There were about 1 million foreclosures in the U.S. in 2010, and this figure is expected to increase by about 20% in 2011 in the country. Driving all these foreclosures is the high level of unemployment and slow creation of new jobs. Many people who lost their jobs could not make the payments on their home mortgages causing the homes to go into foreclosure.
Another kind of foreclosure has begun to happen. This is a deliberate choice by people who are employed and who have enough salary to make their home payments. Most of these people bought homes at or near the top of the housing bubble and who now see the amount of their mortgage loan to be significantly higher than what the property is currently worth. They are intentionally stopping payments and allowing the home to go into foreclosure.
Why would anyone do such a thing? The reason is that in places like Phoenix or Las Vegas or elsewhere prices were ridiculously high, they have now dropped on average by 50-60%. This means that a person who took out a large mortgage because he or she was afraid of being left behind and thinking they would never be able to afford a home, is now carrying a financial obligation much larger than what the property is worth.
For these people it is now clear that they made a bad financial choice. An example of such a situation was a young family man who bought a home in the Phoenix area in 2006. He paid 10% down, and his mortgage owed is in the range of about $260,000. He says the house would sell for roughly $140,000 on today's market. His loan is substantially under water, and if home prices continue to fall, it will be even more so. He has stopped making his house payments, and he and his wife expect they can stay in the house for about 6 months until the house is foreclosed upon and they are evicted. They plan to save their rent money, move to a rental home and work to rebuild their credit rating, which naturally will suffer because of this action.
Are there morality questions with this kind of practice? Certainly that is the case, but let's put that discussion aside for another article. The fact is that in the opinion of this author, this young man is about to make his second big financial error. He will extract himself from $120,000 of mortgage debt, but a young person in his position has time to recover from that. If he and his family stayed in the house for five to ten years, it is likely that much of the lost value of the home could be recovered. By deliberately stopping his payments and allowing the home to be foreclosed upon, he will ruin his credit rating. This will affect his family for years. If was escaping a debt of a half million dollars, that would be another story, and maybe the move would be worth the pain. For $120k, I don't think it is.
Another kind of foreclosure has begun to happen. This is a deliberate choice by people who are employed and who have enough salary to make their home payments. Most of these people bought homes at or near the top of the housing bubble and who now see the amount of their mortgage loan to be significantly higher than what the property is currently worth. They are intentionally stopping payments and allowing the home to go into foreclosure.
Why would anyone do such a thing? The reason is that in places like Phoenix or Las Vegas or elsewhere prices were ridiculously high, they have now dropped on average by 50-60%. This means that a person who took out a large mortgage because he or she was afraid of being left behind and thinking they would never be able to afford a home, is now carrying a financial obligation much larger than what the property is worth.
For these people it is now clear that they made a bad financial choice. An example of such a situation was a young family man who bought a home in the Phoenix area in 2006. He paid 10% down, and his mortgage owed is in the range of about $260,000. He says the house would sell for roughly $140,000 on today's market. His loan is substantially under water, and if home prices continue to fall, it will be even more so. He has stopped making his house payments, and he and his wife expect they can stay in the house for about 6 months until the house is foreclosed upon and they are evicted. They plan to save their rent money, move to a rental home and work to rebuild their credit rating, which naturally will suffer because of this action.
Are there morality questions with this kind of practice? Certainly that is the case, but let's put that discussion aside for another article. The fact is that in the opinion of this author, this young man is about to make his second big financial error. He will extract himself from $120,000 of mortgage debt, but a young person in his position has time to recover from that. If he and his family stayed in the house for five to ten years, it is likely that much of the lost value of the home could be recovered. By deliberately stopping his payments and allowing the home to be foreclosed upon, he will ruin his credit rating. This will affect his family for years. If was escaping a debt of a half million dollars, that would be another story, and maybe the move would be worth the pain. For $120k, I don't think it is.
About the Author:
Go to Monument Colorado Homes For Sale, and get the Free Report "How to Save Money on Mortgage Closing Costs". Also read How Long Will The Roof Last?
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