patrick.net

I'm not for or against walking away, but the way these things usually turn out...the biggest losers end up being the people who thought they could get ahead by taking the easy way out.

I walked because, most importantly, I would have been flat broke and not able to pay. I sold the house for more than the purchase price, but I was underwater. Long, stupid story.

Anyway, it never occurred to me just to default on the second while still paying the first, but had I done that, any chance of a short sale would have evaporated quickly. I short-sold the home in '08 for about $850k, and now, based on sales in the area, the place would probably only be worth $450K. Would I still want to be paying for that? No comment. ;)

Do what's best for you, but know all the facts. I may end up declaring bankruptcy over this one day (if the second lender sues and wins), but at this point, I don't care. I would love nothing more than to move on, renting for the rest of my life if I have to.

Bankruptcy is OK, for, after all, what is a credit score other than a tool to just get into more debt? I'm tired of debt.

wow, quite a post. It has the feeling that there's an entire melancholy novel behind it somewhere...

As far as having to deal with a landlord that defaults - due diligence on the part of renters is certainly recommended in times like these. At least in San Mateo County, PropertyShark and the county clerk's office are some good places to start.

As far as being turned down as a renter by a big bank because you're on a black list, I don't think the chances of that are great. Feel free to cite some sort of example of this, but its not as if banks hold grudges. They'll do whatever makes them the most money. If that includes renting to somebody that has a foreclosure on their record - so be it. If they don't pay rent, it has got to be a lot easier/cheaper to evict a renter than to foreclose on somebody. Now, if you've got massive financial issues outside of that foreclosure, any potential landlord that does a credit check might take issue with you.

Walking away (not that I've done it, or even have a mortgage) is a personal decision. Spending time worrying about what everyone else is doing and how it will affect the macro climate doesn't seem wise. Worrying about your grandchildren paying some portion of the bank's losses for your financial mistakes pales in comparison to going to your children and grandchildren for handouts when you eventually default on a property you could never afford.

What "crashes like this" have you witnessed and when? It seems to me that we're in uncharted waters to a certain degree. Hopefully you're not referring to Buenos Aires prices recovering once hyperinflation hit there.

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

This is only if the lender writes off the loan as a loss, they are under no obligation to do so.

http://money.cnn.com/2010/02/03/real_estate/foreclosure_deficiency_judgement/index.htm

In some states the bank can wait years, till you recover financially, before taking you to court and filing a deficiency against you between the amount they were able to recover selling the house and the amount of the original loan. All you bastards that thought you could walk away scott free cause it was inconvient to continue to pay your mortgage are in for a rude awaking one day, if could be 10 years later, but your paying the bank back one way of another.

TechGromit says

All you bastards that thought you could walk away scott free cause it was inconvient to continue to pay your mortgage are in for a rude awaking one day, if could be 10 years later, but your paying the bank back one way of another.

There is a statute of limitations on suing over a loan default. In California, it's four years. Most other states are around that time, too. They can still pester you after that, but they'll have no legal clout.

The tax consequences from the state will come via a 1099-C which only has to be counted as income if you were solvent (assets > liabilities) at the time of foreclosure. In California, most people who have walked away were so far underwater that they were almost certainly insolvent at the time, and therefore not subject to pay taxes on the forgiven debt. As far as being "blacklisted", that will only apply to those who are seeking loans. And as stated earlier, banks are all about making money with the least amount of risk. If you can save for a 50% down payment, there is virtually no risk to a lender so the foreclosure is not likely to affect you very much. Just save as much cash as possible and avoid the need for loans. You will be fine. And your grandkids will be paying for ALL of the spending going on today. The amount you may save by walking away and looking out for you will be much greater than the negative impact walking away may have on your particular offspring.