|
Posted by adam.dada on July 23rd, 2008
Chicago, IL
By A.B. Dada
—
Used home sellers for recent years were tricked into believing their homes were worth more than they probably should be: some people bought homes at a huge price, others extracted equity using loans or lines of credit. As the housing market returns to realistic figures, prices are falling, leaving some homeowners upside down on their loans. These people are the most likely to default on their mortgages and lose their homes to foreclosure.
But not every homedebtor bought more than they could afford, many still have equity or are not too underwater. When homedebtors hold to previous year’s ridiculous pricing, the news media loves to quote a common phrase used: “We’re not going to give our house away.”
What people mean is that they don’t want to walk away after selling their home with no profit or money from equity. But if you consider the options when selling a home with little or no equity, but not too far underwater, it does make sense to not give your house away. There are two options at hand:
1. Give your house away, meaning walk away with no cash at closing, or having to come up with a small check to clear the balance on the mortgage. This leaves you with no money for a down payment or rent costs.
2. Wait. If you wait as a seller, prices might fall. If you default on your mortgage payment, the process to foreclosure begins, but it is taking banks an incredible amount of time before they even acknowledge the foreclosure process. Some homedebtors have lived in their home without paying their mortgage for a year or more!
If you choose option 2, and end up not paying your mortgage (and immoral position, in my mind), you can sock away that payment in the bank. Let’s say you owe $2500 a month on your mortgage. By halting payments, you’ll sock away $30,000 before the bank may even be able to kick you out. In addition, some banks are now proposing sending a check to evicted homedebtors if they promise to leave the house in order. Figures of $5000 or more are bandied about. That’s $35,000 on a typical $300,000 mortgage that the homedebtor will walk away with by NOT selling.
So it does make sense, in a crazy way, for sellers to not walk away with zero equity.
What about one’s credit scores? Credit repair is fairly easy, it just takes time. A person can do it themselves in 6 months, and you’d be surprised how many “baddies” can be removed with the right letter and perseverance. $35,000 is much more than one would need to contest, and probably clear up, negative items on one’s credit report. So selling at a loss or no profit seems to be worse all around.
