The Los Angeles Times published a story yesterday about an alarming trend. Increasingly, homeowners are deciding to walk away from their homes despite the wherewithal to continue making payments. A number of factors are conspiring to cause them to decide that allowing their home to go into foreclosure is a better option than staying and continuing to pay.
Foremost among the causes is that many homeowners are significantly underwater. Median home prices in Southern California rose to $275,000 in February, almost half the median value in July 2007 of $505,000. Studies show that once a home falls to 25% below the loan amount, homeowners are much more likely to decide to walk away.
And that decision has become easier from a societal perspective. Before, the stigma and shame of abandoning one's obligation inhibited many people from even considering the option. But, foreclosures have become widespread over the last few years. People are much more open to walking away from their homes if they know someone else who has gone through foreclosure.
Homeowners are also deciding that sacrificing their credit is worth removing the burden of sustaining a failed investment. They see the lenders receiving bailouts for the banks' failed investments, but no bailouts for themselves and decide that not paying their loan can be a form of revenge.
Before walking away, homeowners should really think deeply about their options. The article makes an important point about the worth of a credit score - it affects a person's ability to borrow money, rent an apartment, or even qualify for a job for many years.
There are alternatives out there, though none maybe as simple as walking away. The federal Home Affordable Modification Program has had growing success working out loan modifications for borrowers. A borrower can also negotiate with the lender to pursue a short sale (an agreement with the lender to sell the home for less than the mortgage) or a deed-in-lieu of foreclosure (hand the deed to the bank and walk away from the obligation).
Before walking away, contact someone who is knowledgeable about the options and can help you make a decision best for you.
