Slightly over one year ago, I received an email from "Morally Conflicted in Arizona" who at the time was considering "Walking Away". I responded to his email on August 18, 2009 in Bright Side of Falling Home Prices
It turns out "Morally Conflicted" did indeed walk away. Here is a followup email I received a few days ago, about his experience.
End of the Line
"Morally Conflicted" writes ...
Hello Mish,
It's been over a year since I asked for your opinion about how long it would take for the housing market to "recover," which was about the same time that I stopped paying my mortgage and decided to walk away.
Well, the game is finally over. I moved out last week, and the trustee's sale occurred last Thursday.
After thinking repeatedly about it recently, the end results look something like this:
After purchasing the house in 2005 for about $740K with only $40K down, if you count my mortgage payments as "rent," in a sense, I recovered my down payment over the past year by living "rent" free over the past year.
The current value of the house is most likely around $400K. Thus, I was able to "get out from under" a $300K loss by walking away.
After a bit of looking over the past couple of months, found a two-bedroom house I can rent for $1200/month. The rental is in Scottsdale, just a few miles from my old house. It's definitely smaller and not as nice, but it's more than adequate.
Given my new rent payment, I am estimating that I will be saving at least $1500/month by renting the new house vs. staying in the old house, even with a modified payment (and yes, I am accounting for the tax break on my old property.
Therefore, as things currently stand, I believe I will "save" $150K over the next 100 months - assuming of course that my rent doesn't change and/or I don't move again.
Thus, I believe I can conservatively estimate that my decision to walk on the house will essentially increase my net worth by approximately $300K over the next 100 months had I struggled in the existing loan. Moreover, that assumes the old house increases in value in that timeframe. If not, the number may be more like $450K.
On top of everything, just this week, I was contacted by the real estate agency that will be selling the house for the new owner (i.e., the bank - it looks like they bought the house "from themselves" at the trustee's sale), and I am being offered $2500 to leave the appliances, etc., in the old house.
The only real downside I see at this point is that my credit is shot. I guess I'll have a foreclosure on my "record" for the rest of my life.
However, the irony is that if there has ever been a time in my life when I do not want to borrow any money for anything, it is now.
I'm not trying to make light of the situation. This is not something that I'm proud of. However, it does feel good to have it over with, and looking at the math, it really seems like the right thing to do. Sure, I "could" have been paying my mortgage over the past year, but given the hit my income took last year and the first part of this year, I would essentially be living paycheck to paycheck right now.
As always, I appreciate your work. Please keep it up.
Thank you,
Morally Conflicted in AZP.S. I did consult with an attorney before making the final decision to walk away.
Glad I could Help
Thanks "Morally Conflicted" I am glad I could help.
For more on the morals and ethics of "Walking Away" please see
- Moral Obligations Of Walking Away
- Walking Away Revisited - Reader Mailbag - Moral Dilemma
- Emails from Housing Hypocrites about Ethics
- Many Chime In On "Housing Hypocrites" Post
Seek Legal Counsel
That "P.S." line above regarding consulting an attorney is very important. I did advise"Morally Conflicted" to do just that.
For more on the needs to seek proper legal advice, please see ...
There are many potential snags to consider if you go it alone. Don't do it!
Walking Away Goes Mainstream
The moral stigma regarding "Walking Away" is now pretty much gone. That it ever existed in the first place is quite hypocritical.
Henry Blodget and Aaron Task discuss the hypocrisy a few days ago in It's Okay To Walk Away: Let's End The "Morality" Double-Standard On Mortgage Defaults
I was way out in font of this issue, almost two years ago.
If "Walking Away" is in your best financial interest, there is nothing wrong with doing just that.
