# House worth less than I paid for it? Why, I might just stop paying my loan! **URL:** \ **Category:** The BBQ Pit\ **Created:** [October 28, 2010, 1:01pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649 "2010-10-28T13:01:53Z")\ **Posts on this page:** 20\ **Page:** 4
**Author:** ![Enderw24](https://avatars.discourse-cdn.com/v4/letter/e/ba9def/32.png) [@Enderw24](https://boards.straightdope.com/u/Enderw24)\ **Post date:** [October 28, 2010, 6:53pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/61 "2010-10-28T18:53:14Z")
on NPR’s Fresh Air yesterday, they interviewed a woman talking about the housing crisis across the country. She talked about the fiasco of a court system where judges would sign off on 400 foreclosure agreements a month (obviously taking the time to review each and every document). They’ve been tasked with clearing up the backlog of foreclosure cases and won’t always stop legal procedures to even ask simple questions such as whether all the documents are present and accurate. Then there are legal mills would have people on staff who - morning noon and night- signed documents without bothering to read them. These documents would often be affadavits to the court stating that the banking institution they represented owned the property and guaranteed that they had the right to take possession of the property. This wasn’t always the case. So it’s highly likely that in the very near future we’re going to run into situations when the new owner of a previously foreclosed property, with a shiny new certificate from the title company, will get hauled into court from the REAL owners of the property because the people who did the foreclosing had no standing to do so. ---
**Author:** ![Eonwe](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/eonwe/32/240_2.png) [@Eonwe](https://boards.straightdope.com/u/Eonwe)\ **Post date:** [October 28, 2010, 7:02pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/62 "2010-10-28T19:02:55Z")
> [@Gangster\_Octopus](#): > > And for those who think it makes no economic sense, imagine a savings account that offered negative interest, that’s exacty what is happening when you pay your mortgage on a house that is underwater. Of course, you can’t live in a savings account, while you can live in a house. > [@John\_Mace](#): > > I’m not sure that’s much of an option, unless the person is paying cash to buy the house back. You don’t walk out on a loan and then turn around and get another one very easily. At least I hope not! No, of course not. 🙂 But, who knows. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [October 28, 2010, 7:13pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/63 "2010-10-28T19:13:12Z")
> [@Eonwe](#): > > No, of course not. 🙂 But, who knows. There is definitely the possibility of gaming the system. I know of someone who tried to work a deal where he was going to buy someone’s home as a short sale, then walk away from his current home and have that other person buy it as a short sale. ---
**Author:** ![Pleonast](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/pleonast/32/1183_2.png) [@Pleonast](https://boards.straightdope.com/u/Pleonast)\ **Post date:** [October 28, 2010, 7:25pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/64 "2010-10-28T19:25:58Z")
> [@SkeptiJess](#): > > It doesn’t seem like a good business decision. Her family has to live somewhere, so her only savings will be the amount between her current mortgage and the rent wherever they move to. Since they haven’t had any financial reversals, I’ll assume they don’t mean to move to a crappy duplex in a dodgy part of town, so anyplace they rent which is comparable to where they are currently living will only be marginally cheaper. In the story on-air, she said they could rent a similar house in their neighborhood for one-third what they’re currently paying for their mortgage. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [October 28, 2010, 7:27pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/65 "2010-10-28T19:27:53Z")
> [@joebuck20](#): > > But unless they plan on moving back in with their parents, they still have to pay to live somewhere. And as someone mentioned above, if they plan on getting a similar sized apartment in a decent neighborhood (in the Bay Area no less), they’re still going to be shelling out a lot of coin, and in that case, getting no return on their investment. > And you mentioned people going bankrupt and getting a ton of credit applications. Well, there’s a world of difference in applying for a credit card (which pretty much anyone capable of fogging a mirror can do) and applying for a mortgage, especially these days. With an $800,000 foreclosure on her credit report, there’s no way any reputable institution is going to give them another home loan in the near future. > Again, I’m not shedding any tears for or otherwise defending the banks here. They too fouled up in their assumption that the home would only continue to appreciate. It’s just a pretty shortsighted move on their part. An owner might work out a deal. there are lots of empty homes draining investors pockets. We used to have land contracts for a few years and then get a mortgage. If you got one and paid religiously, a bank might thaw. You can also rent if you show plenty of income. ---
**Author:** ![Rumor\_Watkins](https://avatars.discourse-cdn.com/v4/letter/r/d9b06d/32.png) [@Rumor\_Watkins](https://boards.straightdope.com/u/Rumor_Watkins)\ **Post date:** [October 28, 2010, 7:32pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/66 "2010-10-28T19:32:08Z")
> [@John\_Mace](#): > > No, they aren’t. If the were made “in good faith”, you wouldn’t need a contract this wins my “most laughably stupid thing posted on this message board” award for the month of October. congratulations. phew. as we were drawing nearer to All Hallows Even, I was worried that I wouldn’t find a winning entry. ---
**Author:** ![sqweels](https://avatars.discourse-cdn.com/v4/letter/s/f19dbf/32.png) [@sqweels](https://boards.straightdope.com/u/sqweels)\ **Post date:** [October 28, 2010, 7:42pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/67 "2010-10-28T19:42:54Z")
> [@KellyM](#): > > I don’t see any moral obligation to continue paying a mortgage; it’s a business transaction, and if a rational analysis shows that breach is the most sensible course, then breach away. The real penalties for breach are significant enough that heaping moral ordure on top of that is just obnoxious. > > The bank isn’t going to apply a moral calculus in deciding whether or not to pursue any of the options and remedies available to it under the contract; why should you? It’s not the bank is some sort of neofeudal liege lord to which one owes honorable fealty. Perhaps, but can’t those of us who are making our mortgage payments through thick and thin look upon people like that with disdain? ---
**Author:** ![psychobunny](https://avatars.discourse-cdn.com/v4/letter/p/54ee81/32.png) [@psychobunny](https://boards.straightdope.com/u/psychobunny)\ **Post date:** [October 28, 2010, 8:01pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/68 "2010-10-28T20:01:59Z")
Relevent msn [article](http://realestate.msn.com/article.aspx?cp-documentid=25923795>1=35010). One thing that sticks out to me is that you are essentially getting to live in your house rent-free for more than a year which seems to be a pretty good deal. ---
**Author:** ![ElvisL1ves](https://avatars.discourse-cdn.com/v4/letter/e/5daacb/32.png) [@ElvisL1ves](https://boards.straightdope.com/u/ElvisL1ves)\ **Post date:** [October 28, 2010, 8:13pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/69 "2010-10-28T20:13:19Z")
And then you can file bankruptcy and stop the entire process cold. ---
**Author:** ![mhendo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mhendo/32/3159_2.png) [@mhendo](https://boards.straightdope.com/u/mhendo)\ **Post date:** [October 28, 2010, 8:24pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/70 "2010-10-28T20:24:46Z")
> [@Enderw24](#): > > Started reading. Here’s a quote from the second page which makes me hesitate in going any further in the article: Underwater homeowners aren’t knowingly making bad choices; they just don’t cognitively grasp that they would be better off if they walked away from their mortgages.8 > > That’s a pretty broad brush to paint all homeowners with and not really an accurate one to boot. And that’s why you need to read the whole article. If you don’t, the only person to blame for your incomplete understanding of his argument is you. > [@SkeptiJess](#): > > It doesn’t seem like a good business decision. Her family has to live somewhere, so her only savings will be the amount between her current mortgage and the rent wherever they move to. Since they haven’t had any financial reversals, I’ll assume they don’t mean to move to a crappy duplex in a dodgy part of town, so anyplace they rent which is comparable to where they are currently living will only be marginally cheaper. It’s possible that you’re right regarding the woman in the OP. Some underwater homeowners are probably, all things considered, better off continuing to pay their mortgage. It depends on things like how much the house cost them, how much it’s worth now, what they’re paying each month, what they could pay each month if they moved, etc., etc. But take this example from the article i quoted earlier. The author discusses a couple from the town of Salinas, California (badly hit by the mortgage crisis) who bought a home in 2006 for $585,000 (the average price for a 3-bedroom, 1,380 square foot home in Salinas at that time). Their house is now, according to White, worth about $187,000. They are paying $4,300 a month on a house that would currently sell with a mortgage of about $1,200 a month. The author notes: > [@](#): > > Assuming they intend to stay in their home ten years, Sam > and Chris would save approximately $340,000 by walking away, > including a monthly savings of at least $1700 on rent verses > mortgage payments, even after factoring in the mortgage interest > tax reduction. The financial gain for Sam and Chris from walking > away would be even more substantial if they took their monthly > savings and put it into an investment account. If they stay in their > home on the other hand, it will take Sam and Chris over 60 years > just to recover their equity – assuming, of course, that they live that > long, the market in Salinas has indeed hit bottom, and their home > appreciates at the historical appreciation rate of 3.5%. Obviously, not everyone is as badly hit as this couple, but this sort of situation is also not especially unusual in some parts of the country. > [@SkeptiJess](#): > > A foreclosure is not a good thing for your credit rating. Admittedly, their credit will recover from the hit after 7 years – but, then, in 7 years, it’s likely that their house will have recovered its value, anyway. That’s quite an assumption you’re making about housing values there. As the above quote notes, historical appreciation rates have been about 3.5%. The boom period between about 1998 and 2006 was incredibly unusual, and if you think that house prices are going to rebound with the sort of appreciation rates that we saw during the boom, then you’re in disagreement with just about every financial and real estate expert in the country. Prices still aren’t rising at all in many areas, and are unlikely to rise even at average rates for quite a while in many areas. > [@SkeptiJess](#): > > And I don’t see how defaulting on a loan you made in good faith, when you can afford to keep making the payments, can ever be classified as a morally righteous thing to do. They made an agreement with the lending institution to make those payments. The fact that many banks and lendors have proven themselves to be douchbags doesn’t make her any less obliged morally to follow through on the agreement which she made. Well, whatever argument she happens to be making, i’m not arguing that it’s the morally righteous thing to do. I’m arguing only that it might be a prudent business decision. Why bring morals into it at all? The mortgage is a contract. It specifies how much money you get from the bank. It specifies how much you have to may them every month. And, most importantly in this situation, it specifies that if you fail to make your payments, the bank gets to take your house. The terms of the contract are not being ignored; in fact, they are specifically being adhered to. She stops payments; the bank gets her house. Exactly what both parties agreed to when the contract was signed. > [@SkeptiJess](#): > > Finally, a foreclosure will not be doing their neighborhood any favors. Foreclosures in an area bring down appraisals. So their foreclosure will further damage the value of their house AND the houses of their neighbors. Why should this be her concern? It won’t be her home anymore. What obligation does she have to maintain the values of her neighbors’ properties? > [@Eonwe](#): > > What gets under my skin about this whole thing is, as I said, that the woman’s perspective and language feels very apologetic and remorseful. It plays for emotional sympathy like we’re supposed to ‘side’ with her. This whole mortgage issue has become one in which politics, economics, ethics, and morals have become deeply entangled in the public discourse. No one seems able to say, “I’m walking away from my mortgage,” without saying or implying, “because the bank did me wrong.” > > I don’t know this woman, or how fleeced she was or wasn’t by her lender and/or the lending atmosphere or whatever. I just don’t particularly have a lot of empathy for her ‘plight’, and a plight is exactly how her story was framed. I tend to agree with you. I’m not shedding any tears for this woman, and i think it would have been more honest and forthright of her to simply come out and say, “This isn’t a question of morals. I have simply determined, based on a cost/benefit analysis, that i will be better off turning the keys over to the bank.” ---
**Author:** ![RTFirefly](https://avatars.discourse-cdn.com/v4/letter/r/c77e96/32.png) [@RTFirefly](https://boards.straightdope.com/u/RTFirefly)\ **Post date:** [October 28, 2010, 8:39pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/71 "2010-10-28T20:39:16Z")
> [@Enderw24](#): > > on NPR’s Fresh Air yesterday, they interviewed a woman talking about the housing crisis across the country. She talked about the fiasco of a court system where judges would sign off on 400 foreclosure agreements a month (obviously taking the time to review each and every document). They’ve been tasked with clearing up the backlog of foreclosure cases and won’t always stop legal procedures to even ask simple questions such as whether all the documents are present and accurate. Then there are legal mills would have people on staff who - morning noon and night- signed documents without bothering to read them. These documents would often be affadavits to the court stating that the banking institution they represented owned the property and guaranteed that they had the right to take possession of the property. This wasn’t always the case. What I can’t understand is why the courts in many states accept these affidavits instead of the actual documents. Why is the bank’s affidavit that it has proof of its right to take possession any more legally valid than a similar affidavit from the homeowner saying the bank is full of it? ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [October 28, 2010, 10:07pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/72 "2010-10-28T22:07:58Z")
> [@SkeptiJess](#): > > And I don’t see how defaulting on a loan you made in good faith, when you can afford to keep making the payments, can ever be classified as a morally righteous thing to do. As John Mace already pointed out, mortgages are never made in good faith. That is why they are 40 pages long, with minute detail as to the legal remedies available to both parties. A mortgage is not a pinkie swear. ---
**Author:** ![Gangster\_Octopus](https://avatars.discourse-cdn.com/v4/letter/g/a8b319/32.png) [@Gangster\_Octopus](https://boards.straightdope.com/u/Gangster_Octopus)\ **Post date:** [October 28, 2010, 10:12pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/73 "2010-10-28T22:12:52Z")
> [@Eonwe](#): > > Of course, you can’t live in a savings account, while you can live in a house. Well that’s true, but you can decide not to pay your mortgage and then rent a house or apartment for what is the market price instead of paying above market for your house. You will probably spend less money on that for the same level of house, becuase that is where the market is at and you can put the difference in a savings account or anything else you desire. ---
**Author:** ![Captain\_Amazing](https://avatars.discourse-cdn.com/v4/letter/c/6de8d8/32.png) [@Captain\_Amazing](https://boards.straightdope.com/u/Captain_Amazing)\ **Post date:** [October 28, 2010, 10:16pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/74 "2010-10-28T22:16:20Z")
Contracts usually are made in good faith. In general, people don’t enter into a contract with the expectation that they’re going to default. ---
**Author:** ![mhendo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mhendo/32/3159_2.png) [@mhendo](https://boards.straightdope.com/u/mhendo)\ **Post date:** [October 28, 2010, 10:42pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/75 "2010-10-28T22:42:14Z")
> [@Captain\_Amazing](#): > > Contracts usually are made in good faith. In general, people don’t enter into a contract with the expectation that they’re going to default. They may be _made_ in good faith, but all the legal stuff in there is precisely to ensure that they don’t _rely_ on good faith. After all, if you lose your job and can’t pay your mortgage, do you think that the bank will allow you to keep the house just because you show a good faith effort to get a new job and resume your payments? ---
**Author:** ![Gangster\_Octopus](https://avatars.discourse-cdn.com/v4/letter/g/a8b319/32.png) [@Gangster\_Octopus](https://boards.straightdope.com/u/Gangster_Octopus)\ **Post date:** [October 28, 2010, 10:45pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/76 "2010-10-28T22:45:31Z")
> [@Captain\_Amazing](#): > > Contracts usually are made in good faith. In general, people don’t enter into a contract with the expectation that they’re going to default. And good faith includes the provision in the contract that the bank will take posseession of the house if mortgage payments are missed. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [October 28, 2010, 10:51pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/77 "2010-10-28T22:51:49Z")
When I applied for a credit card, I did it on good faith that if I paid my bill on time and maintained a good credit rating, the credit card company wouldn’t raise my rate. However, it went from 14.9% to 22.9% for the sole reason that the credit card company needed the money. Good faith in financial transactions isn’t worth a pitcher of warm piss. ---
**Author:** ![lisiate](https://avatars.discourse-cdn.com/v4/letter/l/f05b48/32.png) [@lisiate](https://boards.straightdope.com/u/lisiate)\ **Post date:** [October 28, 2010, 11:43pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/78 "2010-10-28T23:43:44Z")
> [@RTFirefly](#): > > What I can’t understand is why the courts in many states accept these affidavits instead of the actual documents. Why is the bank’s affidavit that it has proof of its right to take possession any more legally valid than a similar affidavit from the homeowner saying the bank is full of it? An excellent question - anyone know the answer? ---
**Author:** ![Squink](https://avatars.discourse-cdn.com/v4/letter/s/b5e925/32.png) [@Squink](https://boards.straightdope.com/u/Squink)\ **Post date:** [October 28, 2010, 11:44pm UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/79 "2010-10-28T23:44:36Z")
> [@Fear\_Itself](#): > > Good faith in financial transactions isn’t worth a pitcher of warm piss. Used to be, back in the early 60’s, before the beatles came along and ruined everything with their long hair! 😉 ---
**Author:** ![SenorBeef](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/senorbeef/32/2220_2.png) [@SenorBeef](https://boards.straightdope.com/u/SenorBeef)\ **Post date:** [October 29, 2010, 12:15am UTC](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649/80 "2010-10-29T00:15:00Z")
Something I don’t get about the story or these stories in general. The house was worth a million 3 years ago and 800k today. Doesn’t she have $200k worth of equity in the house by this point? People make substantial downpayments on houses, right? Plus three years of payments. Wouldn’t her current equity + the current value of the home still make it a winning proposition to keep paying off her mortgage? Combine this with the likeliness that the value of the home will increase and it seems like sitting and holding it is an easy call. What about this situation justifies her throwing away her equity, even before considering the credit hit and all that? Now, if a home drops in value from $600k to $100k, I could see where it’s just impractical to keep paying it. But $1m to $800k? Do people not make down payments on houses anymore? [Previous page](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649.md?page=3) [Next page](https://boards.straightdope.com/t/house-worth-less-than-i-paid-for-it-why-i-might-just-stop-paying-my-loan/558649.md?page=5)