Changing Perceptions of Mortgage Foreclosure – Guest Post
Generations of Americans have been taught that a home purchase comes with a legal, financial and moral obligation to repay the bank. No matter what happened in life, either we paid the mortgage or we faced being looked upon as a failure by friends, family and the bank. That perception began to change rapidly in 2008.
With the end of upward spiraling home prices in 2008, came the realization to millions of homeowners that the real estate they had recently purchased was quickly becoming a liability, not an asset. What was supposed to be a money maker for them, turned into a money pit. Even selling the property wouldn’t relieve them of the burden, as their house was now worth tens of thousands, hundreds of thousands, or even millions of dollars less than its current–and foreseeable–market value.
People who purchased prior to 2003 were not spared from the impact of the collapse, either. While home values were rising, mortgage lenders encouraged homeowners to take advantage of the opportunity to withdraw equity by refinancing existing loans, or by taking second mortgages and home equity lines of credit. When home values fell, people who had withdrawn equity found that they owed more than their homes were worth.
For countless years to come, these upside down property owners were now obligated to throw their hard earned money into an almost bottomless money pit–unless, they did the unthinkable. But they couldn’t walk away, could they? That was taboo. That was failure. That was disgrace. Or was it.
As the nightly news filled with more and more stories of homeowners who were declaring bankruptcy or defaulting on their mortgages because of economic circumstances beyond their control, it got harder and harder for other homeowners in similar situations to find fault in it. “If they’re doing it, why shouldn’t we” they said. In turn, the news media got more stories to cover, and the underwater mortgagees saw more and more examples of good people opting for a financially prudent course of premeditated foreclosure.
Essentially, those defaulting on their mortgages were trading countless years worth of financial struggle for a settlement at a tiny fraction of their original debt and seven years of bad credit. Realistically, by the end of those seven years, they’d probably be much further along financially than if they had kept the property. The fact that they could now get away with calling it a “strategic default” instead of a foreclosure, made it sound like there were positive elements involved, as well. In such a short-term-thinking society, how could doing this not make sense?
Like a huge house of cards built of two decks, the entire housing industry collapsed when financial support for its growth was yanked and buyer’s unwavering belief that the mortgage had to be paid at all cost gave way. When the dust settled and the financial institutions and buyers regrouped, new rules had to be adopted to account for what each would henceforth expect of the other; that the banks were not going to be looking out for the buyer’s best interests and that the buyers were no longer naive about what a foreclosure means to their family, their community, and their credit.
Frederick A. Neustein is an attorney in The Neusetein Law Group, P.A. which focuses on foreclosure cases for its clients in Miami-Dade County, Broward County, Palm Beach and throughout the State of Florida.