Home Abandonment: One Strategy To Carefully Consider If You Represent Yourself
As the recession-related financial pressure increases and viable solutions become more elusive, homeowners, with properties valued at less than the mortgages on them, and who are receiving little or no assistance from mortgage companies, the state or federal government, are making tough choices to save their families: many of them are choosing to abandon their homes leaving the properties to mortgage companies which refuse to assist them.
A recent survey by the Pew Research Center found that over one-third of Americans agree that it is “acceptable” to stop paying a mortgage and abandoning a home to get out of an impossible financial situation. Accordingly, a financial strategy for homeowners called “strategic defaults” is on the rise, but a homeowner’s decision to leave a financially worthless property is not without its own problematic repercussions.
The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, is concerned that many of the borrowers who have decided to abandon their mortgages and homes have an ability to repay the mortgages. According to a study by Morgan Stanley, 12% of residential defaults in February were by people who could afford to pay the mortgages.
I am curious about how Morgan Stanley reached that figure and the conclusion that 12% of those who defaulted in February could afford to repay their mortgages. However, regardless how the study arrived at its conclusions, there must be some discussion regarding why strategic defaults seem to be on the rise. Based on my own observations over the past couple of years, many homeowners are struggling to pay mortgages which they can “afford” to pay if they sacrifice other essential costs in their budgets. Many of these homeowners have been seeking loan modifications while paying their mortgages until they learn that the mortgage companies are only helping those who are clearly in distress, generally not borrowers who are current with their mortgages.
The problem is exacerbated as mortgage companies drag their feet on loan modifications and force borrowers into positions where they can no longer afford any plan that a mortgage company may offer.
In the next few months we are going to discuss the pros and cons of abandoning one’s property and mortgage as a viable DIY Lawyer strategy. There are benefits and pitfalls which we must understand before we decide how to proceed.