I received the letter below from a reader of the blog. In the letter he describes the situation of a friend of his who is underwater on his home and is faced with the decision to “walk away”. He has asked that I post his letter and ask the blogosphere for its comments. He is sincerely interested in hearing your thoughts.
Love your blog and have been reading it for a couple of years. I even posted once as ‘homebuyer2009’ back in May of 2009. Anyway, I have a suggestion for a topic on your blog and would love to read comments from your readers. Background: I have a friend who is recently divorced but was able to keep the house because the spouse was helping pay the mortgage (form of Child Support). However the spouse has now lost his job and is no longer able to help in that way. My friend bought new in Cold Springs in 1997. The house is now worth LESS than the 1998 purchase price. Ok, so given the background, would this be a true statement regarding having to walk away (foreclosing): “You simply do not have the option to get out of your house any other way when life circumstances require you to leave. The traditional ‘Sell and Move’ concept is no longer an option in Nevada because of the housing crisis.”
Now this statement is assuming that like most of us, there is not enough equity in the house to breakeven, there is no other income or equity that can be used to maintain payments.
Love to know what you think.
Mike McGonagle
Love the search function here. Here are the comments on homebuyer2009’s last post as background: https://renorealtyblog.wpengine.com/wp-admin/edit-comments.php?s=homebuyer2009&submit=Search&mode=view
Not really enough specific information on the subject property to make an informed comment. But as far as I can see short sales are a sucker’s bet. So just walk, already (“a friend I know”).
Reno Ignoramus
If this person has been reading the blog “for a couple of years”, then there is nothing new that can be added to the discussion about “walking away.” I think there must be 1000 comments that have been made on this blog on the “walking away” question over the past two years. The “moral obligationists” and the “practical realists” have all chimed in on the discussion in often eloquent fashion.
Talking about the “walking away” issue has become like about about the “downtown Reno” issue on the RRB. What possibly can be said at this point that has not already been said hundreds of times over?
Martin
The reader might want to search on the word “underwater” on the blog search. It will lead to several threads where the subject of underwater borrowers and “walking away” was discussed. Ad nauseum actually. RI is right that this subject has been worn out.
lurker
C’mon guys, yes we’ve seen this topic ad nauseum. Yes, RI is correct. Yes, Mike McG has probably yet again nailed it.
However, there is one solution that has not yet been offered on this topic.
Just have MikeZ buy it…
Sleezy
He bought in 1997 and never once pulled out equity ? I find that extremely hard to believe…
smarten
Hey Mike –
Tried to access your link and was led to a window which asked for my user name and password [I don’t think I have a latter]. Is there another link you can provide? Or can you point to a year, month and blog archive and I can look it up manually? Thanks in advance.
BTW, enjoyed your advice to “a friend I know.” Whenever someone asks me a question from “a friend,” I’m skeptical there’s any difference between the person asking the question and a friend. Kind of like lurker asking sleezy or Mr. Ed a question.
Sully
Back at homebuyer2009; if the house is now worth less than the 1998 purchase price – by how much? $10K – 50K? Prices have already dropped nearly 50% or better in some Cold Springs areas – however I haven’t seen any equaling ’98 yet. It seems hard to imagine a 100K drop from ’98 – so I’m wondering if the less than amount is that serious and worth worrying about.
Sully
smarten: It’s May 09 under Mid-May (15th).
CommercialLender
I’m not unsympathetic to a family losing a job, losing a marriage, and now potentially losing a home. These are life lessons learned that hopefully will make the persons involved wiser and more equipped for such responsibilities in the future. I’ve long before ID’d myself as a “moral obligationist” to use RI’s vernacular, but I have sympathies to those who were trying to do the right thing but otherwise got swept up in forces largely out of their control. On the other hand, my sympathies don’t extend to those with multi-cash-out refis, lavish living far beyond their means, demonstrated and repeated poor life decision making, and opportunists looking to leave others holding their bag. Assuming the former is the case here, he should check with his attorney, tax advisor and go find a financial planner as there’s certain pain in walking away just as there would be in staying in the home.
While there is dubious at best wisdom in seeking advice from anonymous bloggers, I can say in my life experiences that selling for loss when down-and-out on an investment has rarely been the best move in retrospect.
Homebuyer2009
Guy, thanks for posting this. Everyone, thank you for your comments. RI hit it on the head, I’m a ‘practical realist’ and my friend (((yes, she really is my friend…Smarten ))) is a true blue ‘moral obligationist’ (love that word). The details: Bought at 125k, 30k 2nd (yes there was a 2nd). Comps are approx 120k. I know these don’t sound like big numbers to most of you, but for her, it’s huge. She has excellent credit but the banks won’t talk to her because 1) she’s current, and 2) She’s up-side-down. As Lender stated, she was one of ‘those who were trying to do the right thing but otherwise got swept up in forces largely out of their control’
As far as putting her situation here for discussion; it’s tough trying to get though to a ‘moral obligationist’ =) . It wasn’t for advice or to nurture or bash one idea over another. It was so she could read your comments and know she’s not alone. As you all have confirmed, it is a topic that has been discussed to no end. I can only hope she takes this as just another sliver of information to add to her stack, just as I did a year ago when purchasing a home (still no regrets). Here’s hoping she makes the best of this tough situation. Thanks again, all, for your comments.
Walter
What I find most interesting is that prices in Cold Springs are now back to 1997-98?
Well, at least they are not like the Smithridge condos where prices are back to 1977.
CommercialLender
Homebuyer 2009,
Am I missing something? She’s willing to walk away from a house that’s only $5K upside down (4%) after living there for 12 years? Hell no. Struggle to stay in, get a 2nd job, borrow a few bucks from family members for a limited time, take on a roommate, cut way back on any elective expenses, seek financial advice from a counselor, pull herself up from her bootstraps like every hard working American does from time to time. Worst case, approach the lender for a temporary payment reduction for a year or 2. Ruining her credit and having to move to a rental (both moving and renting costing more up-front money than the vast majority of people truly grasp) to walk away because her $125K house is now worth $120K is a poor decision that will leave her in a worse position.
Again, I’m likely missing something here, so fill me in.
Tom
Yes, CL, and that reminds me of what old Lyndon Johnson once said about hard times, “It’s time to hunker down.”
I have other old Lyndon sayings, overheard by my father who was there, but those are reserved for a glass of wine some late Friday afternoon, after we move to Reno. You regular, long-time bloggers will be invited. 🙂
smarten
Hey Tom, is a Reno purchase in the offing? Have you backed off your “lots of acreage” requirement?
skeptical
CL,
Good to see you back. You always were the voice of reason.
Consider me a practical realist who thinks she’d be silly to walk at this point.
That said, she must be hot, or why would 2009 care? Good luck with all of that…
Tom
Smarten, we still want an acre lot, with no close neighbors, and with wide side-yard spacing between houses. We have about three that we are studying.