowners “walk away” for about $1,000.

Among the supposed benefits: You can live rent-free for at least eight months or however long it takes the bank to evict you and use the money to pay down other debts. You could even use the money as a down payment on a less-expensive home that you try to buy before the foreclosure appears on your credit report.

Even people who can afford the mortgage reportedly are walking away. One reason is that they didn’t put any money down and now the home is worth less than they owe. Why should they take the loss?

According to published reports, walking away has become popular in California, Florida and Las Vegas, where housing values have steeply declined. But there is evidence that it’s becoming a national trend.

Nationwide, more than half the people who lose their homes to foreclosure never talk with their lenders, according to Freddie Mac.

“People have an easy time walking away,” said Gail Cunningham, spokeswoman for the National Foundation of Credit Counseling. “Somehow they feel that they have no skin in the game.”

Cunningham has worked with people who feel entitled to walk away. Their arguments are that they were duped into getting a bad loan, weren’t told all the facts, or were misled about the condition of the housing market.

“Two wrongs don’t make a right,” she said. “The consumer needs to act responsibly regardless of what has happened in the past.”

Cunningham and I go to the same school of thought.

Maybe some struggling homeowners believe they’re getting back at the system by walking away. Maybe they don’t mind having a foreclosure on their credit reports for seven years. Maybe they think they can dodge bills and still buy a new car or even a new home next year.

But Cunningham said those days of easy credit are over. “A year ago, a person could file bankruptcy one day and come home to a mailbox full of credit offers,” she said. “They were giving credit to anyone who could fog up a mirror. But now they are returning back to more traditional terms.”

The ramifications of damaging your credit today are much harsher. Nearly everyone judges you by your credit score. And if it’s poor, your cost of living is automatically more.

For instance, you may be able to buy a car after your home forecloses, but the interest rate is going to be considerably higher. And that new job you want may be denied when a potential boss finds out that you dodged your mortgage.

If you get an idea for a new business, a bank will likely not offer you any financial backing. The utility company and cell-phone carrier will require deposits if your credit is weak. And forget buying any big-ticket items with promotions of no down payment and no interest.

Almost every aspect of your life will be affected. But it doesn’t have to be. There are other options.

Most importantly, call your lender. Most banks are far more willing to work out a solution to keep you in your home or avoid foreclosure. Banks can adjust interest rates, extend loans, or change a loan from an adjustable rate to a fixed rate.

If all else fails, you can request to do a short sale, where the bank agrees to let you sell the home for less than you owe, or a deed-in-lieu of a foreclosure, where the bank accepts the deed of the home in place of paying off the loan.

Instead of walking away from the problem, try walking toward a solution.

© 2008, The News & Observer (Raleigh, N.C.).
Distributed by McClatchy-Tribune Information Services.

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