Not me. But someone I know. Not really surprised. It’s on a property in suburban DC where the taxes have tripled in the past year. My friend can afford the payments but due to some unfortunate vandalism after a renter moved out, it’s starting to become an albatross around his neck.
After doing some calculations, my friend decided it would take 7 years to break even and he doesn’t want to hold the property that long. I guess it’s not a big deal since he’s got a car and a primary residence already and he won’t need to buy anything big on credit ever again really. (If he buys his next car with cash that he’s saved from increased cash flow, then there are few downsides. I will have to mention the tax consequence though. But if he has increased cash flow, can’t he save up to pay those taxes?)
I counseled against it, but after getting an inkling of the numbers, I’m convinced it’s the right move to make. I wouldn’t typically think it’s a good idea but since it’s not his primary home like it is for most people in foreclosure, he’s not risking a lot by having a huge black mark on his credit report. The reason foreclosure is bad for most people is that they continue to need credit after a foreclosure happens. But the fact of the matter is, if you don’t need credit then what is the downside of foreclosure?
I realize there is a Tragedy of Commons issue going on with the wave of foreclosures, but to the individual who can afford the mortgage, the benefit of a strategic foreclosure is pretty high. Let me rephrase it: Why keep throwing good money after bad? In truth, I don’t see if this was a stock, why anyone would keep it if it continues to cost them money (in maintenance) and money invested in it could be used to make money someplace else.
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{ 5 comments… read them below or add one }
Uh, plenty of jobs run your credit. That would be my main concern.
The mortgage industry tries to convince you it’s “immoral” to dump a mortgage that’s not in your best interest.
If you really, really, really don’t need the credit – and won’t for years – yeah, it’s worth considering.
I was reading the DOD military industrial contractors clearance decisions last week and plenty of people had overdue debts. bankruptcy, foreclosure and bad credit but were getting clearances. The theme was that if you were actively resolving your problems, and didn’t try to hide them, you were generally approved. YMMV, but I think that’s a good sign.
Main concern is not losing good credit.
I would rather be forced to pay cash for what I need and or want and not own much at all and be financially comfortable and in good economic shape with my family in stead of owning a 500k home that is underwater $200,000 working like a freakin dog in this ludicrous America and continuing to think that materialism is where happiness is.
It’s nuts that the law allows this but where it does then it can make sense to do this. Not in Australia and not in some US states I think.