Walking away from your home may be in fact the biggest decision you have ever made. Yes you may be stretched thin financially or unable to make the payments and yes the value is declining but, A foreclosure? Wow that is not a pretty thing to have hanging over you let us look at two hypothetical case studies:

Bob and John. (Neighbors)

Bob and John both bought their homes around the same time. Bob put down 5% John put zero down. They both purchased home at the peak of the real estate market in 2006. Bob had a 692 credit score and John's was 705. There homes were both around $500,000. They both had good steady jobs and both thought their homes were going to appreciate and that they would move out in the next few years and get a bigger home. Towards the end of 2007 they both began to realize that their homes were not appreciating and in fact, the values were falling and now they were upside down on their mortgages.

1. Bob put down 5% on his home (25,000) and had one loan at $475,000. He got a great interest rate at 6.25%. It was a 30 year fixed interest only and the payment was $2,474.00 plus PMI because he didn't want a 2nd mortgage which was an additional $392.36 a month which brought his monthly payment to $2,866.31

His property taxes were an additional $468.75 a month and insurance of $112.00 a month. This brought his total monthly housing payment to $3,446.75

2. John put zero down and he had 2 loans. (80/20) His first loan was $400,000 and his 2nd was $100,000. He had a pretty good interest rate of 6.625% on the 1st and 8.875% on the 2nd. His payments were as follows. 1st mortgage interest only payment: $2,208.33 and the 2nd which was a 30 due in 15 was $796.00 His taxes were also $468.75 a month and insurance at $112.00 per month. This brings the total monthly housing payment for John to $3,585.08

Bob and John were both feeling ill as they realize now that the market had dropped 15%. Both of their homes were worth only $425,000. Bob was 50,000 upside down and John was $75,000. Still they are both paying over $3,400 per month.

John had an adjustable rate and tried to refinance to get it locked in before it went significantly up. He couldn't refinance due to the value not coming in. He called his lender and since the government stepped in, he was able to keep his 6.625% for another 5 years. He was happy for a while.

Bob began thinking about how he put $25,000 down and now it was gone. All that money he saved, vanished and not knowing when the market would turn around. Money was tight and he had counted on the value going up so he could get rid of his PMI payment which he could barely afford and was now starting to charge up his credit cards just to make ends meet.

John's payments stayed the same, but still were high due to the fact that he stated his income and also thought the value was going to go up and he was going to get some payment relief at some point as well. Stress was beginning to set in he began wondering what he should do.

Both Bob and John were using credit cards more often than before. It was obvious that they were stretched to thin and there was no relief in sight.

John started to fall behind in his mortgage payments because he just couldn't really afford this place after all. He was paying too much a month for a house he overpaid on. He had borrowed up on his credit cards in the amount of $25,000

Bob continued to make his mortgage payments and slowly racked up credit card debt in the amount of $22,000.

John decided walk away from his house. He found a company that gave him legal information in regards to him walking away from his house and decided he had enough and was ready for a fresh start. The company told him to keep paying all his other bills and to isolate the foreclosure. He paid a sum of $995.00 for their services. Before his foreclosure was finalized, he was able to live at his house for a total of 8 months without paying his mortgage payments or property taxes. ($28,680) From this Foreclosure walk away firm, John had been advised to pay down his credit cards with the money he was not using to pay his mortgage. He paid $18,000 down on his credit cards and had them almost paid off. After he moved out of his house, he rented a house the same size not too far away for only $2,195.00 per month. Because of his isolated foreclosure his credit score had suffered and dropped 154 points to 551, but he showed his new landlord that all the rest of his credit was good and that he was upside down $75,000 with a payment of over $3500 per month on his previous home and that he had no choice but to walk away. He assured him, by showing the landlord his pay stubs, that he could make the payments. The landlord understood but still wanted a good deposit, just in case. ($5,000) Which he took from a credit card that he had paid down. Now he had $12,000 on his credit cards. $5,000 in which he would get back, if he moved from his new rental and a payment of only $2,195.00 per month. This payment was $1,390.08 less than his mortgage payment. John chose to pay $750 of that each month to pay towards his credit cards. In 18 months time, he had paid his credit cards down by 13,500 and now had zero credit card debt left to his name and had begun to save. John now had $25,000 in available credit on his credit cards. With his credit cards paid off and his foreclosure 18 months behind him, his credit score had nicely recovered by 75 points. His credit score was now 626 and climbing.

Bob continued paying his mortgage as he should and continued to borrow from his credit cards to supplement his high monthly bills. His total credit card debt after 18 months was $36,000.00 and his house was now worth only $398,000. Over 100,000 less than he bought it for. It had dropped just over 20% of the value he purchased it for. He was now upside down $102,000 in mortgage debt plus the $36,000 he owed in credit cards. ($138,000) He had no idea of how he was going to repay this. It would take years if not decades to recover. His credit was good still, however except that it had dropped 53 points due to his maxed credit cards and 1 late medical bill. His score was now 639. The pride of owning a home had vanished, since it really was the bank that owned the home and he was paying absolutely way too much for the 'title' homeowner.

2.5 years had past since John walked away from his upside down home and he was looking to buy a REO home directly from the bank. He found a beautiful new home for only $350,000. He got a new FHA mortgage using his pay stubs and existing credit score of 640 through the government agency Fannie MAE with 5% down ($17,500 which he had in savings)

This is a reality that usually takes going through to figure out. Learn from Bob's mistake. It just doesn't make financial sense. We can help.

You Walk Away, LLC