I am getting more and more calls from homeowners who can afford their mortgage payments but are questioning whether it’s a wise decision for them to continue making the mortgage payments because their house had depreciated in value and is now worth substantially less than the balance owed on the mortgage. This is known as an “underwater house.”
Should the homeowner cut his losses and just surrender the home back to the mortgage company? Would this be unethical or immoral? Should ethics even be a consideration or should his decision be based solely on the financial numbers?
It’s undeniable that businesses routinely walk away from investments gone sour. And I don’t hear those businesses being called immoral and unethical. Instead, it’s an accepted business practice for a company to cut it’s losses wherever practical. For publicly traded companies, there’s a fiduciary duty to shareholders to cut losses and make a profit.
In the world of sports, we regularly hear of teams, players, coaches and managers either seeking to renegotiate contracts midterm or even terminating contracts so they can make a change that they have decided will be more beneficial in the long run even though they will have to take a financial hit here and now. But you don’t hear talk of ethics and morality. It’s just business.
So why can’t homeowners do the same thing without being made to feel they are doing something unethical or immoral?
After all, the purchase of home through the use of a note and mortgage is a business matter. It’s a legal contract whose terms have already considered the risk of default and what the consequences of a default will be. So if the homeowner is willing to suffer those consequences, what’s the problem?
And why should it matter whether or not a defaulting homeowner can or cannot afford the mortgage payments?
Be aware that if you choose to walk away from a bad real estate deal in Oklahoma, the mortgage company can come after you for any deficiency that exists between what you owe on the house and what the lender is able to sell it for through the foreclosure process. I help people deal with this deficiency problem by filing bankruptcy when appropriate.
Here are two options that you may want to consider if you are thinking of walking away from an underwater house in Oklahoma:
First, you could seek the advice of a bankruptcy attorney about filing bankruptcy and surrendering the home through the bankruptcy. That way, the mortgage company gets the house back and that’s it. The mortgage company cannot come after you for another penny.
Second, you could stop making your mortgage payments and stay in the house until the foreclosure process is completed then move out and wait. If the mortgage company sues you for any deficiency that remains after the foreclosure, then you could seek the advice of a bankruptcy attorney about filing bankruptcy to wipe out the deficiency and make the mortgage company go away for good.
If you are the owner of an underwater house in Oklahoma and would like to know more about how bankruptcy may be able to help you, contact me today to schedule a FREE initial consultation. Just fill out the Contact Dan form on the far right side of the page and click the Submit button and I’ll get back with you as quickly as I can. Or just pick up the phone and give me a call at 918-615-8260. I’ll answer all of your questions in plain English so that you’ll have the information you need to make the decisions that will help you the most.
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Great post, Dan. Another thing people should consider is that foreclosure is worse than bankruptcy. If the home is surrendered in bankruptcy and the debt discharged, the subsequent foreclosure will not appear on the home owner’s credit report. There’s a longer wait to obtain another mortgage post-foreclosure as opposed to post-bankruptcy. Ultimately, however, folks need to just deal with the reality. And sometimes letting the house go and not filing bankruptcy may be a good option (for example is there’s little or no other debt).