Don’t miss watching a video at the end of this article that was produced by ABC News on the subject of homeowners walking away from underwater mortgages.
Mortgage defaults are up 15 percent since last year and an astonishing one in 409 homes received a foreclosure notice this January. That’s 315,716 homes! And at least one in five homeowners owe more on their homes than their homes are worth.
In some states the figures are particularly staggering. In Nevada alone more than 40% of homes are “underwater,” meaning homeowners owe more on their homes than what their homes are worth.
Many homeowners on the edge are wondering whether they should just walk away from their mortgages and get off the “hamster wheel” of making costly payments on a home deep underwater. It’s usually the emotions of fear and shame that keeps so many Americans in homes that are no longer good investments but have turned into albatrosses.
Compared to homeowners, banks and corporations have no such emotional qualms. Banks and corporations have been walking away from underwater mortgages for years. If an investment in a property isn’t working out, they routinely walk away. It’s strictly a business decision. No fear. No shame.
Banks and corporations understand that contracts are legal documents, not moral documents. And that the penalty for walking away from the mortgage, or breaching the contract, has already been considered and in fact is made a part of the contract.
But individuals generally don’t understand this basic rule of contract law and they become stuck on the belief that they have a moral obligation to pay their mortgage.
Even the Mortgage Bankers Association, long a critic of individual homeowners walking away from their mortgages, announced recently it was defaulting on its headquarters, a Washington, D.C., building it opted to sell in a short sale when it fell underwater.
If you find yourself seriously thinking about walking away from your home mortgage, make sure and consult with an attorney who is familiar with your state laws, and ideally has previous experience in assisting with strategic mortgage defaults.