There's life after bailing on a mortgage

One year later, 48 who walked away from their houses look back with shame, anger … and enormous relief.

By MSN Money Partner Feb 21, 2011 10:51AM

This post comes from Marilyn Lewis of MSN Money.

 

The typical questions about ethics and blame were not what three Huffington Post writers had in mind last year when they asked readers, "Are you considering walking away? Have you already walked away from an underwater mortgage?"

Nearly one in four American mortgages is worth more than the home it's tied to. That's about 10.8 million mortgages. Borrowers of 58 of those mortgages responded to the reporters. In the ensuing year, 10 homeowners lost touch with The Huffington Post but 48 stayed in contact and reported on their experiences. Today, just eight are still in their homes. Post continues after video.

The Huffington Post's article about the project -- "Learning to walk: Fear, shame and your underwater mortgage" -- points no fingers at the homeowners.

 

Writers Ryan Grim, Arthur Delany and Lucia Graves write that they wanted to understand how people make this tough financial decision and how it has worked out: "Our question was more direct: What are the costs and benefits of walking away from an underwater mortgage -- not for the banks or the neighborhood or for society as a whole, but for the real people making the decision?"

 

Lessons

Reader Richmond Burton, 50, told them that the cost of walking away was losing his $120,000 down payment. But the benefits of "short" selling (in which the lender lets the homeowner sell for less than the mortgage is worth) his Long Island home -- which he eventually did -- have been "great."

 

"Ultimately," he says, "I made a decision that my physical and mental health was more valuable than this house and my investment in it."

 

Others had similar responses to their defaults: The experience was horrendously difficult, yet it brought great relief and, for many, the chance at a fresh start.

 

While defaulting was painful, ultimately it doesn't appear to have been devastating. For example, HuffPo ran Burton's credit score, which had been in the middling 600s when he bought his home in 2000. After his short sale, he's at 614 -- "below average, but not savaged."

Burton says he has concluded:

The businesses that we have created to serve us are enslaving us. They're not listening to us, they don't even pretend to care about us. Really, our only option is to do what I'm doing, which is to fire them all. I'm doing everything I can to remove them from my life.

Another reader, Shelly Kluz, 37, a married mother of three, says walking away from the family home in Vacaville, Calif., as "the best thing that we could have done."

 

That doesn't mean it was easy. Or guilt-free. She and her husband were proud of being the kind of people who pay their bills on time. Plus, "we didn't want to get in bad with God, doing something morally He thinks is awful."

 

But they talked through the decision with their parents and pastor and decided that debt forgiveness is a principle rooted in the Bible.

 

Today, her husband and 7-year-old son miss the old home. But it continues to drop in value while their decision to default has improved their lives:

For $1,550, she said, they now rent a three-bedroom, two-bath home with a yard in the front and back -- a feature their first home, with a monthly mortgage payment of $2,250, did not have. The new home is twice the size of the old one with twice as many bathrooms. Their old home was foreclosed upon a month after they left and, Shelley Kluz said, is still on the market for $142,000.

Now, she says, "We actually have available spending money to do fun things with our family, we pay less money for a completely finished house, my kids have a backyard with grass, and best of all, we can breathe."

 

There's more to life than owning a home, Kluz concludes.

 

The article's intrigue is in the individual details of these peoples' tales. And yet, the writers identified two things shared by most of the people they interviewed.

 

Nearly all:

  • Took personal responsibility for their decisions and declined to blame banks or politicians.
  • Said that, while they tried to work with their banks, the banks were disinterested and lost paperwork.

Banks' hostility wasn't why the homeowners bailed. But it made the decisions easier. One anonymous defaulter told the reporters: "We get daily calls from creditors and banks that threaten this and that, and I just laugh knowing I am helping to bring down the system that has brought us all down and continues to reap giant profits at the expense of the little guy."

 

A wobbly movement

In fact, stories of bank indifference and incompetence were so common that Burton suggested starting a support group to help defaulting homeowners deal with their banks and generally survive the experience. HuffPo did that, through MeetUp.com. The first bunch of meetings took place Feb. 8.

 

Perhaps people in the midst of default already have their hands too full to be bothered with support groups. In Silver Spring, Md., only one woman showed up. In Seattle, there were eight people. In Los Angeles, members of the media outnumbered homeowners. Other meetups, in Philadelphia, Palo Alto, Calif., and Boynton Beach and Port St. Lucie, Fla., also suffered from poor attendance that organizers blamed on last-minute planning. New Yorkers gathered at a Starbucks in Soho, and a gathering in Portland, Ore., was covered by KGW. Generally, turnouts sounded pretty anemic.

 

"Turnout was not always robust," HuffPo concedes.

 

A new round of "HuffPost Housing Hell Meetups" is set for the second week in March. They'll continue on second Tuesdays thereafter, unless local groups want to make their own schedules. (If you want help organizing a meetup, contact the HuffPo reporters: lucia@huffingtonpost.com,arthur@huffingtonpost.com or ryan@huffingtonpost.com.)

 

While the article doesn't make defaulting sound noble or easy, it does dwell on positive outcomes. In some cases, the article says:

… the mortgage money not going to banks finds its way into the local economy and gives walk-aways an ability to breathe easier. "I bought groceries and not just a few bags, but the liberating feeling of filling one's pantry for a change," says Zannah Becker, who stopped paying her mortgage in Seattle. "I did not have to walk to the market with calculator in one hand and coupons in the other and make choices between what we had to have to get by and a few simple extras like a bottle of diet soda for my husband or a small treat for our daughter."

It gives only a passing nod to the considerable downsides. In addition to the guilt and personal havoc, defaulting homeowners can be sued (lenders can ask judges for "deficiency judgments") in 39 states.

 

Tax consequences may also loom, though that's down the road. Starting in 2007, the Mortgage Forgiveness Debt Relief Act opened a window -- it closes in 2012 -- during which the IRS can no longer tax as income mortgage debt (up to $2 million, on a personal residence) that's been forgiven.

 

This may just be a lull before the storm for defaulting homeowners as lenders are fighting back. The article says: "Banks are responding to that question by using their power in Washington -- influence purchased with the checks people send to their banks each month -- to make it financially tougher to liberate oneself from an underwater mortgage, just as millions are on the brink of making their break."

 

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24Comments
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I sold my house in Orlando Fl in  2003 for $154,000 and found out a year later that same house was appraised at $274,000.  That house currently sits at $150,000.  I do not claim to be an expert on the housing market, but I am a person who works for a modest income.  I knew something was not right with valuations at such an inflated rate.  People who bought into this market was motivated by blind greed to assume that housing market would ride this rollercoaster upward.  Worse yet a lot of people used their house to finance other needs such as tuition, vacations or home improvements.  Now others who were not irresponsible have to pay for those mistakes.  Shame on banks, government and the people responsible for this mess.
Feb 24, 2011 2:52PM
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The mortgage companies got a free ride from the government, have made billions and do not care about the average home owner.  Freddie Mac and Fannie Mae gave  away mortgages to people that could not afford them. Many people that could afford the homes when they bought them suddenly find that they no longer can due to a bad economy and high unemployment. It can happen to anyone and you who say that it is wrong are full of crap.

 

 Jim and runaero,who gave you the moral fortitude to say what is right or wrong? You are both full of crap and do not represent the majority of Americans. Many Americans have lost their homes due to no fault of their own.

 

 Both of you grow up and worry about yourselves.

Feb 24, 2011 4:04PM
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The truth of the matter is good people, honest people who were making a living & had every intention to pay their bills, on time, send their kids to school, live out their lives working until they could do so no longer, suddenly cannot do any of these things.  Should they have seen the crisis coming?  Who did?  Who actually saw what was happening to businesses & people across this country & sold their home in time to lower their expenses?  My family had a thriving business.  One we started on our own.  One which allowed us to purchase a home in a place safe to raise a family.  One which allowed for us to pay our bills, on time.  Unfortunately like so many others, our business was tied to other companies' ability to purchase goods.  If they have to lay off their own workforce, how can they justify buying merchandise to promote their own business? This became our dilemma & now our home is up for sale, our business is failing, our lives are in a complete downward spiral.  Both my wife & I have been looking for new jobs for over two years. I'm wondering where our daughter will go to school.  I'm trying to cope with the feeling of failing my family.  Yet, there are people responding to this article stating that people like me deserve these consequences.  While we have not missed a mortgage payment, yet, that reality may be around the corner & is terribly frightening to us.  The loss of credit may be more then we can handle individually & as a couple.  We've been told that receiving a loan modification is most likely not possible.  We've been told that in order to even be considered for one, we need to have missed at least three consecutive payments.  We've been told that being late with a payment just once, kills our opportunity to be considered for another mortgage should we be able to sell our home.  No one deserves the anguish we've been experiencing.  True, we're together, healthy & still able to eat with this albatross of a home hanging over us.  However, I know we're not far from having most of these things taken away.    
Feb 24, 2011 3:01PM
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It's funny how the people who post here "on their high morality horse" are th ones getting the thumbs down.  For all those that think it's wrong.  Please do me a favor, open you mind and put someone in your family who is terminally ill (or has a grandchild with a chronic condition) and needs to have a relative relocate near them.  But cannot sell their home, cannot pay for two places to live and don't want to live as geographic bachelors.  If you have tons of cash, perfect health, great friends, and live in paradise with hummingbirds and bunnies. good for you.  The rest of us work, worry, and live in the real world.
Feb 24, 2011 2:59PM
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Bad business should hurt business.  We make the mistake of bailing these predators out.
Feb 24, 2011 3:54PM
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I'm so glad that mine and my Wife's house is paid for. We have no debits. Our cars and credit cards are paid in full. We live in a modest brick home outside of Richmond, VA.  We just make under 29,000 a year and we are in our late 40s. Its not what you make its what you do with it. No we don't take fancy vacations or drive SUVs or have the latest and newest car or have 500 channels on TV.  But we enjoy our home and we feel safe and secure that we own our house and not some big bank. Because when you mortgage a house your really are just renting it from the bank. Yes we did have a mortgage at one time when we made more money but we worked to pay it off fast. Oh and we had a nice size down payment too. Use your common since when buying a home. Don't get more house then you need and save up your money for a down payment. Get out of car and credit card debit. Don't use your house as a piggy bank . Make an extra principle payment every month and that mortgage will come  down fast. Oh and what ever happen to the 20 year loans like our parents had?  If you have to finance beyond 20 years then you may not really to be able to afford the house.  Houses were meant to be long term investments not short term. House prices are coming down to where the should be.
Feb 24, 2011 2:21PM
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As someone who has been working for over 30 years, always made my payments on time, and met my obligations, this article is nauseating.  How about personal responsibility?  How about not buying something you can't afford?  "we have room to breathe now".  Sure you do, but I would bet you will be right back in the same boat again before too long.  We as a country have to learn from our mistakes and stop living outside of our means.  I know that the value on the homes went down, but did the payments go up?  In a lot of cases no, people just chose to dump on banks and the government to get rid of a bad investment.  I'm sick of paying through higher taxes and insurance for other peoples irresponsibility and poor decisions.  Grow up and pay your own way. 
Feb 24, 2011 4:05PM
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There are several sides to this story, the lender/broker and the borrower.

 

The fraud created on all sides in the last decade is astounding.

 

Lenders and real estate agents knew what was going on, they encouraged it to make lots of money. Regulation is coming to haunt them for years, and those professions have the credibility of a used car salesman.

 

Most borrowers knew what was going on, as they got away with lies on the applications and witnessed the ridiculous estimates of value on their homes. Now they can't make the payments.

 

What both sides did with this fraud is kill the golden goose...the housing market is belly up, and will probably take the rest of this decade to recover.

 

That affects ALL of us, and that is just wrong, for BOTH sides. 

Feb 24, 2011 4:03PM
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the whole problem with this whole thing is responsibility.  In the end it's my responsibility to know what i can afford to pay for a house payment.  If my rent is $500, then it's safe to say I can afford house payment around the same.  True when I was looking for my house 5 years ago I was approved for a loan way above what I knew I  could pay and my realtor showed me some houses that were at the max of what that preapproval was.  Ultimately it was MY decision to purchase something I knew I could afford. 

Tired of hearing stories like these, how about stories of people who didn't jump at the large house and chose to live within their means.

Feb 24, 2011 3:56PM
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I am saddened by many of the remarks.  First of all is the rationalizations.  If you have to rationalize your behavior, you shouldn't be doing it.  And don't hand me the "your life is a businesss" BS and that's all it is but if you're comfortable with the excuse so be it.  But most of all is the idea that walking away is "free"  The reality is you are taking advantage of a type of welfare.   Somebody eats the money you didn't pay and it's the rest of us.  We pay for it with higher taxes of all kinds, higher bank fees, poorer infrastructure (when money is bled off paying your bills, other things don't get done) and the list goes on.  For me it doesn't matter if the banks were bad boys, I refuse to use that to justify my bad actions.  There is a massive American attitude, at all levels of our society, that says "I'll get what I want and if I can't pay for it, somebody else can".  The banks do it, the government does it, the Federal Reserve does it, the business down the street is doing it and so are the rest of us. Everyday I read the excuses, the blaming, the whining and complaining.  Right now, the "great American system" is making chumps out of those of us who pay our bills, buy only what we can afford and behave like responsible citizens. 
Feb 24, 2011 3:03PM
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Someone (rhonks)

I suppose it would be too much to ask the banks and their shareholders to accept responsibility for their bad decisions.  What kind of whacko thinking is that?  Hold the naive buyers enticed with easy terms culpable, but bail out the professionals who should know better.  Actully the business community (generally corporate monsters) should accept culpability for the crash of the economy and all the losses that followed the raking off of capital.  They aren't too big to fail; they are too big to blame.

Feb 24, 2011 4:58PM
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After reading so many comments on this article, and reading so many articles about people who are losing everything because of a string of bad luck, I am SO glad I never bought a house. I've had several opportunities to do so, but I didn't, and I won't for several years to come (if ever).

 

I've lost jobs, had severe medical emergencies, and had serious financial difficulties. I've had to make some serious changes to my life (including choosing to not have a car). The one thing I never had to worry about, was a mortgage. If I knew I was not going to be able to afford my rent, I made arrangements for another place to stay, and gave my landlord 30 days notice. Done.

 

I have no problem paying someone else's mortgage in exchange for a nice place to stay and getting repairs done with no out-of-pocket expense. If you want to spend that kind of money, go for it. I'll keep living in my great neighborhood, at less than half the price of those people with mortgages who live across the street.

 

Open-mouthed

Feb 24, 2011 3:51PM
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There are extenuating circumstances in some of these cases, I will agree.  If you have lost your job and cannot pay your mortgage, you deserve a break.  If you have to sell to deal with an emergency, you deserve a break.  In either case you should have no problem proving there is a problem that dumping the house will solve or at least help.

 

But, if you are just unhappy you made a bad decision, don't like the house, want something bigger with a bigger yard, etc it's your problem, not someone else's.  Walking away simply because "businesses do it all the time" is unethical.  Having been in the business world for more than 40 years, there are very few "businesses" that are completely ethical so using them for behavior model is not very smart.

 

Also, if you're thinking that walking away from a house doesn't hurt anyone, try talking to the neighbors you leave behind.  I don't think they appreciate another home on the block that is empty and possibly turning into an eyesore.  As a member of a home owners association I have personally had to help clean up a nearby property because the owner defaulted.  They hadn't lost their job, they were simply unhappy that the "value" of their home had dropped and they were eyeing some newer homes that they could rent.  Fortunately the bank got the message, completed the cleanup and resold the house.  We were lucky, but many other neighborhoods are not.

 

Would you stop paying on your car simply because it was worth less than the loan?  (I would be willing to bet it is.)  It probably dropped 20% in value the second you drove it off the lot, but you didn't seem to mind.  What makes anyone think the value of a fixed structure is going to stay the same or grow over time? 

 

So it's time to grow up and begin acting like responsible adults, not self centered children.

Feb 24, 2011 3:48PM
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I decided last night this is probably what I'm going to do, as I had my arms elbow deep in my sewer pipes. After I forked out 2500 for a new electrical panel and main (after the inspector told me it was a newer upgrade) when I lost power in half my house for a year.

 

I bought the house as is when I was married 4+ years ago. The inspector gave me the shaft. My value has tanked. The taxes have gone up and I can't keep up with it falling apart. I have no money left and in no danger to come up with more. I'm not divorced and even though I keep putting every extra penny in to working on it.. it gets worse for every task completed. I'm proud that I'm as independent and resourceful I've been in learning and fixing, but it's too much now. I've been in prison for years.

 

The bank have given me late fees because they do not accept payments easily, lose them, post to wrong accounts.. and no one cares when I try to get it resolved. If I try to sell it, if it even sells, I'll be taking a 30-40% loss and still owe that to BOA while being homeless? Since they don't credit my payments, not a single one missed, my credit has already suffered. Take the house, take my blood sweat and tears and 25k of materials and enjoy!!!!

Feb 24, 2011 5:55PM
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I had a mobile home and was paying my mortgage, and couldn't keep up with the lot rent...when I moved in 12 yrs ago it was an affordable place to live with utilities, house payment and lot rent it was around 850.00 a month. I tried to sell it for 7 1/2 months, had one man that was coming out of the service was willing to buy it sight unseen all I wanted was someone to assume the mortgage...well the mobile home part wouldn't allow him to come in because he had a dog that was 20 pounds heavier than the rules allow. There are some kids out there that weigh 92 lbs that are more destructive than his dog.  So when it is a right time to cut your losses and walk away? I know it wasn't the right thing to do but you can only get so much out of 2 paycheck's, when you are working for just a home then it's time to realize you need to do something different in your life.

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Simply despicable.  The article and the study it mentions seems to go overboard mentioning how they do not address the ethical implications of walking away.  It's terrible that the law allows people to do this.  They made the agreement with the mortgage company to borrow and pay back a documented amount of money.  Whether their houses went up or down in value should be irrelevant.  They borrowed and promised to pay it back.

 

When they buy or sell future houses (or for houses they sold in the past), will they send any profit they make on the original sale price of the house off to the mortgage companies they previously lied to?

Jun 7, 2011 3:14AM
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The main problem was timing for a lot of people.  Young people out of school getting their first job and then trying to follow the "American dream" where they sell that first condo or small house for their first home to raise their kids in.   I have had honest friends who signed up for loans they didn't really understand.  They work hard and only wanted to go what their parents did, which was buy a smaller property (like a condo, since I am talking about a city here) and then sell it five years later in order to put a down payment on a house.   People who were lucky enough to get out of school and stared with life at a time when the housing market and economy were good, like my parents, had a better time of it, with the property they bought rising in value.   I don't like it when people say young people live high on the hog...I didn't know a 700 sq. foot starter condo was living high on the hog, especially when you are sharing a car with your husband and barely can pay the bills despite having a decent job (or two).  

I feel the banks are at fault too.  People can state their morality claims, but usually it is because they've never suffered in life and were lucky to buy their property at a good time or be old enough to understand the system.  Us younger people want to buy property too, but being in a city, you have to buy a condo or tiny house first in order to get even a medium sized home, something that has a yard so your kids and dog have a place to play.  We aren't talking sports cars and caviar lifestyles, we are talking living on a strict Mac and Cheese budget and crossing your fingers, hoping you don't get a health problem (because I've had friends who have had problems that their insurance supposedly covered and then they find out they don't) because your place might be foreclosed on. 

Short selling is a good alternative to foreclosing, especially in a climate where the banks took advantage of a lot of good working people in order to make money. Hopefully, once people sell their properties and they return to a decent price, these people can buy another house and be able to make payments and also live a life that is paycheck to paycheck.   Overall, this will make the economy better, if houses are worth what they should be worth and not 40% than the loans some of my friends have.   Some do try to pay on them and short selling is a last resort, as is foreclosure, but having to lose your American dream of owning a home because you can't sell your condo at a decent price until you are 50...I find that saddening.

I just wanted to say a lot of us younger people are responsible and really only want what our parents have had in life, but are finding out, even with hard work, we will never have what our parents had.   The economy just isn't built that way anymore.   It isn't a lack of morality on our part, it is more the greed of a capitalist system that won't even let its youth go to school at an affordable rate and buy a house that you can make a home.  


Feb 24, 2011 4:37PM
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I agree that anyone - at anytime can run into a personal crisis - major illness, unemployment, etc.  Sometimes things do happen that are beyond even good planning.  That being said - many people walk away from their responsibilities simply because it gets too hard - we are a nation of whiners and quitters.  I am heartened by people like Dave10. 

 

You have your head in the sand if you don't see the changes in our country.  It's nothing to do with feeling that I am more moral than anyone else.  And I don't believe I claimed to be.  Right is right.  No matter who you are.  Make excuses all you want, I have lived through hard times, and will again, but I will not, ever be a quitter - or a whiner.

 

And Scotoworn - if the majority of the country does not feel like it's wrong to dump on other people - Well, that makes me even sadder. 

Feb 24, 2011 3:17PM
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I bought my first property without a job, from a devious banker who extended poor risks like me loans betting that the borrower would fail the agreement.  He went to jail.  I paid for my property.  But the bank he was president of got the money on the failures, and then got the property back, in effect shelling the borrower knowing full well the likelihood of payment was low.  How great a deal to sell houses knowing they will not be paid for.  They get the smaller money, but they retain the property to sell again.  I'm in my fourth property.  Never made 40g in my life.  Bankers are low lifes descended from criminal goldsmiths.
Feb 22, 2011 2:17AM
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Refinance mortgage rates going to go up for sure. Any body still thinking should just make use of the low rates. Do not wait and regret it is not that difficult to make it happen. Online is very easy check out either 123 mortgage refi or any of the major banks

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