“I don’t think as many of these people will spent a lifetime paying of their bad investment, instead, I believe most in that position will just eventually walk away from their homes.”
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The only people who will be able to walk away relatively unscathed (if you call a 7 yr credit ding – uh, I mean credit crater – unscathed) are those who have not succumbed to the refi and/or HELOC market.
If a property owner finds themself in a situation where they cannot afford the mortgage payments and cannot refinance into an affordable payment, they will simply sell their property and take whatever profit the market allows. The idea of walking away from the property inherently assumes that the owner is upside down or will be upside down after transaction costs. In this situation, the owner can choose between selling the property and covering any shortage with an out-of-pocket contribution, or just walk away.
Unfortunately, walking away from a refi, HELOC and/or 2nd mtg. exposes the owner to a deficiency judgment for the loss suffered by the lienholder(s), including their costs. It also exposes the owner to being taxed for the difference in foreclosure sales price and the amount owed on the property – it’s viewed as income by the IRS. Walking away may have more devastating financial consequences than holding on and some way, some how making the mortgage payments. In fact, I think it’s generally found that most folks will forego just about all other expenses just to scrape together their mortgage payment.
