James Altucher posted this today, I thought I'd share it with all of the people on this forum who claim it's unethical to walk away from an underwater mortgage:
SHOULD YOU FORECLOSE
lobo @LoboSeawolf sell underwater condo at 70k loss or refinance and rent out? Both use all savings. .Rent w/o refi 800 loss/mo. Baby due, need bigger place.
ANSWER: This is simple to me: stop paying the mortgage. Have your baby. Live in your home. On average it takes 18 months for the bank to foreclose?
Two questions then:
-
Isn’t this unethical? -
Won’t this destroy my credit?
The answer to both is “no”. You have a contract with the bank. The contract specifically states that when you don’t pay the mortgage they can take the house. So it has nothing to do with ethics. It’s a contract. The bank is not St. Peter at heaven’s gate weighing up your list of rights and wrongs. What’s right is to have savings and be stress-free when you deliver your baby.
As far as credit. It will effect your credit for awhile. But not forever. And there are services you can use to clean up credit no matter how bad it gets.
The key now: you’ve been stressing forever about this underwater property. The entire world feels your stress.
Stress kills. Bad credit doesn’t. The bank doesn’t. And your baby needs you.
Totally agree. Fuck it. Or a short sale. There are more important things in life than your holy obligation as one of millions of consumers to wear yourself out feeding an underwater loan as a slave to some regional bank or bondholder, and this story is a perfect example.
on my last day i would drop the keys into a bag of flaming dog poo.
But walking away destroys the property values of all your neighbors
for sure. if you don't have any other assets for the bank to come after, fuck them. walk away.
If you do have other assets, it's in your interest to minimize the loss (i.e. try to facilitate a short sale and get the best price you can, rather than just let the bank foreclose and fire sale it). Either way, they can come after you for the shortfall (deficiency judgement) so if you have other assets the bank can target, you're better taking an active role in minimizing the amount they can come after you for.
A few years ago, there was a huge debate about the ethics of foreclosure where a lot of people were saying that you had a duty to pay that mortgage no matter what. I argued that if your mortgage is harming you or your family's emotional health, walk away. But play fair with the bank and mail the keys in. Exercise your put, hand the assets over, walk away.
Agree with Altucher on the foreclosure here; disagree with him that he should stay in the home rent-free.
Also, don't forget that if you live in a recourse state like New York, the bank can come after you for the deficiency on the mortgage. So a strategic default isn't always so strategic if you have a recourse mortgage.
Could try to refi under HARP.
Just gave a presentation on Principal Reductions, did a lot with underwater scenarios. Abandon ship.
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