A Mortgage Isn't a Life Sentence

This is the segment I did with someone who walked away from his mortgage, his home, and his $120,000 down payment after wrestling with the bank for months. It's powerful, and it's hopeful.

"It feels great," Burton said without hesitation. "I'm starting again. I've still got my talent; I've got my intelligence. I've got my health. At least I'm free of the enormous amount of stress that I had and the frustration of doing the best I could and it wasn't good enough. It wasn't working. Ultimately, I made a decision that my physical and mental health was more valuable than this house and my investment in it."

At this point in the housing crisis, if you're having problems, it's clear that no authority is coming to help you. Not bank regulators. Not Obama. Not the Republicans or Democrats in Congress. And especially not your bank. But the good news is there is hope. You have options. Ryan Grim, Lucia Graves, and Arthur Delaney interviewed 50 people thinking of walking away from their mortgages, and then interviewed them a year later. They wrote up what they found. For those who were able to walk away, it was a profoundly liberating experience.

The hatred of the banks was searing, not because they owed money, but because the banks were often entirely unresponsive and dishonest. A mortgage isn't a life sentence, it's a contract. Your house is the collateral for that contract, and if you stop paying the bank gets the house. That's in the contract. There's nothing immoral about not paying your mortgage, you need to see your relationship with your bank as purely contractual. The bank certainly sees you as a number.

If you're thinking of walking away from your home, you need to consider a couple of things. First, hire a lawyer who can give you good advice and negotiate on your behalf. There are legal traps to be aware of. For instance, depending on the state, if you stop paying your mortgage, your bank might be able to sue you for additional assets. This isn't common, but you should check out this list of states. Some are non-recourse, which means banks can take your house and stop there, while some are recourse, which means that banks can take your house, and sue you for assets for the difference between the loan amount and what the house fetches at auction. There's also your credit score. While it's true that your credit score will get hit for walking away, the formula for calculating it is secret. Some people report getting credit card solicitations within months of walking away.

There are many ways to walk away. You can mail in your keys, you can do a "short sale", or a deed-in-lieu. If possible, it's best to get your bank to agree to let you leave. If you don't, then you technically still own the home, and localities might be able to come after you for costs associated with an abandoned home. I recommend this book by law professor Brent White, "Underwater Home: What Should You Do if You Owe More on Your Home than It's Worth". There's also the service YouWalkAway.com, which has a useful Facebook group. Finally, you use this Meetup tool by the Huffington Post to find other homeowners in your situation.

Find more from Dylan at DylanRatigan.com

 

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Comments

[admrob]

02:58 PM on 02/08/2011

"A mortgage isn't a life sentence"

...but student loans sure are!

[DanielBallard]

09:55 PM on 02/07/2011

I negotiated my own short sale and would be happy to share my experience with others if it will help.

[french queen13]

09:13 PM on 02/07/2011

Buying a house is simply renting from the bank, and at a grotesque rate. Housing here in Australia is fast becoming (if it hasn't already) the most expensive in the world.

[thrashertm]

06:35 PM on 02/07/2011

The government and Wall Street got together and worked out a win-win situation. The politicians buy votes with phony prosperity in a housing bubble, and Wall Street gets taxpayer backing to inflate a huge bubble without consequences. The scam started post-911 under Bush/Greenspan, and now continues under Obama/Bernanke. Makes me sick.

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[how now]

06:35 PM on 02/07/2011

A mortgage is a life sentence if you want your house, have paid on time for years, used to have equity now gone, and you cannot refinance out of a toxic product.

[french queen13]

09:11 PM on 02/07/2011

So true.

[Its-All-Good]

04:46 PM on 02/07/2011

What a mess... States are in over their head as well as Pension Funds, Colleges, Education K-12, GM, AIG etc etc etc and local municipalities since the Banksters cratered the American Economy along with the global economy with fraudulent Subprime Home Loan Debt Bombs and fraudulent mis-represented and breached of warranty Mortgage Backed Securities.. SEE MASSIVE BUYBACKS along with tainted MERS Title issues..

oh yea and the home owners are over their heads too.. :-)

[Its-All-Good]

04:18 PM on 02/07/2011

Now that the banksters ruined the American(Global) economy with suprime debt bombs and fraud and mis-represented Mortgage Backed Securities waiting to go off they think they can put it off on the homeowners that has lost a job or seeing inflation go through the roof with bankrupt state budgets.. The states need to do the right thing and just hand the collateral back to the public.. Pension funds, cola for Social security, Schools and education..

Give up your home so the title fraud can hopefully disappear..too!

[Sajwert]

01:55 PM on 02/07/2011

Some people forget that the mortgage is the FIRST step. Then there are city property taxes to be paid, which most banks require be incorporated into the monthly mortgage payment. Then there is the inevitable upkeep, and even in a new home there often are things that either go wrong or do not work properly, or for whatever reason, cost money to fix or replace.

As a home gets older, there is normal upkeep. That ain't cheap, and I speak from great knowledge of having owned 3 homes over my adult years. If one loses their job, gets ill and cannot work, loses their money in some other way, then everything else begins to fall apart.

Many of these homes that are being abandoned are also homes that often have flaws that have not been fixed and will only get worse as they remain empty. The banks are stupid IMO for not demanding that the people pay a reasonable rent and stay in the house until it gets sold at auction. That way, the house is not vandalized, the family has a roof over their heads, and the bank can allow them to keep the place looking decent.

[MelisNJ]

10:32 AM on 02/07/2011

This is troubling to say the least. Millions of people learned the hard way that they weren't ready for homeownership and are now encouraged to walk away. The banks may be acting unfairly, but the only folks who get screwed in the end are those who are responsible, bought within their means, and have bent over backwards to ensure that they are paying off their mortgage. In case you forgot, the more glut of foreclosures is on the market, the longer we linger in this crisis, and that doesn't help anyone.

[Eric Burt]

10:09 AM on 02/07/2011

Before anyone posts another comment on how walking away is not fair to the banks - please consider the facts that under the Federal Reserve's Fractional Reserve Rule - these banks never had this money in the first place. These banks are able to borrow money at the Federal Reserve Discount Window at approximately 0%, and leverage this money up to a ratio of 44 to 1. Let's say you buy a house for $440,000 - the bank actually has to have only $10,000 in reserves when they write the check for this house. They may borrow this $10,000 - at zero interest - from the Fed's discount window. The rest of the money for this house is created out of thin air. The bank's "risk" of $10,000 is typically paid back by the homeowner in the first year, on a 30 year mortgage.
DO NOT FEEL SORRY FOR THE BANKS - THE FRACTIONAL RESERVE SYSTEM OF BANKING WAS SET UP TO MAKE US ALL DEBT SLAVES TO THE BANKS - WALK AWAY NOW

[Mr Hankey]

10:03 AM on 02/07/2011

http://www.meetup.com/HuffingtonPost/

[CeiThor]

09:30 AM on 02/07/2011

Before calling people deadbeats who do this, let us remember a couple of things. First of all, if they got laid off and couldn't pay their mortgage, it probably wasn't their fault. Corporations have been putting profit above employees for years and this is one of the results. And yes, they do have an obligation to treat their employees fairly. If you want good productivity from them, don't treat them like they are expendable. Secondly, banks have also been walking away from commerical properties valued in the billions, and they get taxpayer money to do it. They are the deadbeats because they started this whole mess to begin with.

[INDIVIDUALTERRY]

12:00 PM on 02/07/2011

Name one instance of a bank walking away from a commercial property free and clear .
Just one..............

[ovtomato]

12:20 AM on 02/08/2011

Don't quite get your comment, but there are plenty of INVESTORS that walk away from contracts all the time. Most investment property is sold with NON-recourse loans - that is why the down payment is usually higher. In California original PURCHASE loans for owner occupied homes are NON-recourse, meaning if you walk away the bank CAN NOT come after you for a deficiency (the home sells for less than what you owe). If you listen to the right wing talker Tom Sullivan, you know he just did a short sale on his house here in Cal. During the last down market in the early '90s he talked about his options of walking away from a commercial property because it wasn't working out. Don't let Wall Street fool you into thinking about morals. They don't, it is strictly business. btw If one has been in their home long enough to pay it off, the bubble and crash have had no effect on them other than to make them feel poorer. (And maybe raised their proptax for a few years.)

[Marma9986]

07:49 PM on 02/07/2011

What about people who can afford their mortgage payments but walk away because they owe more than the house is worth? How could anyone consider this an acceptable option for people or banks? What are they doing to the property value of neighboring houses and families who own them because of their greed in willingly and deliberately not paying their legally owed debt? Greed is greed whether by banks, companies or individuals.

[Treasonous1]

09:10 AM on 02/09/2011

I don't get why YOU would care what walking away does to neighborhood property values. After all, according toYOU what happens to the value of the home is irrelevant in terms of the finanicall abligations you have, and the same should hold true for how much you can get for your house should you be lucky enough to own it outright. Just look at this example.

If you own you home outright and defaults cause the value to go down, sure you can now only seem for half the price, but it also cost you only half as much on agerage to buy a similar house, so no real loss. Now if you are 5 years into a mortgage with only 5% down, and the same drop in prices has occured, how much sense does it make to keep paying when you can get the same house across the road for only half the price?

And notice one thing, you are walking away because you can get a much better deal elswhere (that's how you know you're undewatter DUH), so you're not actually the cause of the declining home values, and you have no moral or contractual (if is non recourse) obligation to keep up the facade of the overinflated prices of the boom years.

[yougg]

09:28 AM on 02/07/2011

There is plenty of blame to go around, and a glaring example of financial ignorance .However the banksters and Wall Streeters have to take the cake for greed. All of us have taken a hit. Don't disagree with making buyers live up to their responsibilities. It would be good to see more land contracts used right now. A land contract is where the seller who owns the property or a substancial part of it sells to another buyer. When my husband and I and were first married we could not get a loan. We had the down payment and both of us had jobs. No bank would talk to us because we were young had no credit history-and no debt. My-how things have changed! (This was 30+ years ago) Our first house we bought on land contract and after that contract was paid down we were eligiable to assume the sellers 6% mortgage. The bank tried to take it away from us-but they couldn't. We dumped them and went elsewhere. Right now I'm hanging on to my parent's house and renting it out. When it gets sold it will get sold on a land contract. That way if the buyer defaults it comes back to me not a bank. And yes we make the interest money. To hell with the banks.

[sve]

12:42 AM on 02/07/2011

Lend out cash you get from depositors to people who want to buy a house. Get 5% interest on whatever you can lend out. Protect your downside by making sure you own the house title. Life is good. If you don't like holding titles, collect all the titles into a bundle and sell them off for cash to other institutions as CDO's. That way you get cash money for the loans you wrote and and you no longer hold any homes. It's like owning a casino and running games for players to play. You're the house and collect a percentage of all the wagers. But if the casino burns down, its not reasonable to ask the gamblers to pay. You set the rules, you own the house. Now man up and take your losses. The gamblers played fair and square and honored all their agreements. Now take the titles they put up as collateral and call the transaction complete.

[dolfninnyc]

12:15 AM on 02/07/2011

Isn't there a moral obligation to your neighbors NOT to walk away from a mortgage? It boggles my mind that Mr. Ratigan did not at least bring up the issue. What he's basically saying is this b basic requirement of a civil society should be disregarded, and instead, seeka vengeance, not justice, against one's bank, which is hardly virtuous

[CoyoteMan]

01:59 AM on 02/07/2011

It's an individual situation. Just because you walk away doesn't obligate the entire neighborhood to do the same. Please don't put the spotlight on the neighborhood when the situation is with 1 individual only.
You give the power back to the banksters.
I saw the same situation in Houston in the 80's. People just walked. It's the responsibility of the banks to do something. Let's put the onus on the Banksters to act not on homeowners. If the banksters had acted in good faith we wouldn't be having this discussion. It's not the entire neighborhood's fault.

[INDIVIDUALTERRY]

12:05 PM on 02/07/2011

Let them walk away. If the f0 oLs can afford to paY and bail , then that just leaves a good opportunity for some of us to make good realestate investments.
We buy at a distressed sale for 30cents on the dollar and the bank chases the f0. Ols for the balance of what they owed.

People who CAN pay, but do not, is one home sale I enjoy seeing !