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Kansas City Star: Should Underwater Homeowners Walk Away From Mortgage

The latest real estate news is not heartening: home prices are dropping to new lows and an estimated 25% of all homeowners are underwater on their mortgages. If a family is in financial trouble and looking for a way out, how does having a home with a large mortgage and no equity factor into a solution?

According to the Kansas City Star, some homeowners are turning to strategic default: in which they walk away from their mortgage and their home and simply stop paying their bill. This decision, which ultimately ends in foreclosure, is a drastic one.

While recent reports show that most people are continuing to make payments on houses that are worth a fraction of what they were two years ago, others are deciding to break their promise to the bank and move on with their lives without their property. While some choose to honor the contact they hold with the bank, others can’t understand paying for something for the next thirty years that isn’t worth the money.

An added complication is that Missouri and Illinois law states that banks can take other property from you if you default on a loan, such as a car, your wages, or your savings. However, since mortgages are defaulting at record rates, banks often do not have the time to act.

Economists add that the cost of moving – both financial and emotional – may be higher than you think if you chose to strategically default on your mortgage loan. And that defaulting could make it significantly more difficult to buy a home in the future.

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