Should We Walk Away From Our Home?

walking away from home
It is easy to walk away but you might regret that action years later. © Big Stock Photo

Question: Should We Walk Away From Our Home?

A reader asks: "My husband and I are wondering if we should walk away from our home? We bought a home at the height of the market and now it is worth less than we paid for it. Not only has our value dropped, but we owe more to the mortgage company than our home is worth.

We both have good jobs and are not behind in our mortgage payments. But some family members are saying we should walk away. That it's not a big deal, and we could start over. We could be very happy renting for a while. Is it really that easy to get rid of this burden? Should we walk away from our home?"

Answer: I can hear my mother's voice echoing in my head, "If everybody is jumping off a cliff, should you do it, too?" The answer is most likely no. It's not easy going through foreclosure; it's heartbreaking, nerve-wracking, and time-consuming.

Consider this: the moment you drive a brand new car off the parking lot, it is no longer worth what you paid for it. It's worth less. But it doesn't mean it is worthless. Does that mean you should turn that car around, drive back on the dealer's lot, and hand over the keys?

Probably not, you made your choice -- most likely made a commitment to repay a car loan. You should hang on to that car. One day you will pay it off, and you will trade it in for another car, putting the value of that car into your pocket.

A home is not that different. For one thing, you need a place to live. There are plenty of good reasons to own a home. For another, you made a promise to repay a loan, and most people feel an ethical, if not legal, obligation to follow through on their word.

It's a matter of personal integrity.

And yet another reason is that markets move in cycles. You can't time the real estate market. Eventually, what goes down comes back up. Historically, real estate values appreciate over time.

Let me emphasize that Jingle mail is not a wise choice. You have better alternatives to Buy and Bail.

However, I am not implying that you need to stay there nor to continue paying on your mortgage.

Internet Sites for Walking Away From Your Home

For some people, walking away is the only solution because they can no longer afford to make an increased mortgage payment due to an adjustable-rate mortgage loan. So, they look online for a solution.

There are no honest solutions online from these walkaway profiteers. These are companies that prey on troubled borrowers' misfortune and perpetuate the myth that walking away and going into foreclosure is a logical, foregone alternative.

You don't need the help of an online company to help you do what you can do for yourself. Don't line the pockets of opportunists. There are plenty of nonprofit organizations that can help you negotiate with your lender or offer up other viable options, and they don't charge you:

You can also find local nonprofit agencies that will give you free advice regarding foreclosure. Call your local council member's office to get this information.

Foreclosure Scammers

If you fall behind on your payments, suddenly, plenty of foreclosure scams will find you.

These companies will strip the title from you faster than you can say, "What's a quitclaim deed?" Don't do business with them. Call a trusted friend or a real estate lawyer before agreeing to accept "help" from a company who wants to steal your home by making promises it can't fulfill.

Stopping Foreclosure

If you've reached the point where a Notice of Default has been filed and you are headed into foreclosure, there are ways to stop foreclosure. Again, deal with reputable companies that don't have a dog in the race. Ask yourself, if the company stands to profit from helping me, how much help is it likely to offer?

Bottom Line on Foreclosures

Foreclosures will ruin your credit. That derogatory credit will stay on your credit report for 10 years. Short sales affect credit in an identical manner. Doing a short sale won't save your credit report.

You may qualify to buy another home in two to three years, but the interest rate offered to you will not be attractive.

At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.