There are two extremes that are often considered when an individual considers walking away from a mortgage. One extreme is that walking away from a mortgage is unethical, because all debts are meant to be paid. Another extreme is that walking away from a mortgage is nothing more than a business decision a homeowner makes when the value of their home falls to an amount less than the amount owed on their mortgage. The number of individuals walking away from their mortgages is on the rise, and a surprising number of those individuals are financially capable of making their payments.
The question that plagues many homeowners considering walking away from their mortgage obligation is when to walk away. As a matter of ethics and morality, every effort should be taken to make good on debts owed, and every legal option should be considered before simply walking away. Even having a mortgage debt that is discharged in bankruptcy court will protect the homeowner from potential civil liability.
A homeowner should take certain factors into consideration before walking away from a mortgage, including their ability to pay the minimum monthly mortgage while meeting the basic needs of all the individuals living in the home, like food and clothing. For the sake of argument, college funds and retirement accounts should also be considered basic needs because a lack of such funds in the future can have dire consequences.
The main argument that individuals planning to walk away from a mortgage make is that they see no reason for paying a monthly mortgage on a home that has decreased in value and an interest rate that has only increased. While this argument makes sense now, one must understand that the housing market is an always fluctuating beast. Prices rise and prices fall. It would be a shame for a homeowner to lose out on the profit that could be made from their home in the future when the market improves. If a homeowner walks away from a mortgage now, and the market improves, not only will the homeowner lose the chance to sell their home for a profit, but they will have to find a place to live in a more expensive market with a credit score that will reflect their non-payment of the original loan.
Walking away from a mortgage may not seem like a big deal to some, but the implications can be far reaching. While it is true that a person who has exhausted all other options may benefit from walking away, walking away shouldn’t be a person’s first option. Anyone considering such a drastic move should consult with an experienced real estate attorney who can explain legal, tax, and civil risks of walking away from a mortgage. The attorney can review a homeowner’s options like short sales and loan modifications. The attorney can help every step of the way, from completing legal documents to negotiating with lenders. Before walking away from a mortgage, seek the advice of an attorney to ensure that walking away is the best option for a person’s situation and financial needs.