Should the owner walk away or stay?
February 27, 2013
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As a real estate investor, it behooves me to stay on top of current events. This is especially true for economic news, both local and national. So, I have a daily routine where I first read my local newspaper (I’m old fashioned when it comes to this – I read the ink-on-paper edition) and then I peruse various online news sources. One of those sites is USA Today. I usually check this site via my USA Today smartphone app. A few weeks ago I was reading their Money Watch column. This is a personal finance column that runs every Saturday and it features a financial planner from the National Association of Personal Financial Advisors who answers reader questions. The article was entitled, “MoneyWatch: When to walk away from a mortgage.” Here is the question a reader posted:
Q: I bought my house in February 2007 for $362,000. It is now worth $150,000. The loan is interest only. I’ve tried to get another loan at a lower interest rate, but no bank will help me. Should I walk away or stay? I am on time with my payments, and I don’t have any other financial problems. Please help me.
The reader’s situation is not unique as real estate investors we have all come across our fair share of property owners who are upside down, yet are able to make their payments. (We have also found many more where the owner is upside down and cannot make their payments.) In the column, the advisor first responded with several good alternatives to walking away. Then he mentioned that walking away would have a negative impact on the borrower’s credit.
So, what do you think the reader should do? Should he do a “strategic default” where he walks away from a $200,000+ negative equity position? Or, should he decide to continue on with the commitment he made with his lender back in 2007? Vote your opinion … click on “comment” at the top of this posting and let us hear your point of view.
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