Walking Away from Your Underwater Mortgage is Not the Solution

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.


  1. I purchased my attached townhome in 2005 for $285,000. Since then, it declined rapidly. I found out recently that a similar unit that I own was sold for $102,000. Earlier this year, my lender approved my modification due to comparables around the area of $186,000. I filed the modification on my own. I was also qualified for Chapter 13 bankruptcy last summer for my unsecured debts only. For about two months now, I received a paycut from work and struggling at the moment so I mentioned this to my bankruptcy attorney so he adviced me to file for Chapter 7 to ease financial burden by eradicating my Ch. 13 monthly payments. We are in the process of filing the Chapter 7 bankruptcy which I qualified due to the paycut.

    After the Chapter 7 is approved, is it wise to walk away from the property since I am $178,000 under?

  2. As far as the banks going after you, they can only do that if your state allows for deficiency judgments – and even then, those can be eliminated in bankruptcy. Stop letting the banks bully us around. If everyone walks away, then the banks may finally realize that their only solution is to offer real relief – specifically, write down of the principal balance. Yeah, that means the banks lose the money, but they are going to lose it when you walk away anyhow. And contrary to the nonsense in this article, no, the government (remember, you elect those in the government) and the courts (also, some judges are elected – depends on state) are not more likely to be more sympathetic with the banks than with the consumers getting screwed over by the banks.

    If the banks want avoid having to filing a million more foreclosure actions and stockpiling foreclosed homes that they cannot sell due to the flooded market they created, then they need to write down the principal balances now – they’re gonna have to do it and take a much bigger hit when everyone walks away, so they might as well do it now and at least avoid the foreclosure process expense and collection attorneys’ fees if they try to collect on deficiency judgments (the banks will end up paying the attorneys’ fees and eating the deficiency judgments when the people file bankruptcy, so they’re gonna lose either way). The banks created this mess; the banks can take the hit for the mess they created.

  3. This article is nonsense. The solution IS to WALK AWAY from your underwater mortgage. If enough people do this, then the banks may get the message. This mess is the BANK’s fault. (And don’t give me that nonsense about how the government forced the poor big banks to give loans to people who really couldn’t afford them – the banks that have how powerful of a lobby? The banks that were able to force Congress to totally rewrite the bankruptcy laws in a very stupid way not too long ago? The banks who took the bailout money, but now do not do anything to modify mortgages for people who are struggling – thus forcing these people into foreclosure, thus flooding the market with foreclosures and lowering all property values in the area – including mine?

    Poor banks, my a**!!! If the banks didn’t want to offer loans to people who allegedly could not have afforded them, the banks could have simply got out of the mortgage business – I mean, why stay in a business if it is going to make you lose money? Congress would have got the hint). THE SOLUTION TO THE UNDERWATER MORTGAGE IS THE SAME AS THE TITLE TO A KELLY CLARKSON SONG – WALK AWAY!

  4. My underwater loan is also being held by HSBC. They FLAT OUT REFUSE TO HELP. My credit is great and I have never missed a payment. Still they calim that there is no way they can help me by lowering my interest rate.

    What a crock! If they hold your note, they can do anything they want to. There seems to be no help for people in my situation. I promised them that I would write my representative and the President, and I did. I also promised them that I would tell everyone I could how they have treated me. DO NOT DO ANY KIND OF BUSINESS WITH HSBC!!!!! They will do nothing but fleece you!!!

  5. My mortgage is underwater by approx. $120,000. My mortgage holder is HSBC with a 10% interest rate. I don’t mind paying on all the lost equity but HSBC will not lower my interest rate. Any suggestions would be appreciated, I am current on my payments but have exhausted all my savings trying to stay a float.

  6. If you are seeking bad credit home loans you have to consider few important things in choosing a mortgage lenders. You have to do research first and compare their offers and you have to make sure that the interest rate is low, the lender is legit in the market to avoid scam, the terms and conditions are easier to comprehend.

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