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Forclosure - The Financially Prudent Option?

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A homeowner who can’t sell his house tells the L.A.Times, ‘Foreclose me. ... I’ll live in the house for free for 12 months, and I’ll save my money and I’ll move on.’

Banks and lenders fear this kind of thinking -- that walking away from a house could be the smart economic move -- appears to be on the rise. Wachovia, in a conference call yesterday, warned investors that increasing numbers of homeowners are walking away from their homes by choice: ‘... people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they’ve lost equity, value in their properties...’

Calculated Risk notes this is ‘one of the greatest fears for lenders ... that it will become socially acceptable for upside down middle class Americans to walk away from their homes.’

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A commenter on L.A. Land this morning writes, ‘I am one of these people. My condo has dropped in value from $520K in 5/06 when I bought it to $350K now. My ARM payment will probably go up $900 per month in June.

‘Despite all this, I would be willing to stay if the bank would refi the loans to a 30 year fixed, but since I’m not a ‘hardship’ case they’d apparently rather foreclose. I guess the only way I could qualify for loan mitigation is to get my boss to fire me, stop making payments, and wreck my credit. In fact, my bank won’t even talk to me until I miss a couple of payments.

‘I have purchased a cheaper place in a nearby area now, while my credit is good, and will stop making payments on house #1 after house #2 closes. I know the foreclosure will be on my credit for 7 years, but I will have saved a lot of money.

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‘I realize I agreed to the deal when I signed the mortgage papers, but I am within my rights to walk away from a bad deal and suffer the consequences, just as many corporations write down billions of dollars of debt, lose money for their shareholders, and lay off people as a result of their bad decisions.

‘I don’t really understand why people view a business decision by a homeowner as a terrible moral lapse. However, when large lending institutions, with access to more sophisticated information than any consumer could imagine, make mistakes affecting thousands of people worldwide, they are not excoriated and vilified with the same righteous zeal.’

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: AP

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