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.
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?"
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.
- 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: firstname.lastname@example.org,email@example.com or firstname.lastname@example.org.)
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:
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.
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.
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.
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.
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.
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.
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!!!!
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.
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?
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.
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