Your Mortgage — When To Walk Away

Wed, Nov 10, 2010

Financial Advice

I’ve previously discussed here at NeedMoney details surrounding the HAMP (Home Affordable Modification Program). This program can provide much needed relief for homeowners who are facing foreclosure. However, this begs the underlying question of whether saving your home is truly in your best interest. Many homeowners today have mortgage balances which greatly exceed the current value of their homes, and there is little chance the value of the home will recover to provide for equity to the homeowner. In this scenario, you are essentially renting your home — you do not own it. What I mean by this is that one of the primary advantages of home ownership is developing equity within your home. A severely upsidedown mortgage negates any potential equity, and at the end of the day you’ll own nothing — the same as after renting a home.

So what is the best course of action for homeowners facing this predicament? This is a very difficult question. Many feel that morality dictates that they abide by the terms of their mortgage — that a deal is a deal. Others rationalize that the bank’s own often fraudulent behavior is as much to blame as anything else — so abrogating this agreement is justified. There is no right or wrong answer to this ethical question — each borrower has to answer that question for themselves. What other ramifications are there from walking away from your mortgage? It can certainly hurt your credit, and in some scenarios the lender can pursue you for a deficiency balance owed on the loan. Only a local attorney who specializes in these cases can definitely tell you what your particular exposure is. Before seeking modification help via HAMP or another program, the first question you must ask is whether staying in your home is truly within your family’s best interest.

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