patrick.net

I am one of those homeowners with a house "underwater" and awaiting a final decision on a loan modification. I hear many stories of people walking away from their homes. I do not blame these homeowners in many respects. But one has to consider what happens "the day after" as follows:

1) You will be put on a black list operated by Fannie Mae and Freddie Mac. You will not get another home loan for ten years.

2) You will avoid Federal income tax liability through 2012. You will owe State of California income tax on any losses to the lender.

3) Yes, for now, you will find a rental. What happens when all of the landlords also default and all of the real estate is owned by the banks? When you go and apply for a rental, you might get turned down because you're on the big bank's black list.

4) You may believe that if everyone walked away, it would "bring the big banks to their knees." This is a false assumption. The monster banks will turn to the taxpayers for reimbursement. Your grand children will still be paying for this.

5) With a foreclosure on you record you will have employment problems and problems with your security clearance.

6) One day the market will come back. I have seen crashes like this in HOuston and Buenos Aires.

A saner strategy is to default on your second lien. If there is no equity to secure it, the bank will not be able to foreclose. If the second lien was purchase money, the bank will not be able to sue you. Your credit will take a temporary hit but you will survive it.

#housing