Tuesday, May 20, 2014

Is Walking Away from Your Mortgage Morally Wrong?

Although we have definitely experienced an economic recovery as compared to the not so distant past, there are still many homeowners that owe more on their home than it is worth. This is a situation that has always existed and will continue to do so regardless of the economic climate. So what is a homeowner to do if they owe $450,000 on a home that is valued at only $200,000? Is it really OK to walk away?

This question is a lot more complicated than it sounds. The legal implications alone are considerable and what about the damage that such a decision can do to your credit rating? First of all, if you live in what is known as a “recourse” state it is possible (and likely) that the lender will sue you for the difference between the sale price and what you actually owe on your mortgage. So if you sell your home for $250,000 less than you owe you may still owe the money to the bank. That’s not much of a solution is it?

If, however, you live in a non-recourse state the lender can do nothing more than repossess the property, they cannot sue you for the difference between the sale price and what is actually owed but that won’t do much for your credit rating and you can expect to not buy another home for 7years (as an average). And what about your moral obligation?

Yes, I said moral obligation. Is it really OK to just walk away from such a responsibility? While some people would say that it is OK under circumstances of extreme duress (such as a death in the family, loss of employment or other financial disaster) others say that it is not. Regardless of what your personal opinion is, I believe that there are times when a homeowner really has no choice. If you owe twice what your home is worth, especially for reasons beyond your control such as loss of income, what choice do you really have?

If you simply can no longer afford to make the mortgage payment your time is limited regardless of what you would really like to do. While there are temporary solutions (such as talking with your lender to gain some time) the stark reality is that sooner or later if you can’t change your circumstances you are going to lose your home no matter what you do. It’s a sad reality but sometimes people lose their homes and simply need to move on the best they can.


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