I Still Can’t Justify Walking Away

Last year I wrote a post outlining why I think people who haven’t lost their income should pay their mortgages regardless if their home values have gone down.

I’ve seen this topic resurface over the last few weeks.  It seems that more and more people and bloggers are leaning towards saying that ‘It’s OK’.  A lot of this had to do with a financial planner’s story of how he went through this with a Las Vegas home.

Since it’s been awhile, I thought I’d reconsider it and see if my opinion has changed.

Short answer: It hasn’t.

See, Ninja at Punch Debt in the Face wrote how his opinion has changed, largely because he now sees it as the bank and customer entering into a deal, but that people and businesses break deals and end contracts all the time.

If it were that simple, I would be 100% in that corner.

But it’s not that simple.

Because it’s not just about the bank and the customer.  Everybody who walks away from their mortgage impacts much more than that.

If you live in a neighborhood, your walking away affects the value of every single home around you. You’re impacting every one of your neighbors.  Not to mention that a home that might go empty is at risk of falling into blight, something that can spread quickly.

So, you’re impacting all your neighbors.

Plus…

Most likely, if you stop paying on your mortgage, you stop paying your taxes.  That means, everybody that lives in your community is affected by taking in less tax revenue.

So, now you’re affecting everybody in your city, including schoolchildren who get less tax revenue.

And it goes further….

The economy hasn’t gotten a firm boost in almost five years now.  We may no longer be in a recession, but we’re certainly not out of the woods or in a growing economy.  Much of this has to do with the drag that housing puts on the economy.

So, yes, I am putting it out there that walking away hurts every single person in the country.  Maybe even in the world if we want to go that far, since the global economy is here and pretty much every decision is far reaching.

Yes, banks may have ‘started’ it by making stupid loans and letting the bubble get created.

I get that.

But, now the banks are done with that.  Sub-prime mortgages are a thing of the past.  Loans to unworthy customers are pretty much impossible.  Yet the problem continues.  Why?

Well, it’s not the banks right now.  The banks have done their part.  Whether it was forced on them or not, I don’t really care.  But, the problem remains now because people, not banks, are continuing to drive the market down with the vicious spiral that walking away creates.  And, now it’s on the people to stop the madness.  Not the banks.

There are options now.  You can re-finance at historically low rates.  By doing so, you can pay the same amount every month and have your principle payment fall by over twice as much as what you are currently paying.  You will be above water that much faster, all while helping stabilize your neighborhood, your community, and the economy as a whole.

So, please, let’s think about doing the right thing.  If we really allow ourselves to be talked into the notion that walking away is OK, then guess what?  We’ll still be talking about this for years to come.

Nobody wants that, right?

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12 thoughts on “I Still Can’t Justify Walking Away

  1. I agree with you Beagle. I know that Personal Finance By the Book wrote about how he is rethinking his status based on the 'contract between bank and borrower', which may be where Ninja wrote his article from. I get the point, but as you said, it hurts those in the neighborhood when someone walks away from their mortgage. Just like with smokers. You hurt yourself by smoking, and those around you, which is why you can't smoke in public places.

    My neighbors have their house up for short sale right now after up and moving to South Carolina. I am sure that walking away/foreclosure is next since there is no activity on the house. The homeowners are lawyers too, so it isn't like that they are broke. Drives me crazy.

  2. I couldn't walk away either. I couldn't walk away for some of the reasons that you mentioned but also because my conscience wouldn't let me. I signed the mortgage saying that I would pay for it; I honor my obligations. Even though lots of other people may break their contracts doesn't mean it's OK within the context of my own moral code for me to do it.

    If I were in a situation where I just couldn't pay anymore, I'm not really sure what I would do. I'd probably exhaust every avenue I could think of before I let my house go into foreclosure or just walk away.

  3. The thing is, many people can't refinance because they don't have enough equity in their home or their credit is shot. It's a real tough situation, and I can see both sides of the story.

  4. I fall on the "it's a contract, and the bank wouldn't hesitate to enforce it" side of the argument. If you are delaying a foreclosure by stringing together one last payment, you don't have much money for maintenance anyway.

    As soon as you recognized you could no longer pay a mortgage, you likely cut back on a lot of things, beautification included. The foreclosure & resale cycle might be superior to a homeowner scraping up enough cash for 6 months more to delay the inevitable – and have the halo effects of the improvements done by a new owner.

    I know it's controversial, but I do enjoy these discussions! Thanks for continuing the conversation.

  5. Our neighbors walked away from their house, and it is slowly turning into a dump. The house is very nice, and it is sad to see this happen to it. Us neighbors mow the grass, but we cant do anything for the flower beds, and the general maintenance of the house. It's a sad thing to watch. So yes, to me a contract is binding, and I would not consider walking away.

  6. I can see both sides of the issue, but either way it's hard. There is something to be said about integrity though–that never goes out of fashion.

  7. Some of us actually can't refinance without paying a major penalty, despite having great credit. My mortgage is not owned by Fannie or Freddie (and per it's own terms cannot be sold to one of them) so I don't qualify for HARP. If I wanted to refinance, I'd have to pay PMI again, which, combined with fees, would wipe out any savings I might see for 5+ years.
    Still, I can afford my house and I have no intention of walking away (though I do wish I could have a lower interest rate).

    On the other hand, there is planning ahead. My mother bought at the height of the market in NV. Given the way property prices are going there, she could be in that house 20 years and just barely break even.
    She is going to retire next summer. So, she contacted the bank in advance. She told them, I can make the payment know, but it will be a major hardship to keep doing after I retire. She got approved for a short sale a full year before she needs to be without the house payment. She has plans in place for if her house sells before she retires.
    She's not trying to skip out on taxes, and the house will continue to be impeccably maintained while she's there. But she is planning ahead. And no, the bank won't get as much money as her orignal loan was for, but again, given the market in that area, it's doubtful that property will ever be worth that amount again. It's a shared cutting of their losses.

  8. I totally see where you're coming from beagle and both sides are tough. Having never owned a home though, I'm really not in a position to say what someone else should or should not do with theirs, underwater on the mortgage, struggling financially or not. Sure, plenty of things could have been done in the past, but even figuring out what they are/were is a waste of time. Focus on the now and how to get into a better spot for the future – that's all that matters.

  9. I suppose this is a very personal decision… that takes into account more than just finances. It also impacts how a person feels about themselves I imagine.

  10. You're right Doctor Stock. For me I know it would be admitting failure. Don't want to even contemplate that.

  11. @Kris – That's my point that I think gets lost, making sure to think about others that are impacted.

    @Jana – Well said!

    @Well Heeled – I agree, sometimes it doesn't work but my post was more about those who can make it work but choose not to.

    @PKamp3 – I'm all about lively discussion!

    @Moneyforcollegepro – That always hurts to see a good house go into disrepair, doesn't it?

    @newleyweds – Integrity definitely is something that seems to be out of fashion these days 🙁

    @shanendoah – It sounds like she's at least trying to work with the bank which is better than just altogether quitting and making it someone elses problem

    All the rest, thank you for the comments.

    It's one of the more interesting topics I've had to write about and I'd love to hear more.

  12. You certainly make very valid points. I personally see no problem in walking away from a mortgage. It's a contract and it clearly states what happens if you follow through AND if you don't. Now everyone interprets this according to their personal situation. I'd like to bring up something else though.

    Corporations do it all the time! They walk away from their mortgages and it barely makes the news. We operate under a double standard: individuals are told they have a moral obligation to pay their mortgages and corporations understand that contracts are to be breached when it's not economically efficient.

    What's good for the goose is good for the gander.

    Like I said, your points are very valid. I would just like for people to understand that no one cries foul when businesses are doing it, and they do it at a much bigger scale: we're talking about mortgages in the hundreds of millions of dollars, sometimes billions. Talk about impact on neighborhood/taxes/economy!

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