Waiting to Walk Away?

June 30, 2010 by  
Filed under Waiting to Walk Away?

When is a good time to walk away?

It’s no surprise that the main reasons people walk away from their home is because of a job loss or severe reduction in home value.  Although a surprising factor is how long people hold onto these properties before they actually walk away.

The Federal Reserve have noticed that most people won’t walk away from their property until they are 62% under value. The Fed then looked to separate defaults caused by job losses and other income shocks and those that just gave up paying the mortgage because of the drop in their home’s value. They found that the median borrower does not strategically default until equity falls to negative 62 percent of their home’s value. Ultimately the Fed found that 80 percent of defaults in the sample ended up in default because of a combination of job loss and negative equity.

Another key difference the researchers found is whether or not the home owner lives in a state that allows recourse, which means the lender can chase the borrower for any shortfall after a foreclosure. California is a non-recourse state.

There is no reason these homeowners shouldn’t short sale these properties and get out of a situation where they owe much more than their home is really worth.

Housing Assist Coldwellbanker