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When Can We Walk Away?
QUESTION: The value of our house has sunk to where it's at least $50,000 below what we owe on the mortgage. At what point can we decide to just walk away?
ANSWER: I'm in the camp that says people ought to pay their mortgages whether home values rise or fall. To me, it's a legal and moral obligation. After all, if home values increase no one offers to pay additional money to lenders, therefore why should lenders get less if home values fall?
If we're going to have a marketplace that provides mortgage funds the next time you want to buy or refinance a home then we have an obligation to treat lenders fairly and pay bills whether values rise or fall.
Some would go further and argue that a "contract is a contract" and that even if borrowers signed papers they did not understand - based on the marketing from lenders who did not actually represent them - they still remain responsible for repaying their loans. This kind of bumper-sticker logic misses an important point: Not only do borrowers have legal and moral obligations, so do lenders.
In this country we re-call defective products even if the manufacturer and merchant suffer. Think of lead-covered toys and dangerous cribs or cars. We don't say to people, "Well, you bought those lead-covered toys and once your payment was received you can't get your money back because a contract is a contract."
Why should loans be considered as anything other than a product?
So, no, I don't think people should walk away from their loans. Instead, they should get help from attorneys, legal clinics, community housing organizations and state attorneys general.
When threatened with foreclosure borrowers should ask lenders to prove loan ownership. Borrowers should also ask why defective financial products are not being recalled.
Borrowers - who long have had no real or effective representation in Washington - should be writing their representatives and demanding that they, too, get a fair shake in the marketplace, just like those who buy toys, cribs or cars.
Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to firstname.lastname@example.org.View Foreclosure Article Archives
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