You Walk Away: choose foreclosure
Wednesday, January 30, 2008 at 10:46AM ABC News and US News and World Report are keen to interview the man who tapped into America's new acceptance of "Walking Away From Your Depreciating Home", John Maddox of You Walk Away.
I support this company, and the concept of walking away. First, why do I support the concept? I believe in honoring contracts. A borrower's contract with the lender gives the lender the right to take the home if the mortgage is not paid. And we all know the county can take the property if taxes are not paid. Lenders and counties exercise their right under this contract all the time. Now it is time for borrowers to exercise their right, as well!
Feel sorry for lenders? Don't. They know, from data collected over decades, that default rates rise when downpayments fall, or income is not verified, or credit scores are low. These lenders went into the deal with eyes wide open.
Now, why do I support this company? There's nothing in it for me. But for those who want a calm reassuring hand to guide them through foreclosure, these people are straight talkers. For a very low fee of $332, $ 995 [thanks Andreas] which can be paid over 3 months, they help people avoid the costly mistakes and scams of foreclosures. Their Walk Away Protection Kit and straight advice, reassurance, and a guiding hand in re-establishing good credit. I think they can refer people out to bankruptcy attorneys if needed.
Walking Away socially acceptable?
The concept of walking away was popularized on Sunday's 60 Minutes interview. However, this has not get grabbed hold in the foreclosure offices. So far, the crowd coming into foreclosure offices are people in legitimate financial hardship.
Who's coming in for foreclosure help?
The majority of homeowners coming for foreclosure relief were unable to pay their regular mortgage payments due to some loss of income or a medical bill. The loss of income could be due to the wife taking off time after the birth of a baby, or someone losing a job. These people try everything to keep their homes, spending all their savings and racking up credit card bills. I think the large rise in credit card bills (from an annual 3-5% increase to a 11% annual rate of increase in November 2007) could be due to this mortgage payment distress.
The borrowers try to refinance, but with their house worth less than the mortgage, they can't refinance.
It is possible that the fear of "I gotta buy a home before I am priced out" turns into the despair and acceptance of "I gotta walk away before I get buried any more".
Foreclosure Scams
John Maddox told me of a new foreclosure scam. I could not believe this one! One of his potential clients called, saying he was going to use the services of a competitor, who showed him how to keep his home for $6,000. This is how: the client was told by the scammer, that the mortgage is only on the house, not the land. Thus, the bank can take back the house only if it can physically remove the house off the land. For $6K, the scammer will show the client how to write a letter to the lender, putting him on notice he has 3 months to remove the house off the property or drop the foreclosure proceedings!
Realtors are against walking away
When I told John I was a REALTOR, he was surprised I would be in favor of walking away. I did not get a chance to ask him, why? I asked him if he was involved with foreclosure counseling, and he said he was absolutely swamped. Their website had 25,000 hits just this morning already, and interviews were lined up all day.
Your thoughts
What do you think about companies like this? Are they a valid countertrend to the foreclosure counselors, who seem to try to get people to stay in their homes at all costs? Should people try to navigate foreclosures on their own? Do you think that people who can afford to make their payments will instead choose this "walk away" option?
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Reader Comments (4)
People are walking away from their spouses for half the grief and double the cost and it is "socially acceptable".
The cost is $995 (currently), or three payments of $332 each.
I agree it's not a moral issue but a business decision. The promise to pay is subject to the terms and conditions of the agreement - and if one of those terms is that the loan is non-recourse and you can elect to cede them the property in full satisfaction of your payment obligations, then you are complying with your promises when you exercise that right - just as the lender does when it forecloses against the wishes of the homeowner and makes the homeowner homeless. Moreover, the lender assumed this risk when making the loan - which is why, historically, underwriting standards were more rational than during the early years of this millenium.
There certainly is a lot of fraud and unethical behavior associated with the real estate bubble and crash, but consumers exercising their rights under the contract and law is not a case of that.
Well, you can try to rationalize it all you want but in the end you are being a "ruthless" borrower, i.e., acting without pity or concern for the other party. However, we do not buy and sell "homes" anymore but rather houses as assets. It is rational to walk away or be "ruthless" in an investment.
You do not have a right to "walk away" but you do have the ability to breach your promissory note with limited consequences. It could be interesting if a lender could sue you to enforce the contract's performance if they proved you had the capability to perform and were not by voluntary decision. Probably not going to happen.
The lender cannot just foreclose upon you. You must be in breach by not making your payments as promised. If you are current, they have ability to act. Similar for the county, who cannot just take your property (outside of eminent domain), but rather you must have not paid your taxes. Also, you have rights to make the lender or county whole during the due process as well as to bid the outstanding debt in the foreclosure or tax sale.
The downside of being ruthless is that you are not trusted in future transactions so you'd better not need accommodation in the future. On the whole, the lenders could put in place standards that penalize "voluntary foreclosures" or just go back to 20% down, 30-yr fixed for everybody. Oh and we'll add a few hundred points to cover the cultural change to ruthless borrowers vice homeowners. So the ruthless borrower today could find themselves the unqualified borrower of tomorrow or having to pay more for future mortgages.
The website provides borrowers with information, that is good as walking away is an option. But I hope they are telling them about the known and potential consequences. Also, if borrowers run this route, well, I for one, don't want to hear them whining in a couple of years about not being able to get a loan or having to pay more than people who keep their word.
I am in favor of a Walking Away from credit card debt relief act. I am waiting to see how many Capitol Hill residents would jump to play heroes at my proposal.I wonder why nobody in Congress even mention or suggest to confront credit card companies for all the damage they inflicted on consumers.