Jon Wittenberg put 20 percent down on a 30-year fixed mortgage when he bought a two-story , 1,300-square-foot condominium for $450,000 in April 2006. A year and a half later, he was laid off and found a new job that would require him to move north to San Francisco.
Bill Sawyer bought his town house in West Linn, Oregon, for $138,000 in 2000 before watching the appraisal value grow to $256,000 over the next couple of years. But after his 17-year-old son was killed in a head-on collision with a truck, the financial hardships started a chain reaction.
A New York Times story published on November 8, 2011, described the difficulties both men faced when the housing market turned on them and their unsuccessful attempts to modify their loans. The solution for both men was simply to walk away from their mortgages, and the impact has been surprisingly minimal.
Of course, a “strategic default” that forces the bank to foreclose has its benefits in states like California or Oregon because they are “nonrecourse” states where the banks cannot take defaulters to court over mortgage debts. Homeowners needing foreclosure help in Maryland or Washington DC would not be able to walk away so easily since those two states are in the majority that allow recourse. Attempting a strategic default in Maryland or Washington DC would likely deliver additional financial burden rather than any relief.
For homeowners living in recourse states, a bankruptcy means test can be the starting point that determines if you should file a Chapter 13 or Chapter 7 bankruptcy and legally resolve your debts. Either option would leave you in a better spot than skipping out on your loan and having your lender pursue you to collect the difference between what the property sold in foreclosure and what you owed on it.
Law Firm of Kevin D. Judd – Washington DC bankruptcy attorney