Tim writes a hypothetical question.
Regarding moving — at what point does it make sense for someone to walk away from a house (i.e. deliberately letting it go into foreclosure) in order to be able to move somewhere for a job? Is it worth the subsequent trashing of one’s credit? Would you hire someone who had done this?
I think a lot of people *are* willing to move, considering how dire the employment situation is, but there’s the issue of what to do about their homes. People may not necessarily have a place they can stay for free or be able to afford two residences.
This is a great question that my husband and I talk about almost every day. We left our home in Michigan and moved to North Carolina for his job, and our home has been on the market for over a year. Many people cannot afford two mortgages, and traditional borrowers of fixed rate loans are strategically defaulting on home loans because it’s a better financial decision.
Most rational people, like my husband, think it’s nuts. I’m not so sure.
Anyone have first-hand experience with this situation? Have you decided not to relocate because you can’t unload your home? Have you walked away from your home? I’d love to hear your thoughts.
{ 18 comments… read them below or add one }
My main source of income is from K12 consulting in Arizona, so when the housing market collapsed, so did my business. My house also went from being up 25% from when I bought it to being upside down by 40%. I was one of the silly people who insisted on doing the smart thing and getting a 30 year fixed rate mortgage when I bought, so I don’t qualify for most of the government programs that came out. I burned through my savings, cashed in my investments and retirement, and finally stopped paying the mortgage, because, well, eating and having AC is more important to me than propping up a company I was already supporting with my taxes through the bail out.
I’ve done all of the proper steps, I’ve submitted all of the proper paperwork, and have gotten no real traction. The last bit of information I heard was when I called to check on the status of my four month old hardship packet to be told I was getting foreclosed on, which was good because it meant that someone might actually look at my information now. Unfortunately, my loan is with Bank of America, and they are currently making mortgage revisions on about 3% of the total number of requests. Yeah, that’s right. 3%.
So I’m walking away. It goes against everything I was raised with, and I don’t feel good about it. But I also think that when market conditions change so drastically, you have to rethink your position. I can get over damage to my credit, and I believe that any company that asks for a credit report as part of a job application isn’t a company I want to work for anyway.
Part of my willingness to walk away is that I don’t have children – my heart goes out to the families that are struggling through this.
I struggle deeply with this idea of walking away from a commitment one has made. I grew up with parents who taught me that “a deal was a deal,” and Your Word meant everything. I know there are Fat Cats out there making money on all that contributed to the economic meltdown. I know there were people getting home loans when they in no frickin’ way should have received home loans. And now they cry, and the people who gave them the damn loans cry, and everyone puts their hand out and whimpers for a big bowl of ‘Bama Love to make it all better.
I put 30% cash down on my current home and have lost all that in 4 years. Zip, it is gone. I basically have zero equity now, and my 5 year ARM is coming up. Hard to sell, hard to refi, not a good position. But I will work through it, and I will not qualify or seek the social-remedy of getting my share of the Medicine. Largely because I am one of the few who qualify for nothing. Just a hard working Joe who always is just on the other side of getting the handout. Nope, I am the Guy who pays for the Handout. I just keep paying and paying, then I’ll pay some more.
Fear sucks. I get that. The majority of people out there act irrationally when they are afraid. This whole debate is really about rational and irrational reaction to fear.
The irrational reaction is that your credit is integral to your ability to exist. That’s bullshit. Just like the impact of “permanent record” in high school was a lie, so is your credit. Who’s telling you that screwing your credit is the end of the world? Could it be your creditors? Funny that they are the only ones that are telling you that. They are the same companies that use bankruptcy all the time as a part of doing business.
Here’s the truth:
Dude’s 70 percent of our economy is based on consumer spending. If you declare bankruptcy or let your house go into foreclosure, yes you may not get super favorable credit, but beleive me, particularly in this economy, business’s need you to spend money with them, their owners, workers and shareholders need to eat, so they want and need your money, they will do what they can to help you spend it with them.
Get over what ever misplaced shame you may feel, you’ll find another home (it may not be the retarded McMansion you lost, that you really couldn’t afford in the first place), it may be more modest, but it will be a home.
Here’s my advice, not that anyone asked, when you do buy a house never buy a house that you can’t pay off in 15 years or less. My houses may not have been as big as other peoples I worked with, our as new, or as “nice” (in their opinions), but guess what, they’ve been mine. I owned ‘em. I could only be foreclosed on by myself. When you abdicate power to others through your debt to them, you limit your options. It’s always hard to walk away, but sometimes you gotta do what you gotta do.
Laurie,
I think this is such a loaded question. My gut reaction is, do everything you can to save it. Try doing a short sale, loan modification, renting it out if you can get the rental income to cover your mortgage, etc. There are numerous options to try and keep it. I think walking away should be a “i’ve tried EVERYTHING else” option, not just a whimsical decision. I think people don’t think though the foreclosure process….almost every job application i’ve seen says “have you lost your home in a foreclosure?” What about your credit? How will you even get a rental the next place you move to? And what if the bank comes after you to garnish wages or your other assets (if you have any).
I think many people look at letting a house go to foreclosure as an easy fix…hell, they can even sell some appliances in the process to get some cash. For some people, it really is unavoidable. Job less, divorce, health issues….some situations really don’t have another option.
But for the rest of them..suck it up and figure it out.
Just one opinion.
Laura
Kyle and I sold one of our homes in 2008 just before everything went COMPLETELY to hell, although we sold well below the previous year’s appriased value. We were able to extract some money which we threw into savings. And we rent here in Tampa while making payments on a part-time home in Georgia, which is kind of weird, but fits into our long term view of life.
We know someone in Phoenix who just purchased a second home which they plan to move to at year end. They have perfect credit, but a hugely upside down mortgage on their PHX home. They are planning on walking away, but are trying to work with the bank on a short sale. They listed their house and got a cash offer within a week, at a very low price.
Here is the part that may interest you. They were told by their bank that they should make a short sale request based on that offer, but that the bank wouldn’t accept it until they were late on payments. Things are still hanging in process, but they have been given indications they should expect a closing sometime soon.
Thanks for putting this out there, Laurie. It’s interesting to read everyone’s responses.
Just to clarify, I’m not in this situation myself — although the Minion is still looking for a permanent gig and we’re okay living apart for a while if needed so she can do so, I’m set job-wise so I’m not going anywhere for the forseeable near future. But I just wrote a term paper about the long-term effects of the foreclosure crisis on the United States, and this was one of the topics that came up in my research, so I’ve had questions like this on the brain lately.
Personally, I defintely think this should be a last-ditch option after one has tried everything else and thought about all of the consequences. I don’t think it is anything someone ought to do on a whim. But, it’s still a contract like any other, and the lender knew this going in too. Someone who does this isn’t breaking their word; the agreement was that if you stopped paying, the bank gets your house and can ding your credit, so the terms are all still being met. Plus, in a non-recourse state, the lender can’t come after you for their lost money anyway once they have the house. And as far as being able to rent somewhere goes, there’s enough people out there trying to find renters (aka “accidental landlords”) that someone, if not many someones, are going to be willing to look past it.
@Phillip Whoa, what a story. You know what? Bailing on a financial situation is not a bad thing. It doesn’t make you less of a person, IMHO. Companies do this on a daily basis. They write off losses. They file for bankruptcy. They make strategic financial decisions to default on loans — and they’re rewarded. Citibank, AIG, Wachovia, Chase, and the list goes on & on. So you did the honorable thing. I hope the credit market softens up so your decision can be forgiven and you can get back in a home soon.
@Dale That’s a tough situation. You might be one of the few who qualifies for nothing, but I’m not so sure because many of my friends in similar situations are finding brokers and housing assistance on the internet by googling “mortgage assistance + city” and connecting with thoughtful people and agencies who can help. Two middle-aged women with $3K cash (between them) just bought my grandmother’s home for asking price and qualified for all kinds of assistance since they were first-time buyers. If they can find a sliver of hope in this economy, maybe you can, too.
@Puf All good advice, especially about credit and fear. “When you abdicate power to others through your debt to them, you limit your options. It’s always hard to walk away, but sometimes you gotta do what you gotta do.” This is so smart. I’m also thinking that you don’t wait until the last possible minute to walk away, either. Lots of people avoid dealing with issues and let the situation get worse — and they walk away when most of the damage has been done. Companies proactively manage debt. So should consumers, yo.
@Laura Thanks so much for your expert opinion. I love that you’re in the trenches in this situation and it means a lot that you’d come over here and comment. I can’t believe that some people feel that a foreclosure is an easy fix. Those people are so dumb. It’s a gut-wrenching situation. I wonder if people understand options like short-sales and loan modifications. Do you have any good basic websites that you can recommend?
@Michael Your last paragraph surprises me — sorta. Banks are so weird with their rules & regulations. You couldn’t operate your business like a bank, but apparently, they get away with working under all kinds of crazy processes & rules. Drives me crazy. Deregulation in America has not been the answer for our country.
@Tim I clarified to make sure that everyone knows it’s a hypothetical question. It was a good one that many people face. Ken and I would rather keep our property vacant + have someone check on it daily + keep our alarm active than have a renter, right now, due to the wear & tear of a tenant; however, that might change if we can’t unload this property soon.
Primary goal #1 is to be employed as far as I’m concerned. If you have to move to get a job and can’t afford the mortgage anymore, you walk away. It’s a horrible feeling of failure, but, ya know what? You get over it when you have a steady paycheck. And eventually, if we actually want house sales to improve, banks are going to have to lend to people with a foreclosure on their record since very few people could ever afford to maintain two mortgages, or even a mortage + rent.
I don’t know why it would even be an issue related to getting hired. It’s none of my business if your house was foreclosed. And you sure as $hit shouldn’t tell me that’s what happened. Unless you’re applying with companies who actually run credit checks, don’t ever bring it up because then your interviewer will be afraid you’re turning the interview into a counseling session.
As a relocation professional, this is a tough question I deal with each and every day when counseling transferees. There is no easy answer. Part of the decisions needs to be made based on the relocation benefits available to you through your husbands’ employer.
Here are some tips that you might consider: 1. Continue conversations with the hiring manager or HR manager to see what additional options the company can provide, (i.e. loss on sale assistance), 2. look into property management, and see if leasing your existing home makes financial sense (there are very good property mgmt companies who can make this fairly stress-free for you), 3. talk with your current lender about what options they may have for you, before you get behind in payments, 4. talk with your CPA, there are tax benefits with relocation and you should check to see if any are applicable under your current scenario.
I hope this helps. Please feel free to contact me if you have other questions… this is what I do for a living! Good luck!
Wow. I work for a financial institution … a credit union, not a bank … and life is tough for us, too. We weren’t in the mortgage business making loans to people that shouldn’t have gotten them. In fact, most – if not all – of our loans that are in foreclosure were good loans at the time we made them, and if the conditions were the same, we’d make those loans again. (Just a word of caution to those who want to catagorize all of the mortgage lenders as the ‘bad guys’ … we’re not all bad.)
Things change … people lose jobs … the economy tanks … but that’s left us holding the bag for people who choose to walk away from their homes. We try to work with our borrowers to keep them in their homes but people wait too long to let us help and regulations prevent some of what we’d prefer to do (we really don’t want your home as we can’t sell it either) … bottom line is that regulation in America has not been the answer for our country either (@Laurie).
I will also tell you that we do check credit as a part of our employment screening. Makes sense to me that if I’m hiring someone to collect money, I need someone with good credit who won’t be overly sympathetic to the person he/she is collecting on. Yes, I need some empathy but if the collector is being called by collectors himself/herself, it is just a conflict of interest. Also, if I’m placing a teller in a cash drawer with access to bazillions of dollars, I want some assurance that the individual isn’t going to skim because his/her bills are way, way past due. Not foolproof, but a screening tool.
It is a tough time for many … in fact, I don’t really know anyone who hasn’t suffered due to the current economic climate in some way. I’m sure hoping for a brighter 2010.
My wife and I were in a similar situation in Florida, but for a different reason. We purchased a home shortly before she finished law school. When she graduated, the jobs weren’t there, and things got tight. We were managing, but it was quite tough, since we had a newborn as well.
Then the house starting sinking. Literally (the left side to be exact). We went through a 9 month process of waiting to determine if (a) it was an actual sinkhole or if the insurance company would claim otherwise. As that happened, our funds got even tighter and we were about a week away from just walking away from the house, since we were getting concerned about the safety of it. It worked out in the end, but had it taken even slightly longer, we’d be in the same boat.
Life is crazy, isn’t it? The he-shark and I moved to California a while back, chasin’ California dreams… you know, wine, wind in our hair, eating small things in fancy restaurants…about a year and a half into it, we realized that we were heading financial disaster if we didn’t hightail it back to our home in Seattle, on which we were still paying a mortgage. We made the right decision, luckily just in time. I am a big fan of Suze Orman, who says you gotta do what you gotta do. There is a time to pay all of your obligations on time, as agreed and sometimes you have to make decisions that benefit your family, and not your creditors. She is one smart lady, that Suze.
@H.Aria “Primary goal #1 is to be employed as far as I’m concerned.” OMG, thank you. Again, why aren’t you writing my blog?
@GTL Thank you, that’s excellent advice. I’m going to repost your link so people can reach out to you. Thank you for being willing to provide smart advice and guidance.
@HR Buddy Wow, that’s a thoughtful comment from a woman who knows the industry. Thank you. Regulation for the sake of being difficult is kinda dumb. I just wish Countrywide had been a little more regulated. (PS – we only use credit unions at Chez Rue!)
@Norcross Wow, you dodged a bullet. I’m glad you didn’t have to make a tough choice, but it shows that even the best people can get themselves into tough situations.
@Peopleshark I’m a big fan of Suze who mixes common sense with action. I’m glad you got outta California just in the nick of time!
This topic is so timely for me as husband and I are in the middle of the short sale nightmare. Neither of us are out of work–yet–although indications are that I could potentially be within the next year (2 at the most). So, we tried to do the “right thing” by deciding to sell our house, rent something cheaper, use that extra money to pay down some of our other debt so that we’d be in a better financial position should I lose my job (I hope Suze Orman would be proud!)–only to be told that our house will never sell for the amount it was appraised at 3 years ago.
So, do we wait until it’s too late and I’m out of work? Do we walk away from it now in hopes that all the damage done to our credit by a foreclosure blows over a little by the time I’m forced to find a new job? In the end, we’re trying the short sale route, which can still potentially ruin our credit, but hopefully not as bad??
But here’s the kicker–our mortgage was just purchased last month by those B of A weenies–and those weenies have told our realtor that, realistically, it could be at least 6 months AFTER they receive an offer before they make a decision . We actually received 2 offers last week and submitted them to B of A, but in all honesty, what buyer in their right mind is going to wait a minimum of 6 months for the weenies to make a decision that could very well be a “no”?? In the end, doing the “right thing” will still potentially screw us, but we’ve decided that if and when the time comes that we can’t afford to keep our house, we WILL be walking away.
I first heard of “jingle mail” from Gail MarksJarvis of the Chicago Tribune. It’s when a person just mails the house keys to the bank. Just thought you’d like to add it to your vocab!
Foreclosure sucks. But if its between accepting a job means you might be giving up on your house, doesn’t that mean that you might have eventually lost your house anyway (after all, mortgage + no income is a pretty unstable situation).
There are worse things in life than having bad credit for a few years. I’m all for honoring your word, but I’m even more all for being employed and moving forward, not chaining yourself to a millstone.
@Jen Have you been to http://consumerist.com? You should email them your story and see if BofA moves. Also, I would be on the phone — up BofA’s ass — on an hourly basis if I were you. F–k them for making a stressful time even more stressful for you.
@Carol OMG, I had not heard that.
@Lexy Thank you, that is such good advice & grounded in common sense.
My boyfriend and I left the Detroit area for greener pastures in Denver. He left behind a home that has lost at least 30% of its value. There is a renter in the home for now, but even that is not covering the mortgage. He has tried to refinance, but the banks won’t budge. We plan to make due with the renter for awhile, but unless his home miraculously regains its value, he’ll likely go after a short sale (or may just walk away).
One side note: Our current renter was in need of a place to live due to his own recent foreclosure. So I think there are definitely homes available for rent for those who find themselves with bad credit due to foreclosure.