The Forgotten Homeowner:  What happened to childhood values when we grew up?

• We put 20% cash down
• We did not take the builder’s offer to add our window coverings into the loan, we paid cash
• As a licensed realtor, I did not take my real estate commission as income, but added it onto the down payment
• We made the choice not to go through the builder for the flooring because they were so overpriced –so we did our research, saved our money and paid cash for our travertine, wood and nice carpet.

There are thousands of homeowners facing foreclosure who simply walk away from their properties and their mortgages.  The lenders are left to deal with the financial fallout.

It’s starting to become a business decision and not just a financial duress decision causing homeowners to walk away.  Many who owe more than their houses are worth abandon their homes and mortgages and it just might make financial sense, especially if you are not too concerned about the hit to your credit score.

Some homeowners are combining that strategy with a new one. They are buying new homes before their old homes go into foreclosure, and then walking away from the old homes and the old mortgages.

What these homeowners hope to achieve is getting out of their current untenable mortgage situations with a new home and a new mortgage. And it appears that so long as the homeowners don’t mind seeing their credit scores tumble, this strategy will work.

The homeowners will need to come up with a  new lender and sizable down payment for the new home, but once they’re in, there is nothing that the old lender can do.

Since the new home with the new mortgage, has no connection to the old home and the old lender, the old lender can not come after the new home to collect any debt owed on the old home.

What is also a sign of the times is that there are now realtors who specialize in helping homeowners pursue this strategy and lenders who also specialize in these situations.

Is this the right thing to do?  I was raised with traditional values that you should pay back the money you borrowed.  However, when a colleague approached me with the concept, I have to admit that it made me think.  I have clients who continually ask my advice about the home they purchased in the height of the market  . . and when they consider the crushing blow they’re taking, they want to know what they can do.

Some have crunched numbers and it may take an additional 7 yrs to break even...and if there are short sales and foreclosures attracting buyers who can enter the neighborhood for up to $300,000 less than what others entered into - what does that mean to the neighborhood?  Are these new neighbors taking care of their homes and their yards in the same manner?  Are they upgrading and landscaping to the same level as those that paid hundreds of thousands more for their homes?

Even when the overall market returns, will the neighborhood be an entirely different community than when others purchased the home?  And, if you’re at a time in life saving for retirement and the primary residence was supposed to be an appreciating asset - is it better to walk away with a minor ding on your credit for going through a short sale and "starting over"? 

I don’t have the answers, but I can say that, suprisingly, this concept made me stop and consider!