It's Ok To Walk Away, A Law Professor Argues

[booggs28]

By James R. Hagerty

http://blogs.wsj.com/developments/20...fessor-argues/

Many Americans are enraged by the thought that some people are simply “walking away” from their homes—in other words, ceasing to make monthly loan payments and waiting for the lender to foreclose. How irresponsible! How unfair to those of us who do pay our bills!
Brent T. White, an associate professor of law at the University of Arizona, has a different perspective: “Homeowners should be walking away in droves,” he writes in a new discussion paper entitled “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.” (Read the full paper.)

A failure to grasp the true economics of the situation is holding back many Americans whose home values have dropped far below the amount they owe and who would be better off renting, Mr. White says. Fear, shame and guilt also are preventing rational decisions, he believes. And, he says, those “emotional constraints” are encouraged by politicians and bankers, who ruthlessly and amorally follow their own economic interests while telling Joe Soggy Homeowner he has a moral duty to pay his debt so long as he possibly can.

How many people decide to walk away or, in other words, default “strategically” rather than by necessity? Mr. White quotes research—a study by Luigi Guiso, Paola Sapienza and Luigi Zingales, “Moral and Social Constraints to Strategic Default on Mortgages”—as estimating that only about a fourth of homeowner defaults are “strategic.” The rest are due to such things as divorce, job losses or other financial calamities that prevent people from meeting payments.


“The real mystery is not—as media coverage has suggested—why large numbers of homeowners are walking away, but why, given the percentage of underwater mortgages, more homeowners are not,” the professor says.

Mr. White figures some people keep paying because they overestimate the difficulty of repairing the damage to their credit record that would be inflicted by a foreclosure. Some may be overly optimistic about the value of their homes or the potential for a near-term rebound in prices. Others, of course, may simply like their homes and not wish to move into rental housing.

Read more http://blogs.wsj.com/developments/20...fessor-argues/

[AZOwner]

Absolutely! We are packing now.

I have said before:

My family did everything right and played by all of the rules like good little middle class people, continuing our educations, growing our careers, and working for our dream home. Our only wrong, was buying our home at the wrong time.

Any Wall Street type, or any of us that would invest in a business and give it 3 years of downward equity/value, would pull their money out of the tanking investment without batting an eye.

Yes, our dream home. Really, sticks -- mortgage isn't worth the paper it's written on. I can rent a structure that will keep my family warm and safe just as well as this one does.

I will never let the banks run my life by credit again. (They never did run my life, exactly).

Get you funds out of major banks, and walk away if you can. Invest in local banks. Save and pay cash for your next house in a few years. . . or go the mortgage route again after walk away -- 2 years after foreclosure.

Peace!

[mrange25]

I agree with the article. "Home ownership" is the biggest Ponzi scheme pushed on the American people within the last 20 years.

I will be the first to say that I made a mistake purchasing the home I did. It just happens that the "mistake" is on a larger scale than the mistakes of most. Does that mean I should be tarred, feathered, and led amongst the town people?

What about the people that kill someone through drunk driving and are out of jail a few years later? Was buying a house a malicious act, wanting a nice place to live for my family? Before any homeowner is "guilted" to believe that they have to hold on to their homes before the banks pry them from their cold, dead, bankrupt hands is crazy. I made a mistake, i turn the house over, I learned that housing isn't an investment, and I move on.

I am at the point where I almost view this house as a jail. And when you view your own home as a jail, reporcussions do not matter. When I wake up some days and say to myself "I would rather be in jail right now playing cards with Bubba and eating free meals", then you know that it's time to walk away.

I would venture to say that not only walking away from your mortgage in and of itself a good deed potentially; but to walk away knowing that it will save your and your families peace of mind is not only smart, but heroic.

In the end, the only "moral contract" I have is with my creator. And when a banking lender (of all people) threatens me with "morals" and "ethics", I will politely say "It's just business"

[booggs28]

I’ve likened the whole loan mod to taking a trip to Vegas. Serious, It’s a fabulous place to visit, (I was married there) hard to navigate, lots of pretty lights, slot machines dinging for that lucky SOB who just slip one buck into it, the lights never go out, the lure of winning is at every turn and if you stay long enough, you just may be one of those lucky bastages who win it big.

Of course, there’s a down side to Vegas as well. Look past all the buffets and the lights and the dinging of the slots and you’ll see, Joe sitting at the Black Jack table slinging his last 100 bucks down in hopes of winning back the 10 grand he’s lost over the last three days. Or you see, Jane, sitting at the slots, slinging more quarters in and watching the slot three spots over win and thinks to herself “if I’d have just been on that one”.

Loan Modification is the very same gamble isn’t it? Your taking a chance when you call your lender who has made the whole modification pitch to you via, email, phone calls or tidy letters you’ve received since you missed your last payment. Your lured in by a “promise” of help and understanding. You want to believe that they indeed want to help you save your home, like you want to believe when you go to Vegas that your gonna hit the big time, baby.

For some, you’ll just end of slinging cash at your lender who will take it thank you very much, for two, three, hell sometimes 6 months of a trial and in the end, after you’ve placed your hopes in them only to have it crushed and the foreclosure notice slapped to the front door. However, don’t fret, there is that chance that you will be one of the fortunate ones to get a loan modification and breathe that sigh of relief and go on with your life. Others, well, you’ll be like Joe slinging more money in hopes winning that Loan Modification. Come on Lady Luck.

So, I treated my loan modification like my trip to Vegas. I played the slots, I won some, I lost some and in the end, before I lost it all I cashed out and went home with the same 1000 bucks that I got there with. Sure, I could have kept playing but you know what, reality slapped me in the face and told me to take my money and get my ass the hell outta there before it was to late. Ahhh, good times, good times.

Kenny Roger said it best “You gotta know when to hold em, know when to fold em, know when to walk away and know when to run. Well, I’m foldin’ and walkin’. I don’t give two fargin’ cents about my FICO, what others will think and say, because at the end of the day and my life I have one to answer to and I’m praying I’m still on God’s good humor when the judgement day comes for me. Life will go on, I’ll find a new place to call “home” and I’ll not make this mistake again. I may be a slow learner, but this time around I’ve learned my lesson in a big way. I loves me a good dose of irony, my house was a foreclosure when I bought it, and it’s on its way back to being a foreclosure.

[knownick]

One of the best decisions I've made. No regrets here.

It's a business contract, not a moral one. The rights and remedies of both parties are spelled out in great detail well in advance. I understood the consequences and made a business decision to exercise my right to get out of the contract. Funny that when an individual does it, it's a moral obligation - but if a large business did the same, they're just "acting in the interest of their shareholders".

I've had a couple people make comments to the effect of us not "honoring our word" or other moral issues, but by and large the overwhelming majority of people we've told about our decision have been 100% supportive.

You think the bank wouldn't do the same to you in a heartbeat if they could and it positively affected their bottom line?

[emc0317]

Im still on a state of shock of whats happening so called the best country in the world. I migrated from 3rd world country 7 years ago because i slowly see ourselves sinking with government greed and corruption; to fulfill my dreams as a professional and help sick people here in america. I bought a house n the peak of the market. I was denied 3 times for modifications and on the process of short sale. I'm afraid i might denied again this time because i'm still current and paying negam beacause of this moral hazards. With all your inputs here in loansafe, i'm more convinced that its not really worth it begging to the bank and start not giving them a single dime. More power to all of us!

[KFish]

Thanks booggs28! That was a great article. It's good to see an article written the way everyone I know thinks and feels!! Thanks for sharing.

[bloominga]

Thanks, booggs. I'm still in the beginning stages of this whole mess but it's nice to hear that other people are agreeing that you have to know when it's time to go and start fresh.

[Mr.Smith]

Originally Posted by knownick

when an individual does it, it's a moral obligation - but if a large business did the same, they're just "acting in the interest of their shareholders".

Nicely said Knownick.

Three months before we stopped paying them (09/01/08), we mailed a hardship letter. They just ignored it. We mailed second, they ignored that too. We stopped paying, then they called us next day.

It was simple math; our loan $278,000.00 foreclosed house will be worth around $50,000.00. I paid $64,908.00; principle, tax and escrow for (three years). For the time we are in the house rent free (15 months) saving about $27,045.00. Just resent our house was appraised by our county at $93,000.00. I wrote a letter with request of principle reduction of just $128,000.00 based on current market and our financial situation. They rather take a lose of $185,000.00 or more then give us a break.

Someone I know offered $100,000.00 in cash for our house I refused because I know they would not appreciate that. Someone I know offered to buy it for me at trusty sale. I rather see them take that lose then saving it. Even if we decided to walk we still wanted to try to initiate negotiation. Bank house is yours.

So, we go pre-approved for rental property with credit score of almost 800 points. In two or three years I’ll be buying a house with 30% or 50% down. I love (America). Life is Good.

[emc0317]

Originally Posted by Mr.Smith

Nicely said Knownick.

Three months before we stopped paying them (09/01/08), we mailed a hardship letter. They just ignored it. We mailed second, they ignored that too. We stopped paying, then they called us next day.

It was simple math; our loan $278,000.00 foreclosed house will be worth around $50,000.00. I paid $64,908.00; principle, tax and escrow for (three years). For the time we are in the house rent free (15 months) saving about $27,045.00. Just resent our house was appraised by our county at $93,000.00. I wrote a letter with request of principle reduction of just $128,000.00 based on current market and our financial situation. They rather take a lose of $185,000.00 or more then give us a break.

Someone I know offered $100,000.00 in cash for our house I refused because I know they would not appreciate that. Someone I know offered to buy it for me at trusty sale. I rather see them take that lose then saving it. Even if we decided to walk we still wanted to try to initiate negotiation. Bank house is yours.

So, we go pre-approved for rental property with credit score of almost 800 points. In two or three years I’ll be buying a house with 30% or 50% down. I love (America). Life is Good.

I thought about that too. It is a brilliant idea, somebody will buy it for you, rent it until you can buy it back with big down payment!

[booggs28]

another ariticle from USA Today:

More walk away from homes, mortgages - USATODAY.com