Wednesday, August 19, 2009

Stop wasting your time with your underwater mortgage

Here's something I don't understand: why people with underwater mortgages have any qualms about deed-in-lieu. Say you bought a $900K property in 2007 with $800K on the mortgage. Now that property is worth $600K and you still owe $750K. You should hand the keys to your lender and find a new place to live. Trust me, there are kick-ass rentals that are less than your mortgage payments and there will be for several years to come.

The thing I don't understand is why people have a moral dilemma about doing this. Morals aren't an issue because that's the agreement with the bank. They agreed to give you the money, and in the case where you don't pay the money, they agreed to take the house. End of story.

What's really weird is that people don't seem to have a problem with this when the loan is a corporate loan and that corporation goes belly up. Hey, no problem, right? That's capitalism. The lender took a risk with that corporation and lost. But when it comes to personal loans, somehow the banks have convinced people there's a moral obligation as well. Maybe there is a bit of fraud if you charge up a credit card with expensive wines, drink them all, then never pay off the credit card. But there's no moral obligation with a mortgage -- they agreed to buy that house. Just give them the keys and call it a day.

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