One Way to Manage Your Foreclosure - Unable to Pay - Walk Away

If you're facing foreclosure, imminent default, behind on payments, and owe more than your house is worth, and cannot make your monthly payments, recent advice from Brent T. White, a University of Arizona law school professor, says stop paying and walk away.  His advice also, don't feel guilty about it and think you're doing something morally wrong. 

The author argues that far more than the estimated 15 million American homeowners who are underwater on their mortgages should stiff their lenders and just walk away from their overleveraged home. 

By doing so, he suggests it could save some of these homeowners hundreds of thousands of dollars that they "have no reasonable prospect of recouping" in the years ahead.  Plus the penalties are nowhere near as painful or long-lasting as they may assume.

He says "homeowners should be walking away in droves, but they aren't.  And it's not because the financial costs of foreclosure outweigh the benefits".  He admits credit scores get whacked.  But as long as you stay current with other creditors, "one can have a good credit rating again - meaning above 660 - within two years after a foreclosure.

His advice to homeowners is to default "strategically".  "Most individuals should be able to plan in advance for a few years of limited credit"

Of course this report did not go over well with mortgage lenders. Officials at Fannie Mae and Freddie Mac, the investors who fund the bulk of all new mortgages in the country, dispute how quickly after a foreclosure a walkaway borrower can obtain a new loan.  Fannie and Freddie claim, after foreclosure, it's more like five years, absent of extenuating circumstances such as medical or employment problems that caused the foreclosure. 

Dealing with the deficiency judgement is also discussed.  In anti-deficiency states, like Arizona and California, mortgage lenders have limited or no legal rights to pursue defaulting homeowners' assets beyond the house itself.  In other states, lenders may decide it's not worth the legal expense to pursue deficiency judgments on foreclosures of walkaways and many times, homeowners may be able to find flaws in the mortgage documents, disclosures or underwriting to challenge the original contract.

Additionlly, White discusses his main point.  That it's when people's emotions get in the way of their financial thinking.  "He uses the term "woodhead".  "Individuals who choose not to act in their own self-interest.  Most homeowners facing foreclosure are too worried about feelings of shame and embarrassment following a foreclosure, and ignore the powerful financial reasons for doing so. 

Supporting these emotions is a system he calls "the social control of the housing crisis".  By this he means pressures and messages continually sent to distressed homeowners by the "social control agents", the banks, government and the media.  The message says "voluntarily defaulting on a mortgage is immoral".

He cites the inherent imbalance in the borrower-lender relationship which makes this morality message unfair to the distressed homeowner.  Banks set the rules during the housing boom, handing out mortgages with no down payments, no income checks, and inflated appraisals.  Now that the property values have declined 20 to 50 percent in many locations, banks have been slow to modify troubled mortgages and reluctant to reduce principal debts. 

He argues that only when defaulting homeowners cut through the emotional fog and default strategically in large numbers, will this inequitable situation be seriously addressed.

If you'd like some further clarification on this strategic defaulting or more importantly, would like to look at the possibility of short selling your home, please contact us at http://www.StopForeclosureShortSaleTeam.com or call me at 888-575-7767 and I'll discuss with you your options for getting out from under a mortgage that has you financially strapped on your overleveraged home. ke