Real estate prices have dropped about 30 percent since their peak in 2006. As a result, something like ten million American homeowners owe the bank more than their houses are now worth. More than half of them are stuck with mortgages that are more than 20 percent higher than the value of their homes. They could simply walk away from the home, stop paying the mortgage, let the lender foreclose, and be better off. More and more people are taking this option. Is it moral?
It may not even be legal. Your mortgage contract says that you “promise to pay” the bank however much you borrowed from it. Many states have laws allowing mortgage lenders to pursue your other assets to get their money back. But that can be difficult and expensive. You may even be able to live in your house payment-free for months while the bank goes through foreclosing on you. Then you can rent another house—possibly one the bank unhappily repossessed from someone else who walked away.
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