There's life after bailing on a mortgage

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?"

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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."

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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@huffingtonpos​t.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."

More from MSN Money:

• Are you foolish to pay your mortgage?
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• Can you live on $330 a week?
• Right ways to hide from creditors
• What's it take to get a home loan?
• Is it safe to buy a foreclosure?