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Would You Walk Away from Your Home?

When Jill wrote about how to fix your credit after a foreclosure [1], a reader, Marke, left the following comment:

I am right now considering whether I should walk right now.

Since millions of homeowners are in a situation where their house is worth less than they owe on their mortgage, I’m guessing that Marke isn’t our only reader facing this dilemma.

Marke suggested the white paper on “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis [2]” from the University of Arizona.

I found the paper very interesting. Strategic foreclosure is obviously a very hot topic for many people right now. Based on economic data, they calculate that:

Millions of U.S. homeowners could save hundreds of thousands of dollars by strategically defaulting on their mortgages.

They give a good example where it might take a couple over 60 years to recoup their lost equity. Many families are in similar situations and are staying put.

Why People Stay

Mathematically, on paper, it makes sense for many homeowners to walk away from their home. But in large part, they don’t. They discuss many underlying reasons including feelings of guilt, fear, irresponsibly, shame, etc.

Deep down, I think we all know the message:

The majority of Americans who believe that voluntarily defaulting on a mortgage is immoral.

Would You Walk Away?

Since we focus on the financials here, I thought it would be a good exercise. Let’s try to take the emotion out of it. Can you do it?

I tried very hard to envision what I might do if I were in a similar situation (which, thankfully, we are not). Would I walk away from my home if I was $10,000 underwater? No. Would I walk away if I was $600,000 underwater? I’m not sure.

Even though I spend ridiculous amounts of time racking up $100 here or there, doing free money [3] deals, you dangle $600,000 in front of me and I can’t honestly tell you if I could accept it. It’s very hard to isolate a hypothetical example, without letting my feelings take over.

Marke and I would like to hear your thoughts! Try as hard as you can to look at it from a purely financial viewpoint.

Would you walk away from your home? And if so, at what point?



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