I had the opportunity recently to participate in a USA Today roundtable on the housing market . It was a great way to share some of my thoughts on investing, foreclosures and what home owners should do given the current housing market. I was surrounded by some very smart people from various industries.
One of the questions posed by the reporter was “What if you can’t pay your mortgage, yet can’t sell your home for enough to pay off your mortgage? Should you mail in your keys and walk away?”
Unfortunately, one of the supposed “experts” actually suggested this is a perfectly rational choice for many people –
People should consider the risk to their credit rating vs. how much
they can save. In some cases, walking away might be a perfectly
rational choice. People may owe $500,000 on a home that is now worth $300,000. You (might be able to buy a much cheaper) home across the street and put $200,000 in your pocket. That might be worth the risk to your credit rating. Furthermore, since this is happening on a very large scale, my guess is that plenty of lenders will still be happy to issue loans in a couple of years to people who walked away.
I am amazed that this continues to be the opinion held by some in our community. Home owners need to take personal responsibility and try to work things out with their lender. “Just walk away” is the head-in-the-sand type of attitude that got many home owners in the place they are in.
If you are a home owner facing foreclosure, the very first thing you need to do is call your lender, be up front about your situation, and try to work out a payment plan. Most lenders are very willing to work with you.
If you can’t work something out with your lender and you have some time, list your home at a discount with a real estate agent. Find someone who is very experienced with short sales, be sure they have closed successfully on at least 2 or 3 as the listing agent.
If time is short, call a reputable real estate investor in your local market. Experienced investors can purchase your home quickly and prevent a foreclosure on your credit report.