This past week, 60 Minutes did a story on a new trend...people willfully walking away from their mortgage and house. That's right, people who can afford their mortgages choosing to not pay them.
Why would someone do that? The quick version is some states have laws protecting your assets entirely in the event of a foreclosure. So folks in particularly hard hit real estate markets who bought houses around 2006 now find their home value at roughly half what they paid. To add insult to injury, that means they can now rent a NICER home for around half what their mortgage payment is. So they've done the math and realized that just walking away and waiting on their credit to recover is cheaper in the long run than continuing to pay.
The story even featured a likable couple who went on camera and admitted they were in the process of doing this. They didn't feel bad in the least. They even chose to live in the house six months without paying because that's about how long it will take to get foreclosed on and evicted. All the while saving that mortgage/rent money. And Arizona state law protects the money they have in the bank, the cars they have paid for, and all the rest of their assets.
So why shouldn't they? I'll tell you why. Because it's not the bank's fault. It's not the bank's responsibility to prop up their bad choice. It might not be completely their fault, either, but let's face it, they'd have ZERO recourse had they saved up or inherited enough money to have bought that house outright. If it was paid for, they'd be living every day in a house now worth half what they paid. But would they be "out" anything? Nope. Not unless they chose to SELL it for less than they paid. But that would be a willing choice.
They leave the bank with no choice. The bank entered an agreement with them to help them buy their house. Sure, the bank stood to make money on the deal, but that's what banks do. Well, that's what they used to do. If everyone who could started doing this, well, they wouldn't be able to any longer.
In my opinion, it's legal theft. And the only reason it is legal is because a law was created to help protect consumers without ever thinking about a situation like this. Yes, the law needs to be changed, and needs to be changed quickly. I just can't for the life of me understand why the bank should be left holding the bag on a couple hundred thousand dollars of losses in cases like this. These people are gainfully employed, have a life savings, have no money troubles whatsoever. Yet the law is letting them stick it to the bank. A bank who did nothing more than help them in the first place.
It's just wrong, and people should know better and take responsibility for their own financial problems instead of pushing it off on someone else like that. Kudos to 60 Minutes for not listing which states this is legal in (other than Arizona). All they said was it's legal in 10 states right now in some form. I hope it isn't legal in mine.