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Is A Strategic Walk Away A Good Idea?

Redwood City, CA: I have seen owners of homes just walk away from the home because they owe more than what the house is worth. Is this a good idea? I mean on any level is it a good idea? Is A Strategic Walk Away A Good Idea?

A bankruptcy lawyer the other day told me that the banks are so cumbersome and unreasonable with their demands on homeowners who are upside-down on their existing loans that is better for the homeowner to just walk away from their home. Don’t stay and try to work it out, he said, because you will become frustrated and taken advantaged of by your lenders. I have experienced various banks being somewhat unreasonable and this unreasonableness varies from lender to lender, however, they did lend the borrower money to buy their home and the borrower did sign an agreement to pay them back. So what does one do? Is there a better way to solve their problem? In all fairness there are more legislated requirements today that are forcing the banks to start negotiate

with fairness towards the borrowers.

Will this attitude of “walk away” to solve debt issues be good for all of us? Why should I continue to pay my mortgage if others don’t? Is the real estate industry going to be able to survive if the product they sell, (homes), are either paid for by the buyers or not…it all depends on if the buyers want to or not. I think we are on the edge of a new era of real estate financing. How are lenders going to continue to give funds for homeowners to buy their homes if there is not an avenue of recourse to protect the lenders’ investment? Oh maybe we should just nationalize the lenders and have our government do it all. The Federal Government does that now with Fanny Mae and Freddie Mac. We still have big corporations involved in home lending too.

Personally, I am optimistic on the future. Lending practices are changing. We see it now but the current changes are not acceptable to most of the home buyers in the market today. The risk factor for banks  lessen otherwise they will shift their lending practices over to other investments such as “credit” debt, which has a higher profit and a lower risk, all within a much short time period. The instant age of the computer makes lending a finite business. It breaks down borrowers lending patterns into basis points only a true investor would really understand.

If homeowners continue to “walk away” from their debt obligations I foresee what I call the “Europeanization” of American housing. That means anyone who owns a home either acquired it by inheritance or they have a special skill that affords them a large sum of money. These skills could be an actor/actress, sport figure, or a lotto winner. Everyone else will be renters and at the mercy of their landlords.

What do you think? Is this just a phase in the real estate market that will past and lending on homes will return to days of old? Or, do we have a new world in lending for the real estate sellers or buyers? Is A Strategic Walk Away A Good Idea? Please comment below or use the thumbs up icon. Thank you