When to walk away from a bad mortgage

Since the housing bubble burst, many Americans have found their finances underwater. They're paying on homes that are worth much less than the mortgages against them. More than a few have chosen to walk away from these debts.

Called a “walkaway” or a “strategic default”, deliberately defaulting on your mortgage is becoming more common as the real-estate market continues to struggle. Some experts believe that as many as 20% of homes currently in foreclosure are the result of walkaways: people who had the means to pay their mortgage but chose not to when their life circumstances changed and they found their homes unsellable.

Businesses walk away from bad investments and debts like this all the time, but for an individual to do it takes guts. There's a huge stigma associated with walking out on your mortgage. Americans feel that there's something morally wrong with not paying your debts, even when those debts are astronomical or unfair.

As Matt Taibbi puts it in his new book Griftopia:

When you meet people who are losing their homes in this foreclosure crisis, they almost all have the same look of deep shame and anguish. Nowhere else on the planet is it such a crime to be down on your luck, even if you were put there by some of the world's richest banks, which continue to rake in record profits purely because they got a big fat handout from the government.

That's why one banker CEO after another keeps going on TV to explain that despite their own deceptive loans and fraudulent paperwork, the real problem is these deadbeat homeowners who won't pay their…bills. And that's why most people in this country are so ready to buy that explanation. Because in America, it's far more shameful to owe money than it is to steal it.

Whether or not you agree with Taibbi's take on the mortgage crisis, you've surely seen that look of shame on the face of anyone you know who's lost a home to foreclosure. Despite of the social pressure to keep making payments, though, thousands of borrowers are defaulting. The rate of walkaways went from virtually nothing in 2007 to nearly a fifth of foreclosures today. That's a huge increase.

What Happens When You Walk Away From a Mortgage?

Given how many homes are underwater these days, it's probably not surprising that I have a friend who is considering walking out on his mortgage. I get asked for financial help or advice a lot since I started this gig at GRS, but I was clueless on this one. Some quick math revealed that continuing to pay his mortgage makes no financial sense for my friend: The house is worth much less than he owes. He can't sell it. He no longer lives there; it's just an albatross around his financial neck.

Still, I thought my friend must have other options, so I called up mortgage expert Keith Gumbinger at HSH.com. Gumbinger had some great suggestions for what to do when you're facing overwhelming mortgage debt.

Gumbinger agreed that bailing out of a mortgage sometimes makes good financial sense — but the consequences for doing so are steep. “You can certainly walk away and let it go to involuntary foreclosure,” Gumbinger said. “That's your ultimate hammer. But there are consequences in the rest of your life.” Walking away from a mortgage should be the absolute last resort.

Walkaways face some serious issues:

  • Your credit will plummet, making it tougher to get anything from a rental apartment to car insurance.
  • You'll be stonewalled by the mortgage industry for seven years.
  • The mortgage company can come after you for the money they lose on your property when they're forced to sell it below market value as a foreclosure. That's the bad debt you were trying to walk away from, coming back to haunt you.

Before walking out on a mortgage, Gumbinger says you should call your mortgage company. Lenders don't want you to default on your loan — and stick them with an unwanted house — any more than you want to destroy your credit. They'll talk to you.

“You should be able to get a reasonable response,” Gumbinger said. This far into the mortgage crisis, most lenders have experienced staff people who do nothing but negotiate loan modifications, short sales, and planned foreclosures with their borrowers. They have clear processes to handle this type of situation. It won't be fun, but if you stay engaged, you stand to get out of your mortgage with your credit in better shape than a foreclosure would leave it.

Gumbinger warns to carefully document the entire process. Keep notes of who you talked to, and get agreements in writing.

Loan Modifications and Short Sales

Before you call your lender, decide what outcome you're after. If you're looking to keep the property but can't keep up with the payments, call and talk to your bank about a loan modification. There are federal and private programs to help troubled borrowers get their mortgages adjusted. You may qualify to have your mortgage interest rate reduced as low as 2%, or to have some measure of your debt forgiven so that your monthly payments don't exceed 31% of your income.

If you're ready to walk away from the mortgage entirely and don't want to keep the house, talk to your lender about a short sale. In a short sale, you agree to retain possession of the property, keep it in good shape, and sell it on the bank's behalf. With the bank, you agree on a sale price that reflects the current fair market value of the property, even if that's much less than what you owe on it.

Note: You probably want an attorney to help you with these negotiations.

Usually, a short sale agreement will have a two- to three-month time limit. After that, you and the bank can negotiate a “planned foreclosure” or “deed in lieu”. Instead of simply walking away and forcing the bank to take costly legal steps to repossess your home, you can give it to them. In exchange for saving them the hassle of taking it, they'll go easy on you with the legal and financial consequences. Again, use an attorney to negotiate this on your behalf.

Any of these options should bring you a happier ending than simply mailing the bank your keys without a word.

“Because you've tried to do the right thing, it does preserve to a greater degree your opportunity to participate in the housing market in the near future,” Gumbinger said. Your credit will still take a hit, but if you do a short sale or planned foreclosure, you may be able to buy another house in two to four years. If you even want to. After being burned by the housing market, many people are happy to become permanent renters.

More about...Debt, Economics, Home & Garden

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Darlene
Darlene
9 years ago

I would definitely suggest the short sale. It’s always better to work with the bank than run away from them.

Derek
Derek
9 years ago

It’s definitely a bad idea to walk away from your home mortgage. When you said, “Americans feel that there’s something morally wrong with not paying your debts, even when those debts are astronomical or unfair.” I just had to shake my head. OF COURSE IT’S WRONG TO NOT PAY YOUR DEBTS! As a borrower, one has agreed to the amount owed and the interests rates. Once those papers are signed, it’s the responsibility of the borrower to pay it back according to the terms. That what was agreed upon. I know a person that walked away from their home, and… Read more »

Martin Banks
Martin Banks
6 years ago
Reply to  Derek

Seriously you twit? Screw the banks! They’re all crooks anyway. They are the morally corrupt. They caused this problem in the first place. Let them pick up the pieces!

Kate
Kate
9 years ago

I’m still a bit in shock that an article like this would even be posted at GRS.

Getting Rich Slowly is (or I always thought it was) about taking stock of your financial situation, facing your past poor spending decisions with responsibility and patience, and setting a new and more financial steady path for yourself. That *responsibility* part is a HUGE part of the process.

Matt
Matt
9 years ago

To all of those who already have and will continue to comment on the perceived (and it is a perception, folks) lack of morality where “walking away” is concerned: it’s a BUSINESS decision, not a moral one. Let’s say that your family can barely function financially due to circumstances beyond your control. (I mean, did your family REALLY invent credit default swaps? Seriously??) You now find yourself in a situation where your home is underwater. Putting your family’s financial future at risk for a crummy mortgage is not only irresponsible, it could be argued that doing so itself is immoral.… Read more »

Crystal@BFS
9 years ago

Like Kate, I was a little surprised to see this title on GRS too. After reading the entire post, I will agree that walking away from a mortgage should indeed be the last resort…I wouldn’t even think about doing it unless I couldn’t afford groceries. I’m with Kate and Derek above, responsibility is king whether you owe more than its worth or not.

Adam
Adam
6 years ago

Crystal, Kate and those who are morally sanctified but lacking in good common sense. Have you ever been offered a loan modification on a property for which the law allows a reduction in principle) and the bank will only considered a mortgage higher than the original ($196K to $244k) with a ton of added penalties and fees the mortgage is 40 year with a balloon payment which cannot be refinanced so you are paying $1500 to rent a $60k home you will never own and your children or grandchildren will never own. This after being on Worker’s Comp for a… Read more »

Jen
Jen
9 years ago

Agree with above two posters–and, could not disagree more with the suggestion that owing money is more shameful than stealing. I get the point the writer was trying to make, but quite frankly, part of the reason we are in this mess to begin with is that people had no problem whatsoever borrowing astronomical amounts of money without thinking about the risk they were taking. Strategic defaults ARE morally wrong. It’s a far cry from those who are down on their luck and cannot afford their mortgages to those who walk away simply because the house isn’t worth what it… Read more »

Jim
Jim
9 years ago

Is this article serious? JD, why haven’t you ever done an article on declaring bankruptcy to get out of credit card debt? It’s the same basic principle. I thought the mantra around here was to fix cash flows and pay down debts; not just take the easy way out and leave someone else holding the bag. Hmmm… will tomorrow’s article be on how declare Chapter 11 bankruptcy as a means to get rich slowly? J.D.’s note: I didn’t read Sierra’s post as advocating strategic default. Her friend is considering it, and Sierra’s exploring the options. I think this is a… Read more »

Richard
Richard
9 years ago

Agreed. Why is it so acceptable to walk away from mortgage debt? In that line of reasoning, I can walk away from student loans or credit card debt because whatever I bought turned out to be worth less than what I thought. All parties in the transaction – individuals borrowing more than reasonable, banks too eager to sell to subprime, and government for encouraging universal homeownership – should all be held partly responsible for the crisis. Individuals have suffered from lower house prices and layoffs. Banks have suffered massive losses on foreclosed properties. Politicians have been kicked out of office.… Read more »

Erin
Erin
9 years ago

As Sierra points out, there are serious consequences to walking away from your mortgage. I think what she is suggesting is to weigh these consequences against the benefit of not having an upside down loan on your hands. It’s a cost-benefit analysis.

Morality probably should be part of our financial system, but as we’ve seen over and over again, it’s not. You can hate the system, but if you don’t play by its rules, you’ll likely get burned. Thank-you, Sierra, for talking about how to reduce the burn.

CB
CB
9 years ago

I don’t think simply walking away from a debt because you want to is right. However, as Sierra said, businesses walk away from bad investments all the time. Is that morally wrong as well? For example, I work for a construction company. We submit bids for 99% of our work. When you submit a bid to a local government agency, you are saying that you agree to do the work for the price you submitted. There are times that contractors will be the low bidder but will withdraw their bid. There are consequences, they may lose a bond and have… Read more »

leslie
leslie
9 years ago

Add me to the chorus of people that take issue with this article. I understand that there are a ton of people out there that are in foreclosure because they cannot pay mortgages for any number of reasons (unemployment, medical emergencies, other major life upsets). However, I do not get walking away from a mortgage they could otherwise pay. And blaming the banks because they were deceptive or dishonest is not a good reason. If you made a bad financial decision (bought a house that turned out to be overpriced…getting caught up in the overheated housing market…etc. etc.) then you… Read more »

Putts
Putts
9 years ago

While I think that it’s crazy that there are people like the one quoted in this article that believe that people shouldn’t take responsibility for their own actions, and should instead pass the blame on to faceless corporations, I will acknowledge that there are simply some situations where continuing to pay on a mortgage is not an option. The advice presented in this article is good. Walking away should be an absolute last resort, you should always talk to your bank about a loan modification or short sale first, which I imagine many people don’t. And if the bank is… Read more »

Bogey@BackNineFinance
9 years ago

I think it is extremely odd that this article is talking about a “strategic default” and then the quote used talks about someone “being down on their luck”. I would NOT classify someone that did these things as down on their luck: – Chose to purchase a house that was more than they can afford – Chose to sign mortgage papers, most likely for an exotic loan that would become more expensive over time – Probably did not read any of the loan documents they signed – When things get tough, they walk away I would classify them is irresponsible.… Read more »

Kevin
Kevin
9 years ago

I once bought a brand-new car and financed it.

A year later, I discovered it had plummetted in value. In fact, at the time, I owed more than the car was worth.

So I walked away from it. Mailed in the keys and ruined my credit.

Sounds stupid when you put it this way, doesn’t it? Well, to some of us, it sounds stupid when it’s about a house, too.

Pay your bills, deadbeats.

brokeprofessionals.com
brokeprofessionals.com
9 years ago

For me, the scariest thought is that of the mortgage company selling your house (generally well below market value) and then coming after you with a lien on your present house/whatever other collection tools they have for the rest of the debt anyway. If you can make the payments and depending upon your situation/location, it may make more sense to try and rent it and hold until the market (hopefully comes back). I believe since the whole mortgage crises that banks have gotten 1) a lot more effective; and 2) a lot more aggressive in going after people who walk… Read more »

Jimmy
Jimmy
9 years ago

Wow – I can’t quite wrap my head around why so many of you folks are so quick to jump down the author’s throat about this article. Unless I’m missing something, I don’t see the part where she outright CONDONES a strategic default as a method of getting rich slowly. In fact, she very clearly states that it should be nothing other than an absolute last resort.

Money Smarts Blog
Money Smarts Blog
9 years ago

Wow, let the judgements begin! I’d really like to see how most of the previous commenters would behave if they were underwater on a house they couldn’t afford or needed to move for a job. When you take out a mortgage on a house – the deal is between you and the mortgage company. You keep making the payments and you get to stay in the house and eventually own it. If you don’t make the payments, the mortgage company can take the house and sell it. Both sides take a risk on that type of deal and if things… Read more »

Adam
Adam
9 years ago

Holy Cow. The bulk of this article is fine, trying to give advice on how to work your way out of an underwater mortgage without just mailing in your keys and walking away. And doing the right thing. But the first few paragraphs are just awful (IMHO) and have no business being in GRS. “Businesses walk away from bad investments and debts like this all the time, but for an individual to do it takes guts. There’s a huge stigma associated with walking out on your mortgage. Americans feel that there’s something morally wrong with not paying your debts, even… Read more »

Kevin
Kevin
9 years ago

@Money Smarts Blog: “Both sides take a risk on that type of deal and if things don’t work out, one or both sides will lose. I don’t see anything ‘moral’ about the situation.” So that’s it then? In the world of finance, there is no such thing as “morality?” Only “risk” and “reward?” So I suppose then that there’s nothing immoral about shoplifting? After all, you’re taking a risk (that you’ll get caught). If your gamble pays off (and you don’t get caught), then you get to acquire an asset for free. The stores already expect to lose a certain… Read more »

David M. Pacheco
David M. Pacheco
5 years ago
Reply to  Kevin

You want to talk about morality.

How is it moral that a banking oligarchy made up of mostly foreigners was given the authority to issue currency and create credit out of thin air through their central bank – the Federal Reserve – using a system of usury and fractional reserve banking that would make the most sophisticated ponzi schemes pale in comparison?

Wake up. Stop acting like children and grow a pair. Get off those pills and come back to reality!

Tracey H
Tracey H
9 years ago

I know several people who had to sell homes at a loss and ended up owing more than they got for the house because of work transfers. Every one of them paid off their debt (over time, of course). I don’t know a soul who’s just walked away from a home/mortgage.

dee
dee
9 years ago

I think there is more than one set of circumstances where people might find themselves underwater on their home, and it doesn’t seem fair to lump them all together. 1) simply owing more than the house is worth and wanting to get out because the asset you thought would appreciate, didn’t. You can still afford the payments and have no outside reason to move. 2) Your ARM has readjusted such that you can no longer afford the payments (this happened to a lot of people). Some people would argue that you shouldn’t have entered into a mortgage that you couldn’t… Read more »

Mike
Mike
9 years ago

Thank you for putting this out there. We bought our home 6 years ago and are 30% under water today living in a pocket hit much harder by this. With two neighboring houses on the market right now not likely to help the situation. We bought this as a starter home, have never made a late payment but now sit in a precarious situation which has us well under water with a mortgage, a house that doesn’t measure up to our long term needs/wants and really struggling to determine what our next steps should be. We could spend to upgrade… Read more »

Jane
Jane
9 years ago

“Lenders don’t want you to default on your loan – and stick them with an unwanted house – any more than you want to destroy your credit. They’ll talk to you.”

Really? Have you ever heard of toxic assets? If they really wanted to talk to you, we wouldn’t be hearing so many stories about people who call countless times to discuss the mortgage to no avail. Until we make it impossible for banks to write off their losses from foreclosure, we will continue to see banks who ignore those who want to modify their mortgages.

Money Smarts Blog
Money Smarts Blog
9 years ago

@Kevin – There is a difference between a failed business deal and committing fraud. Shoplifting is illegal, walking away from your mortgage is not. If you default on your mortgage, you don’t get to keep the house. Think of it this way: John takes out a $50,000 business loan to start a business. This loan is not secured by any personal income or assets (I know this isn’t realistic). After two years, the business is out of money, so John closes the business and defaults on the remainder of the loan. In this case, John could easily keep up the… Read more »

AmyinMotown
AmyinMotown
9 years ago

I live in a house that’s worth 1/3 of what we owe, let alone what we paid. We bought during the years anyone with a heartbeat could get a mortgage and did it the responsible way….saved money for a down payment, got a traditional loan, and bought well under what the bank told us we could afford, chose a historically undervalued neighborhood that had been going up 20 percent annually. We knew we’d be unlikely to see those kind of returns, but certainly thought the house would hold its value. The day I returned to work after our move, I… Read more »

Nicole
Nicole
9 years ago

I still think it would be great if Sierra would do some posts on families with children and money. That’s a big part of finances that GRS doesn’t address as often or as in-depth as it does other parts of finances. And it’s a part that someone who teaches her children to eat kale has personal experience with. The retreads of controversial topics frankly aren’t that interesting.

Lauren
Lauren
9 years ago

I have an issue with some of the “all debt is fair” commenters who are lamenting the moral state of our country. I know some people (before the laws changed) that were committed to paying their debts. They paid for years, didn’t take on any new debts when they realized they were in trouble, went to credit counseling, etc. The mail was late on their electric bill and once their creditors found out, their interest rates skyrocketed over night. Now, they COULDN’T afford groceries, or the mortgage. So, they called the creditors, sent letters, continued to pay what they could… Read more »

Mom of five
Mom of five
9 years ago

I do know people who are in danger of losing their homes and it’s horrible for them and their children. Stressful, depressing, debilitating, humbling, and embarassing.

But even so, talking about strategic defaults not because you can’t pay but simply because you don’t want to? That’s not getting rich slowly. That’s get rich quickly thinking and it’s crap.

Timmy Lane
Timmy Lane
9 years ago

I am so tired of people blaming the banks. The banks did not do anything wrong. In fact, people praised them a few years ago for making home ownership possible for people. Take responsibility for yourself. J.D.’s note: I disagree. The banks DID have a hand in this. Yes, people need to take responsibility for their actions, but the banks need to take responsibility for theirs, too. They were eager to lend money to folks that previously they wouldn’t have touched. They thought the potential profits offset the risks. They were wrong. And when they were wrong, they got bailed… Read more »

David Hunter
David Hunter
9 years ago

@[email protected]: Well said! First, I want to say I understand people going into foreclosure because they had to spend every penny on medical bills to their child’s life. I think we need more programs in this country to help people who have had huge medical expenses that wipe them out. I see too many people who just don’t feel like working collecting their government checks. Why do we give them money?!? Now, a lot of people who were getting into the sub-prime mortgages didn’t have a dime in their savings account or a job. They didn’t even need any money… Read more »

Meghan
Meghan
9 years ago

I feel like I’m witnessing a witch burning or something. Poor Sierra. Thanks for writing this post, I think it is important for people to have this information when they feel they have NO other option. I can’t believe so much hate and blame is being spewed on the irresponsible borrowers. What about the lenders? These mortgage companies basically lent WAY too much money, to WAY too many people who had no means to pay back that money. They then bundled up these cheap debts into “investments” that were then sold off. Their irresponsibility led to and economic CRISIS that… Read more »

Brit
Brit
9 years ago

HAHA, apparently the article was right about Americans believing it to be immoral to not pay your debts! I, also, agree with most of the comments. As someone who graduated college and entered the workforce during the recession, when I eventually buy a house it will be with the understanding that the value could drop astronomically within months of purchase. Houses are not sound investments, we have to stop treating them like they are!! Houses are for living, raising kids, and hopefully one day being able to live without a mortgage. Taking out a mortgage and then walking away, especially… Read more »

indio
indio
9 years ago

This has always been a controversial topic with people raging on either side of the debate. I think most of the comments reflect the savvy of people who read this site and their knowledge about finances and what is financially right and wrong. However, most people are not as educated and don’t always understand the legalese in contracts or take the time to drill into what each clause means. When I bought my house, I think I signed about 80 pages of a 300 page stack of papers. I sure was intimidated and made my lawyer work for his money,… Read more »

Rebekah
Rebekah
9 years ago

Add me to the list of people who were shocked by this article. Not able to pay your mortgage is one thing; able to pay but unwilling because it’s not a good financial decision is another.

Eric
Eric
9 years ago
I think the article misses a crucial point. There is nothing inherently wrong with being underwater on your mortgage. If you plan to live in the home, who cares?

The only time foreclosure should become an option is if you cannot AFFORD your mortgage.

Liz
Liz
9 years ago

My cousin and his wife are walking away from their home soon. They aren’t doing it because of the mortgage exactly. They’re doing it because of the property taxes. They are more than 15 years into a 30-year mortgage and don’t have any home equity loans. But the property taxes in their area, which was re-classified as “resort” from “farming” have gone up and up and up. Their monthly payments have more than tripled in the last few years alone. And not a dime more is going to the mortgage — it’s all taxes. They built the house themselves, and… Read more »

Chris
Chris
9 years ago

Money Smarts Blog with comment #17 is spot on. I don’t see anything “moral” about the situation either. It’s simply the cost of doing business. Walking away from my mortgage in Florida was the best investment I ever made. Check to see if you’re in a recourse state or not!! Florida is in a recourse state and they can garnish your wages for balance of the loss on your house!! In this case File Chapter 7 Bankruptcy to wipe out all debts and you will be better off than being a slave to the banks that made shoddy loans to… Read more »

Adam
Adam
9 years ago

@Liz…that just sounds weird. How could property tax increases make a mortgage payment triple in a few years? Did they fight the assessments? Can they sell the home rather than walk away? I assume the value of the property has gone up with the assessment for property tax, and if not, then the assessment is wrong. And – If both parents are working full time and 60 hour weeks but they can’t afford the property taxes on their home, then something is seriously wrong with the picture that I’m not seeing. (I’m not up on American property taxes to be… Read more »

babysteps
babysteps
9 years ago

J.D.’s note: This is a great comment! My spouse & I have been through foreclosure – not “strategic” (our circumstances changed dramatically and we didn’t have the money to pay even if we wanted to). For credit ratings & much of the foreclosure process it makes relatively little difference whether a foreclosure is “strategic” or involuntary. My spouse has actually become a short sale consultant for a local realtor… I found GRS well into our foreclosure process, and we have found a whole new (almost) bank-free, debt-free and less consumerist lifestyle thanks in large part to GRS. Our next step… Read more »

Battra92
Battra92
9 years ago

When should you walk away from a bad mortgage? When you admit to yourself that you are a total failure as a human being and that you have lost any shred of decency that you had left. Seriously! What’s next, “when it’s okay to cheat on your taxes?” J.D.’s note: I don’t have an opinion on whether walking away from a mortgage is “moral” or not. It seems more like a legal issue than a moral one to me, and since it’s legal, I understand why people do it. But I don’t think it’s good. Having said that, though, I… Read more »

Fat Bob
Fat Bob
9 years ago

These stories should always include the state that the house is in. The consequences for the borrower are so different depending on whether it’s a non-recourse state or not.

It also bears on the moral question. The lender knows the legal environment in which they’re making the contract – I think it’s morally fine to mail in the keys in these states.

cc
cc
9 years ago

never, ever, ever ever buying a house. never ever.
even with my apartment’s leaky ceiling and my dodgy electrics, i will never set foot out of a rental situation unless it’s with enough cash to buy a place outright.
which will be never ;P

JakeIL7
JakeIL7
9 years ago

I cannot believe the comments that are here. Really sad to see people who can only think in absolutes. This is a very good, balanced article. But for those of you who have to beat the moral standard, here are some thoughts: 1. It IS immoral to intentionally take out a loan that you don’t intend to pay back. In US law this crime even has a name: Fraud. 2. It IS immoral for a company to fool you into signing a contract with provisions you did not expect. This is also fraud. 3. However, once an agreement is in… Read more »

Brenton
Brenton
9 years ago

The responses to the article are very predictable. Some holier-than-thou preaching from people who dont really understand what happened, and the consequences of both the housing boom and bust. As bad as it might sound, strategic default makes sense for the country as a whole. Contrary to the uneducated opinion of people claiming its morally wrong to walk away from an overpriced mortgage, people doing just that was and is neccessary for the US to recover from what happened. The immoral thing was taking out the loans in the first place, causing young people starting families to be unable to… Read more »

Andy
Andy
9 years ago

The banks did nothing wrong? Go read some books. They specifically went after minority and people with low education levels and pressured or lied to them to get them to rework their mortgages. It was a common tactic that if a homeowner missed a mortgage payment banks would send the homeowner credit extensions. From the bank’s perspective, a bad loan was a great business plan, either the person paid way too much money or the person defaulted and the bank took ownership of the home. Go read some books. The banks were and are evil.

J.D. Roth
J.D. Roth
9 years ago

Folks, please don’t mistake writing/posting about a topic with endorsing the topic. There are plenty of people out there faced with this terrible predicament, and Sierra’s trying to explore options other than walking away from the mortgage. I feel like many of the critics of this post (many, not all) simply read the title and not the post. Second, remember that I don’t necessarily agree with every article published at Get Rich Slowly. I’m not religious, but I occasionally publish articles about why religion is an important part of personal finance, for example. That doesn’t mean I’m endorsing that viewpoint.… Read more »

Chris
Chris
9 years ago

For all of you so absolutely convinced of the moral decrepitude of someone who would walk away from their mortgage, congratulations on your life being morally flawless in not just your finances but all other areas of your life as well.

You *are* morally flawless, right? Right?

MutantSuperModel
MutantSuperModel
9 years ago

I did it. Strategic default. Walked the hell away from a house I paid $230K for. It sold at auction for $60k not even two years later. I made a HUGE mistake buying that house. And yes, I have to pay for that mistake. Everyone who doesn’t do it (and feels they have the right to spew venom) assumes these people who are strategically defaulting are walking away without injury to themselves. That’s simply not true. There are major penalties involved with walking away from a house, strategically or otherwise which is why it doesn’t matter WHY a person does… Read more »

BETH
BETH
9 years ago

“Americans feel that there’s something morally wrong with not paying your debts, even when those debts are astronomical or unfair.”–Of course there’s something morally wrong with not honoring your promise to pay back the money someone gave you: it’s STEALING. The debts are not ‘unfair’: you knew the terms and agreed to them. IT’S STEALING to take money and not give it back.

Katie
Katie
9 years ago

Of course there’s something morally wrong with not honoring your promise to pay back the money someone gave you: it’s STEALING. The debts are not ‘unfair’: you knew the terms and agreed to them. IT’S STEALING to take money and not give it back.

You’re not “taking” money; you’re signing a contract to borrow money secured by collateral, which is a house. If you forfeit the collateral, you’re taking a path contemplated at the time of the loan.

I’m not saying there aren’t moral implications to it, but equating it to “theft” is just silly.

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