There has been much debate of late about whether or not it is morally acceptable for homeowners who currently own more for their mortgages than what their homes are actually worth to just walk away from their property, using their “new found” money to pay for a cheaper rental unit, perhaps.
Today’s New York Times even has a page one story about how more homeowners are doing just that—walking away.
Some interesting statistics emerge: The paper sites “new research” that would seem to suggest “when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away…”
Apparently, says the paper, some 4.5 million homeowners have now reached this watermark!
Complicating matters is this: Certainly many homeowners understand that walking away from their homes will seriously damage their credit ratings; more important, most appear to also understand the moral consequences of their impending actions.
Unfortunately, just like “too-big-to-fail” banks seemingly get away with financial murder, “too-big-to-play-by-the-rules” real estate giants are setting a bad example; or, I should say, an example lesser folk may just follow.
As the paper points out, real estate giant Tishman Speyer and a group of investors essentially just walked away from their property–the giant Stuyvesant Town and Peter Cooper Village apartment complexes in Manhattan, defaulting on a staggering $4.4 billion in debt!
Of course two wrongs do not make a right. We all recall that lesson from grammar school. But in the real, rough and tumble world of real estate investment, those old lessons have apparently been replaced by the one that is titled, “Survival of the fittest!”
I am not making the argument that those who find themselves underwater on their properties ought to just mail back the keys to their lenders; at least not at first impulse. But I am saying that, for better or worse, what is good for the big guys should be just as good for the little dudes!
Photo: stevendpoloWalking Away From Your Upside Down Home: The 75% Solution by Charles Feldman