A large number of American homeowners now have an ‘underwater’ mortgage, which means that their home is valued lower than the remaining amount due on the mortgage. The problem has resulted from the massive declines in house prices throughout the country, by as much as a third in many places.
And it is not an easy situation to get out of, especially with people also suffering a loss of spending power because of unemployment and salary cuts.
With no easy solution in sight, many people are simply walking away from the property. The idea is that it is better to go through foreclosure rather than paying off a sum higher than the value of the house itself. But financial experts point out this may not be the correct solution.
Banks are beginning to realize that they stand to lose a lot if they let the owner of the underwater property get away with things. And they are springing into action, with collection agents and court orders being used increasingly to regain the lost money. So if you think that once you have walked away from the property, the problem is over, then think again. You are more likely to be hounded until you repay the balance that you owe to the financial company. Any further earnings you have may be taken over and the bank may even tap into your tax credits.
Another problem is that many financial companies will simply refuse to offer you fresh loans or they will give you very high interest rates if your credit history has a previous foreclosure. Your credit record will stay in bad shape for a long time and it will take a lot of effort to improve that.
You are not likely to get any help from the courts or the government either. Imagine a situation where every person who owes money to a bank simply walks away from the property. It would create total chaos in the economy and most banks will collapse.
So be very careful when you choose to walk away from an underwater property. The only reason why you should take this huge step is if you don’t have any other alternative and there is no way you can repay your debt. Even in that case, your financial problems might just become worse after the foreclosure when you would start getting notices from the bank for the remaining amount.