More Homeowners Walking Away From Upside Down Mortgages

CHICAGO (CBS) — You’re underwater, you’re upside down, but you’re not in foreclosure. You can afford the monthly payment on your home, but it’s eating up most of your income. That’s the situation for many homeowners and as CBS 2’s Dorothy Tucker reports some are choosing to give up their homes.

Robert Jones walked through his neighborhood pointing out houses.

For sale or in foreclosure, that’s how Robert and Marcella Jones described too many of the homes in their Romeoville neighborhood. Robert said many owners have just walked away from their houses.

Now, as CBS 2’s Dorothy Tucker reports, he is considering doing the same thing — walking away from the house he once called his castle.

“That was our retirement, he said, “Ya know, we wanted it real bad”

The couple bought the house six years ago. Like many homeowners, they’re underwater, owing $250,000 on a house that’s now only worth $167,000.

Last year, the bank modified their loan, but that only reduced their monthly payment by $50. They can afford the $2,100 payment, but it’s tough now on just one income because Robert had to retire after a heart attack. Life has become a struggle.

“It takes every dime and even our food money. It’s just too hard for us, Jones said. “They can have it.”

If Robert Jones walks away, it will be considered a “strategic default.” Professor Luigi Zingales describes a strategic defaulter as “somebody who can pay but chooses not to”.

In a recent survey, Zingales found that in March 2009, 26 percent of defaults by homeowners appeared to be strategic. In September 2010 that number had risen to 35%.

“The larger the shortfall, the more likely you are to say that you want to default,” he said.

But bankruptcy lawyer David Leibowitz says not everyone should walk away.

Leibowitz gives his clients the pros and cons. On the negative side, he says, the Joneses will destroy their credit. And there’s a chance the bank will try and collect what’s left on the mortgage.

“After the foreclosure, he could be liable for the $90,000 difference,” Leibowitz warned.

However, Leibowitz admits banks seldom go after most homeowners. On the positive side, the couple would save $700 a month in taxes, insurance and assessments, and they could rent another home in the neighborhood for $1,500. But that’s a bitter pill for Marcella to swallow.

“I love it here, said Marcella Jones. “I love the neighborhood, my neighbors”.

But Robert still argues it may be time to go. “We’re just throwing money away. We’re just throwing it away staying here.”

There are three more options:

–First, bankruptcy, but that would stay on someone’s credit history for 10 years,
–second, a consent foreclosure, which speeds up the process and in return, banks don’t collect the difference between what’s owed on the home and what it’s worth,
–and third is a deed in lieu of foreclosure, where the homeowner hands over the deed to the bank as payment in full and their credit doesn’t take a negative hit.

  • tough Guy

    Option 4:

    Man up, own your responsibility.

    You werent complaining the first few years – tough it out!!

  • Bill

    I recently had a chat with a broker. He said that in years past, people who bought large homes knew that they really couldn’t sustainbly live in the house (i.e. payments are too high, expenses are too high). The homeowner’s strategy wasn’t to stay for too long anyway. Once things go tough, you can always sell it for more money, and you can pocket the capital gains. The thrill was to be able to live in a large home. Frankly, I hate moving so much, I’m determined to stay in the home, and build equity. We will make the payments and that is our priority. in the story above, the gentleman had some unforeseen events happened where he had to retire. That is tough. He can’t take another job. I pray for the Lord’s blessings upon him and his family.

    • Robert

      It is only the short term investors that are effected by this situation. If you plan to be in your home long term then just ride it out, and everything will come back eventually.

  • Centurion

    This is the result of bragging about how much you paid. Next time you want to live in a cave…and pay the price of a castle..perhaps you will think twice.
    I know of an IDIOT, who bought a home for ONLY 500 …as he likes to state…a home that needed cabinets, floors, walls to be replaced, bathroom fixtures, plumbing to be redone….and during the height of this ridiculous housing boom..he thought he was getting a deal…it was only 500…as in 500 thousand. Today, home is worth around 200 Thou, but he has to fork out a $4500 mortgage..CAUSE HE GOT A DEAL!

    The market has adjusted accordingly…and the idiots are paying the price for their stupidity.

  • Skyler Marks

    You have to be taking crazy pills if you bought a home during the boom and are still paying your mortgage.

  • Robert

    This guy says it was their “retirement” home, so why do they care now if has devalued if they planned to stay long term. It has no real effect on their long term situation…The mortgage has not changed and eventually the value will return. They agreed to the price when they bought it. Sound like he is lying, and they are just another couple who bought more then they could actually afford and planned to turn it for a profit later, but the later is going to be a long way off, and now that they lost an income they are in trouble.

  • ChicagoWalkAway

    I walked away from the mortgage on my 400k Chicago home and it has been the best decision I ever made.

    I have been squatting for 2 years waiting for the bank to foreclose.

    Meanwhile I have saved over 60K in mattress money. It will come in handy should the banks come after me. Truth is, they don’t have the money, time, or staff to come after everyone. They are themselves, insolvent.

    I don’t care about my credit, the morality of walking away, or what my neighbors think.

    • Disgusted

      You’re part of the problem.

      • ChicagoWalkAway

        No, you are. It is sheeple like you who lay and pray hoping our elected leaders help us out of this financial situation.

        Be your own sugardaddy, and fund your own bailout!

  • Gerald Spencer

    All interesting comments, so far, and all correct. The problem, here, is that the dear soul retired on disability because he is unable to work; the retirement income just not there. I don’t know how many years the mortgage contract entails. There is a certain age you just don’t get a lengthy mortgage but, again, intervening disability can throw a wrench into any plan; as would unemployment. Good luck to all residing mortgage holders.

  • Larry

    Mostly troll comments. I imagine most posters here do not own.

  • Kris Jarczyk | Short Sale Specialist | Remax Destiny

    A great option is a Short Sale! It is not as hard on credit as a bankruptcy or foreclosure. When doing a Short Sale we work with the banks to approve selling a home for less than what is owed on the mortgage. With the Short Sale approval we can sometimes get banks, in the final release letter, to agree not to go after the Homeowner for the deficiency or that they owe a zero balance. Our goal is to get Short Sales approved and closed, so that Homeowners can move on and rebuild their lives.

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