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Home Underwater? What to Do?

From Issue: Volume XXI - Number 13

By Taylor Ramsey

I read an article some time back in the real estate section of a newspaper that was meant to give good advice to homeowners. The advice given is usually pretty good, but this specific article got me to thinking about business versus moral obligations.

Two brokers wrote an article titled “Should you walk away from your mortgage or keep making payments”? They began the article by asking the question, “Do I keep paying a high mortgage for a property that might be years from regaining its prior value?” They mentioned that there are homes whose owners are underwater (owing more than the home is now worth) and there are situations where homeowners are facing foreclosure. However, in this article they were addressing the idea of deciding to walk away from a home because you owe more than the home is worth.

They suggested that when making the decision the homeowner needs “to decide if it’s feasible to hang on to the home or decide if the penalties to their credit record will hurt them in the future.” Note, they said “them” with absolutely no consideration for the lender. What is amazing to me is the next statement which read “People shouldn’t be embarrassed about not paying their mortgage and breaking a contract. It should be treated as a business decision, not a personal one.”

Did you read that? You should not be embarrassed about breaking a contract! They do go on to suggest that walking away should be a last resort after speaking to your bank or going to the government (your neighbors) for help. How about this for an idea? If you can afford the payments you need no help, keep your promise!

The two realtors did not mention once what the consequence of walking away from your contract would have on the lender as it was implied your only concern should be “YOU.” Think back to when the loan was granted in the first place. The loan could have come from a lending institution or from a private party. The prospective homeowner went to all the trouble to convince the lender that they were a good risk for the lender to take a chance and hand over thousands of dollars based on the borrower’s credit history, income AND character. The property could increase or decrease in value over the life of the loan, but the lender took a gamble on the homeowner anyway. Now two realtors are suggesting it is “just business” and to walk away from the obligation (your signature on a promissory note) and basically tell the lender, too bad, pound sand and good luck getting your money back.

Now the bank or private lender is out thousands of dollars with no recourse but to take the hit. I feel so sorry for the lender which may include private parties owning shares or interest in the bank, or for the poor private lender left with a giant loss.

It is beyond me how a person who is not in foreclosure and can make the payments they promised to make for the use of someone else’s money can just walk away and be advised to do so by real estate professionals.

Think about this on the other side. If property values were appreciating like they were during the real estate boom a few years ago the borrower would have no problem with fate and pocketing a tremendous profit. However as chance would have it, stuff happens and life is not fair and being underwater is difficult to swallow, but you must respect and complete your commitment.

What happened to making promises to honor an agreement and keeping them? If you lose your job and there is no way to make a payment, that is one thing, but to just walk away simply because you are “under water” is quite appalling and dishonorable.

For the life of me, how could a person look at themselves in the mirror knowing they suggested to, or actually did, walk away from an obligation just because their property is “underwater”? What happened to actually honoring a commitment? Remember when it was expected a person could depend on another’s promise, signature and handshake?

To hell with what is right or the negative consequences of our actions because it is all about Me Me Me!
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Twitter: @TaylorPRamsey