Would you walk away from your mortgage?

I was talking to a friend the other day. He lives in a close-in Chicago suburb, one that has high property taxes. This year, his property taxes jumped significantly, bumping up his mortgage payment by about $400 a month. At the same time, his house is worth less this year than it was last year or the year before. He’s received little help from his local suburban government: Officials there say they will adjust his property taxes, but not until next year. In the meantime, he’s stuck paying the extra $400 every month.

Here’s the thing, though: This homeowner would never walk away from his mortgage. He just doesn’t feel right about it. He signed a contract the day he bought his house, he says. And he plans to honor that contract by paying his mortgage bill, even as his house falls in value and his bill rises.

There are plenty of other people, though, who’d walk away from the loan. They’d stop paying and live cost-free in their home until their lender or bank finally evicted them. And in many cases, this eviction wouldn’t come anytime soon. Scan the newspapers and you’ll see that many homeowners live in their residences for as long as two years before their banks, overwhelmed these days, finally get around to kicking them out.

Here’s a story on the Tampa Bay Online Web site about this trend, known as strategic default. According to the story, a growing number of homeowners no longer see refusing to pay their mortgage bills, even if they have the money, as a social stigma.

Here’s the interesting question: When homeowners don’t pay their mortgage loans are they breaking a contract? Doesn’t a real estate contract state that homeowners can continue living in their residences as long as they keep paying their monthly mortgages, and if they don’t keep paying the bank or lender has the right to take that house back? By not paying, aren’t homeowners simply saying, “OK, bank. Take the house back. I’ll just wait here until you get moving.”

Like I said, it’s a tricky question. It looks, too, as if most homeowners are a bit queasy about simply walking away. The MarketWatch Web site recently covered a survey by online foreclosure Web site RealtyTrac.com that said most homeowners wouldn’t walk away from their mortgage even if they owed more on their loan than what their home was worth.

According to the story, only 41 percent of homeowners would consider walking away as an option.

Should that statistic make us feel good about the basic ethics of the typical homeowner? Or are these ethical homeowners who don’t walk away suckers for continuing to put good money into bad investments? 

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