Facing Default, Some Walk Out on New Homes

[Omaha Steve]

http://www.nytimes.com/2008/02/29/us/29walks.html?ref=business

By JOHN LELAND
Published: February 29, 2008

When Raymond Zulueta went into default on his mortgage last year, he did what a lot of people do. He worried.

In a declining housing market, he owed more than the house was worth, and his mortgage payments, even on an interest-only loan, had shot up to $2,600, more than he could afford. “I was terrified,” said Mr. Zulueta, who services automated teller machines for an armored car company in the San Francisco area.


Jim Wilson/The New York Times
Raymond Zulueta, with his wife, Josey, and daughter, Amber, in front of their foreclosed home.


Then in January he learned about a new company in San Diego called You Walk Away that does just what its name says. For $995, it helps people walk away from their homes, ceding them to the banks in foreclosure.

Last week he moved into a three-bedroom rental home for $1,200 a month, less than half the cost of his mortgage. The old house is now the lender’s problem. “They took the negativity out of my life,” Mr. Zulueta said of You Walk Away. “I was stressing over nothing.”

You Walk Away is a small sign of broad changes in the way many Americans look at housing. In an era in which new types of loans allowed many home buyers to move in with little or no down payment, and to cash out any equity by refinancing, the meaning of homeownership and foreclosure have changed, economists and housing experts say.

Last year the median down payment on home purchases was 9 percent, down from 20 percent in 1989, according to a survey by the National Association of Realtors. Twenty-nine percent of buyers put no money down. For first-time home buyers, the median was 2 percent. And many borrowed more than the price of the home in order to cover closing costs.

FULL story at link.

[thunder rising]

1. $995? to walk out? that's a scam. Never walk away!! Make the bank foreclose and keep the payments.

It's the only equity you're going to see and your credit is no worse off.

[thunder rising]

2. Remember to take the stove and fridge with you. The house will be stripped anyway.

[El Pinko]

9. They do provide a service...

They help with the planning and paperwork, keep the lenders off your back, etc. - you can go to the website and check it out.

They don't do anything you can't do yourself for less money, but they do provide a bona fide service and it's not a "scam".

Oh, and what you're suggesting is basically what the company does. They help you to live in your house for a number of months while saving up the money you would have spent on mortgage payments for your new place.

It's not "walking away" as in leaving right now, but preparing to be foreclosed on in a sensible, proactive manner.

[varelse]

3. And many borrowed more than the price of the home in order to cover closing costs.

:wtf:

OK, I read that like three times and I'm still in denial here... people actually DID that?

[Yael]

4. Yes -- that was a financing scheme.

No money down and finance the closing costs. Add to it -- this family was put into an interest only loan, meaning they had low payments (until the rate reset) but weren't paying a dime against the principle of the loan.

Premiss was that the house would rise in value before the actuaries anticipated foreclosure.

Not unlike people using home equity loans as ATM machines -- to pay for cars, vacations -- all tax deductions as the loan was a "home loan".

Now, they are upside down and scrambling.

[varelse]

7. "There is nothing new under the sun"

what a horrific illustration of that proverb :(

[Yael]

5. "I was stressing over nothing"

I have sad news for Mr. Zulueta.

This isn't "nothing".

These firms take the $1k to do the paperwork, but the foreclosure stays on his credit for 10 years.

He will feel it the next time he goes to take out a credit card or a car loan.

[MaryCeleste]

8. The kicker is that the charge back the bank took could be assigned to him as income by the IRS

There are some situational rules for that, but there are several people I know that has happened to.

[stillcool]

6. It was all a con...

I remember when Bush was touting his achievement with record home ownerships. We've been getting conned for a long time, and I think we've all paid a price, it's just some of us haven't gotten the bill yet.

[lonestarnot]

10. And EVERYONE will get a bill.