Spokane Real Estate and Mortgage Info

Seems every day brings to light another bizarre angle to this incredible mess - today I was made aware of the web site You Walk Away.

Are they legit and can they help distressed homeowners?  I have no idea!

I can tell you that if you are considering "walking away" from your home you had better consult both an attorney and a CPA. There are gigantic legal considerations and potentially expensive IRS implications as well when you abandon your home and mortgage.

I'm sure most of our brethren East of the great state of Arizona are wondering "why in the heck are these funny Californians and Nevadans walking away from their homes?!"  And why are the foreclosure rates exceeding even the most pessimistic lender's estimates?

I'll tell you why - the erosion of value and long term loss of cash and equity are beyond comprehension and even borrowers with 700+ FICO scores are starting to abandon their homes.

Here's a quick  example - In the summer of 2005, Ms. First Time Move Up Buyer purchases a home for $385,000 in Sacramento California and puts $100,000 cash down from the sale of her first home.  Yesterday she niavely calls her friendly lender (me) to ask about refinancing.  OOPS!!  Current value of her home is only $170,000.

In case you like pictures better than words - here's some data I found on Zillow for a randomly selected property in Northern California.  Just for fun, go to Zillow yourself and type in a random address and look  at all  the "hills" created by tanking values.

Last sale and tax info

Sold 03/29/2007: $465,000

Above data from Zillow web site - CLICK HERE to see full property details

What do  you think went through my client's mind when I told her the news?  First, the shock as she realizes her $100,000 CASH is gone.

Forever.

She's got a loan for $280,000 so she is also at least $125,000 upside down.  There is no loan modification or rate reduction that is going to erase the loss and put the cash back in her pocket.

If she decides to stay and do the honorable thing and pay back her lender she has at least 10 years before she can hope that values will come back enough so  she can sell  and pay off her mortgage.  Maybe.  It might be 15 years.

Or, she can stop making payments now and take the hits to her credit report for a foreclosure.  Then she can go out and lease/option a home that is twice the size of the one she is currently in, and in a better neighborhood for less than the payment she is making now.  In about 3-4 years she'll be eligible for mortgage financing again and can pay off her landlord/lessor.

Why do I think she'll do this - because she asked me if it was possible.

This is just one person and it is a real story.  I spoke to this person Monday.  Now let's multiply her problem ($200,000 plus loss of equity in three years) by EVERY home purchase in California, Nevada, and Arizona from about 2003 to end of 2006.  In California alone they sell about 50,000 homes per MONTH.  So not counting any state but California and ignoring the fact that people who bought in 2001 and 2002 are probably underwater as well - you have almost 2 million families making the same decision my client is, in California.

If Nevadans, Arizonans, Floridians(?) are similar in thought, they'll be "walking" too.

What would (will) you do?

P.S. No comments on how I'm advocating people walking away from their mortgages - I'm just pointing out the obvious.

P.P.S The reporters at the Wall Street Journal agree with me - seems they just published a similar article today.  There stats are even more sobering - almost 30% of  people who bought homes in the last 5 years are underwater.  You need to read this - the foreclosure problem is going to get worse before it gets better.