In 1981, English punk rock band The Clash wrote “Should I Stay or Should I Go?” about the rocky personal relationships between members of the band when facing the dilemma of sticking together or breaking up. The lyrics could not be more appropriate for homeowners buried in a mountain of negative equity and wondering what to do. After all “if I go there will be trouble and if I stay it would be double.”

The first step in answering this question is to find out if you qualify for a modification or if you can refinance using the HARP program to take advantage of today’s low interest rates. The process of getting a modification can be very frustrating.  It’s “always tease, tease, tease, you’re happy when I am on my knees.” It not only takes a while to get approved, you must keep in mind that the lender does not have a legal obligation to offer or approve a loan modification. It is important to note that they may dual track your file, which means that while they are considering the modification they are moving forward with the foreclosure. Sometimes they “set you free” and foreclose in the middle of your modification application.

Let’s say you get a modification. I have a friend who was approved for what at first appeared to me to be an unbelievable loan modification. The modification did not lower the principle but did lower the interest rate to just 2 percent and locked that in for 30 years! This reduced their payment to the same amount that they would pay to rent a similar property. As such, it certainly seemed reasonable to stay – they get to keep their credit intact and remain owners, while paying no more than they would in rent anyway. Plus the payment remains fixed for 30 years, while rents would increase. But that analysis is incomplete. The question that remains is their status when they might want or need to sell, and when do they break even given the substantial negative equity that would remain?

Life events like divorce, death, job loss, job transfer, and others happen. Also sometimes folks just want to relocate. Based on our analysis, and assuming long-term home price appreciation rates, these folks would need to stay until 2026 to simply BREAK EVEN vs. paying rent. Worse, unless they use the rent savings to pay down principal, they’ll be stuck upside down in the property, and unable to sell without bank approval of a short sale until 2033. So whether or not it is a good deal for them depends a lot on how long they plan to stay.

For my friends, the best financial decision appears to be to try to short sell their current home, or if necessary let the bank foreclose. If they then rent for 3-5 years they should be able to qualify again to buy. Assuming interest rates don’t skyrocket, or some other major change doesn’t occur, this will save them over $100,000, and give them the flexibility to move if needed without being stuck in their current prison of debt until 2033.

Unfortunately, few homeowners facing this decision have the financial skills to really analyze the various scenarios, and few will consult a qualified accountant or other professional to do it for them.

This analysis is different for every homeowner facing this question. How far under water they are, and the terms of the loan modification are clearly important. It also requires some assumptions about price appreciation, rent inflation, and future interest rates. And importantly, it requires some serious thought as to how long they plan to stay, and perhaps some soul searching on the moral implications of walking away.

Bottom line, this question can be answered only by the homeowner based on their current situation and what is best for them. Would you stay or would you go now?

33 thoughts on “Should I Stay or Should I Go Now?

  1. Thanks for a good article Michelle. I met a homeowner yesterday at the courthouse steps who was fighting to keep his home. The lender had placed an opening bid on his property and many who gathered (investors) expected it to be sold. The homeowner politely protested that he had an assurance by someone at the bank that his loan modification was “under consideration”, and his property “would not be auctioned today.” Thankfully (perhaps?) for the homeowner, the trustee sale was indeed postponed. I chatted with the homeowner after the good news (postponement) was announced and delicately asked him why he was fighting the process given his “deeply underwater” circumstance ($525K 1st with a current market value of appx $275K). His attachment to the property was more emotional than rational. A more forceful (less tactful), yet well-intended steps investor, then joined the conversation. He literally put his arm around the distressed homeowner and counseled … “you know, it’s going to take 25 or more years for property values to reach the point where you are back into positive equity! … Many in your situation find a great relief once they’ve made the choice to stop fighting a losing battle.”

    There can be many reasons why people “hang on” when more rational analysis points to capitulation … and far be it for me to tell a distressed homeowner how he should think, feel or act upon his/her circumstance. But, sometimes people do need a well intended friend to walk through the numbers and likely scenarios over the next 5 to 10 years. Unfortunately, for those deeply underwater, there is (peering into my crystal ball) slim-to-none chance for any rapid acceleration in real estate values. This will more likely be a skidding along the bottom for a few years followed by a slow slog upwards.

    • Thanks DannyB!! I always appreciate your stories and perspective. I certainly believe that people need to do what is in their best interest. At the end of the day the market doesn’t “recover” until people are living in homes that they can afford. There is much more to life than 4 walls and a formal living room with snow white carpet. There is not a house on this planet that is worth mental health, physical health or your family/friends. At the end of the day it is all perspective.

      • Hi Michelle. So seems you left out a few points of view and maybe some legal arguements. Seems like you are too far on one side and leaving out some basics. Securitization of loans separates Deeds of Trust from the Notes, clouds titles and raises the issue of who has the right to foreclosue. Almost everyone who follows the short sale route is sick that some stranger picks up the house at a price the now homeless owner would have loved to get. The short sale buyer walks in to the house where the previous owner lost all his downpayment, all his improvements, all the payments that he or she made over the years, and suffered that stress caused by the Wall Street Bankster’s housing crisis. What about telling your friends to go to court and sue the purported lender? What about becoming a Protester? You see, if you don’t stand up for something you’re likely to fall for any thing. Stand up for your rights.

  2. Sheila Metzger says:

    To “idannyb”, as a REALTOR, I could not have said it better myself…thank you for your wonderful response! as a homeowner, unfortunately having been in this exact scenerio after an unexpected death in my family, thank you again for your response. I applaud the fact that you don’t assume to know what is best for someone in this tragic situation…I sure never saw myself going through it. I experienced so many emotions while going through the modification process, may times looking at my fellow agents looking me in the face on the other side of my porch looking to list my property for sale.
    It has been an experience I don’t wish on anybody. In closing, let me say one final time…thank you for your common sense approach in your response and I wish you many years of continued success while talking to others and being that listening ear when needed.

  3. Michelle makes some good points but I would like to add a different spin. I am a REALTOR and I am underwater on a $480,000 combined 1st and 2nd and my recent tax assessment and my own comp check says value is more in line with $290,000. I can not get a loan mod due to my profession. I do not qualify. While I could rent for less I would also be at the mercy of a landlord. Rents go up usually annualy. Some landlords also stop making payments and you may have to move when their lender comes knocking (which has happened to my own adult children twice) That is not only expensive it is really distruptive to your life and your family. Have you checked the cost of moving lately? Do that every two or three years and it adds up really quickly. Also I do not agree that everyone that is emotionally attached to their HOME is an unintelligent sap. My HOME is where I build memories with my family, raised and burried my horse in the pasture in back of my barn, and chat with my neighbors who have become friends. HOME is where my kids bring my grandkids to play. HOME is more than a HOUSE for some of us. My husbands parents lived in their HOME for decades. We have to live somewhere til we die and I for one will live in my own HOME no matter what it is worth now or 10-20 years from now. If things change in my life I may be forced move but not because I don’t have a pocket load of equity. I am not selling my car, my computer, or my all be it out of date 3GS iphone either just because they are not ever going to be worth what I paid for them let alone worth more than I paid for them.

    • Hi CJ,
      Sorry if I gave you the impression that staying in your home means you are an “unintelligent sap”. I can tell you from personal experience (my family STRUGGLED for 5 years to save our family property before losing it to foreclosure) that living in a HOME in foreclosure is one of the most stressful experiences. It is also the reason why I live in a home today that is not underwater. (You only have to go through that one time in a lifetime to know that you never want to do it again.) I completely agree with you that a home means a lot of different things to different people and I am a FIRM believer that people need to do what is best for them. Staying or going is a very personal decision. I chose to write about this topic because I also know that a house does not define your life or your memories. There are thousands of people that are desperately fighting to save their homes and losing the battle. I want them to know that there is more to life than just one house. Sometimes the strength is in letting go, claiming victory for fighting the good fight and then moving on. Now that time has passed I do not regret losing the family farm because I did not lose the memories but I do regret that we wasted 5 years of our lives fighting a losing battle. Those are 5 years that we cannot get back. I still believe that home ownership is the American Dream but we are also the land of second chances. I want everyone who is in a hopeless situation trying to save their homes to always remember that there is a lot of life to live after a foreclosure.

  4. Hi Michelle
    I agree with you about walking away to buy another day.
    My question to you do I have to receive a Notice of Trustee Sale prior to a Trustee Sale? I received my Notice of Default on 10/6/10. My projected sale date is 2/7/12, I haven’t received anything in the mail or nor any notices on my front door! I live in California. Local realtors are telling me to start a short sale now before my projected date regardless that I haven’t received a Notice of Trustee Sale? My goal is to stay in my house as long as I can before a short sale? What should I do? Before the Auction Sale date? Nothing ? Show up at auction ?
    thank you
    Peter

    • Peter,
      I’m not sure which county you are in. The average time to foreclose (time that lapses between NOD filing and Trustee sale is around 260 days in San Diego County. But that is just an average. Each circumstance is different. There should be phone number that you can call to find out whether the auction has been scheduled or not…Ask one of the local realtors you are talking to (pick one that is a short sale expert!), to either give you the phone number to call OR ask them to check for you on a regular basis and keep you posted. The odds are that the sale has not yet been scheduled…

      I don’t know your exact situation but please make a huge effort to inform yourself as to whether foreclosure or short sale is the best option for you. Don’t delay…I’ve had very close friends wait too long…Short sale is usually MUCH better (especially now)…and it really takes time to successfully transact a short sale…Find a good agent! They are out there.

      Cheryl

    • Peter Favre, where are you located? You really need to get an agent involved to stop the sale date, if it hasn’t happened already…..if you are in the LA county area, i would be happy to sit down with you and show you how we work and what the timelines typically would be. I wish the best for you and your family! God Bless

  5. To C J Johnson
    You are emotionally attached to your home and because of that, you making bad decisions. Chances are your home will be your largest “nest egg” when it comes time to retire. To make over inflated payments because you have memories is, I’m sorry, acting like a sap. Let it go and move on with your life and take everyone of those memories with you!. To pay for the next decade or more and have nothing to show for it is horribly expensive! Do not hang on to yesterday’s dream. Turn the page and make new memories and stop living where you actually own “nothing” You are making a payment but own nothing and won’t for many, many years.

    • So let me get this straight. I should walk away from my home and pay some investor rent so he can make his payment with my money? Unless you want me to live under a bridge I need a roof over my head so how is this strickly an emotional decision? If I walk and let the house go to foreclosure I can not buy another one for at least 7 years which BTW will be long after I qualify for my first social secutity check. I will pay someones mortgage for the next decade I choose to pay my own and keep my home, memories, and happiness. You all seem to be painting such a dark future. I just do not agree. So what if the house is never worth more than I paid for it. Some things in life do not have a price and for me security, peace of mind, and a place of my own is still my American Dream.

      • CJ,

        The situation you describe seems to be exactly what we were hoping to address when we created our FastTrack to Freedom program.

        It is just a shame that the programs that are available require the homeowner to move. That is not good for the family, not good for the community & neighborhood, and not good for the economy.

        Good homeowners should be able to keep their homes, and should be able to force banks to negotiate a fair and *meaningful* principal reduction. Until then, we will work to keep good homeowners in their existing home.

  6. Great article. We are strategically defaulting on our property and it was a tough decision. We felt trapped in a far too small home for our growing family, $40k underwater, and no longer motivated to do all the necessary repairs to keep up a home (roof, paint, etc.) I am currently dodging collection calls and waiting on a notice of foreclosure in the mail. I have never been late on a bill in my life and never missed a mortgage payment in 9+ years so this is stressful but my choice so I endure. In the meantime, instead of spending all our savings attempting to get a short sale and walking away with nothing, we are stockpiling cash and going to reinvest in a home at a lower purchase price and 1/2 the interest rate we currently have. For us, it was a no brainer. We are not emotionally attached to our home, although it is a fine home. For us, going was the far better choice and we are thankful the laws allow for American’s to walk away from bad investments just like corporations get to do everyday.

  7. As a counselor, I see many homeowners that are not informed correctly about the modification and foreclosure process in our state. Some do not want to invest the time to attend our free 1 hour workshop. They want someone to just “fix it”
    Those homeowners that invest in getting informed, educated and receive counseling understand the process. And wheather they get a loan modification, short sale or Foreclosure they are more prone to accept the outcome.

    • Teresa – The issues in CA are radically different than Ohio. Here we have a lack of inventory for sale in most areas, and relatively few bank owned homes that are sitting (we know, we track each and every one). That said, forcing the banks to protect and maintain homes that they have foreclosed on seems like a reasonable idea – one that you would think wouldn’t require legislation.

  8. I ask you all: What’s not right with 8 to 9 million foreclosures so far and another 9 or 10 million before 2016? Don’t think about too long. Say it. Bankster Fraud on the courts, country, and individual homeowners and real property rights. Look at the big cover up: from the Robo Signing 60 minutes piece to $2000 per homer settlement farce. There are some still fighting…Beau Biden, Neil Garfield, me, and tens of thousands other homeowners, Occupy folks, and many others who would rather see justice and rule of law instead of wall street ponzi rippoffs.
    The soul of this nation of people has been enslaved by debt and the government that is owned by the 1%. Banks have no standing to foreclose because the banks did not lend money, they stold money from investors, told you it was a loan, got bailed out, and now banks are sweeping up the coins left behind as they evict homeowners and distroy communities and whatever freedom stood for. If you loose the family farm to a crook you loose your heart, soul, and freedom. Stand up and fight. Some say 2012 is the year of Truth. Let’s make it happen. I’m mad as hell!

  9. Michelle writes a great column, but I’m wondering if other readers see the same thing I’m seeing…

    Michelle identifies the problem of severe negative equity and an honest homeowner struggling with what is the right thing to do. But, then the only real suggestion is to get a loan modification, or to walk away through short-sale.

    neither of these address *how* can an honest homeowner attempt to do both: keep their home they love, *and* correct a completely unacceptable financial situation.

    One of the most glaring things with today’s housing market is that there is no legitimate place for a homeowner with severe negative equity to turn to.

    The housing counselors endorsed by HUD or elected officials are prohibited from discussing principal reduction or strategic default even if it is OVERWHELMINGLY in the best interest of the homeowner.

    I would be interested if any of the readers know of any resource that will honestly assess the situation to help an underwater homeowner determine what is the best course of action.

    • I went to see a lawyer how specialized in real estate law and he was great. Everyone’s situation is different so going to a good lawyer is helpful to make sure your doing what is right for you. It was the best $100 we ever spent my husband said.

  10. David Driscoll says:

    A home is an investment. When you buy it you make an legal agreement to make the payments. You hope the investment is a wise one and will someday pay you dividends. If you invested in a stock and it went South, how long would you hold it, hoping it would get back to even? Investments go up and go down. No investment goes up forever. Like most average stock investors, home owners got in too late and are now complaining that it’s somebody else’s fault.

    • I am sorry but didn’t you witness the government’s bailout of the banking industry? Why should they get a bailout but the middle class should bare the brunt of this financial disaster? This is not a moral issue – it is a legal one and we have the right to walk away and they can put it on our credit report and take possession of the property and resell it to some new sucker. The banks will NEVER get shortchanged, believe me. They are experts at self preservation. It is us, the middle class, who need to wake up and take a note from big business. If an investment is not panning out – they NEVER tow the line just because. They write it off and move on. I imagine if you were in this situation you would quickly see the logic in not staying put.

    • Dan Milbourne says:

      NO. A house is not and should not be thought of as an investment. It is ill-liquid … subject to annual maintenance and repair costs, functional obsolescence, subjective and highly personal estimates of value, and the list goes on. Thinking of a home as an investment is what got us in this mess in the first place. For an investor buying a home to immediately turn-around into rental property a house is an investment. For the average owner-occupied homeowner a house is a necessity and the decision to buy or rent is mostly based on the individual’s pride of ownership preference, job security, location preference and mortgage vs. rent comparison.

      • Sorry Dan, but you need a welcome into the real world. In the real world, where most companies no longer offer pensions or retirement plans (or miniscule ones if they do) people DO count on thier home’s equity as a nest egg for thier retirement years. So yes, in this sense a home is an investment; the most valuable investment most people will ever have. Most working Americans today cannot afford to put aside a chunk of money for retirement each month either using just pocket money. This is not because American’s are lazy, stupid or unable to adopt a savings plan. It is because corporations in this great country of ours, have worked tirelessly for years to ship jobs oversees, offer miniscule wages without any benefits, cut out retirement plans, cut medical insurance plans, slash wages, and the list goes on & on, all with little to no government regulation and all while pocketing HUUUUGE profits & forcing most of America’s middleclass into the lower class.
        So yes a home is a necesary investment for most Americans. And I agree with Michelle…throwing good money after bad, will not solve anything. The best option for most people is to get out now, so you can start working on rebuilding your future. For those that can still afford an underwater mortage & would rather keep it due to emotional attachment, security, etc, well thats thier right and choice. But for people finally starting to feel the brunt of this bank-created economic disaster, letting your house go, when you REALLY think about it, will start to become a no-brainer. In 3-5 years when you are able to buy again, you will own a house at last that you can afford and even little equity (& hopefully alot of equity when you retire). Do not let the banks, creditors & FHA counselors scare you into staying in a home you cannot comfortably afford. Life is so much better when you have that little extra money each month, for things that matter & make life sweet: like your child’s education, karate classes, healthy food, tickets to a really great Broadway show, a really good dentist, family camping trips, etc (all the things you forego when you are struggling to make a mortgage payment that is seriously underwater anyway). Let it go & move on!!

  11. There are so many variables when you deal with loosing your home. On one hand you have all your emotions and memories, and on the other hand you can walk away if you’re really upside down. If you are upside down by 50% so are your neighbors, which means you could strategically default, spend 2 years in savings mode while you get NOD’s, Sale Notices, go thru short sales , don’t sign if anyone wants to buy. Apply for Mods. Go in and out of Bankruptcy 3 times, 6 if you’re married. Then buy a house across the street for 1/2 price w/30%-50% down and a hard-money loan, refinance that in 1-2 years with a traditional lender, take a 15 year loan and all in all you’ll be paid-in-full in 20 years. Even if you stay with hard-money those are 10 year loans and you’ll be paid in full 12 years from now.

  12. Dan Milbourne says:

    You wrote:
    “Assuming interest rates don’t skyrocket, or some other major change doesn’t occur, this will save them over $100,000″

    Please provide your calculations and other assumptions on how you arrived at this. At least where I live it is much cheaper to buy than rent a comparable home.

  13. So all you short sale expert realtors, members of car and nar, you are too stupid and or dense to read SF County recorder Ting’s report on fraudulent foreclosures and be real. What are you thinking? I guess I will never see your a…. at an Occupy march, will I?

  14. I was fascinated by Mark Moore’s statements above that we should “force” banks. When I reviewed his Fast Track to Freedom website and his comments in Fatwallet I became troubled by the following: He asserts that the bank is unfair by refusing to “play nice” when they will not renegotiate their contractual agreement with the homeowner. This leads to said homeowner having the “moral” right per his site (insight?) that the homeowner should pursue strategic default.
    As a professional who works in the topsy turvy world of short sales I can see the many sides of the argument but it boils down to can the homeowner sleep at night?
    The lender / investor makes a business decision as to whether to take the loss in a short sale, risk an uncertain return in foreclosing or just to extend and pretend. It seems to me the homeowner is left with the moral decisions of “it’s just a business decision or what am I doing to my neighbors?”
    Mr. Moore acknowledges he will not sign a short sale arms length agreement. Since most lenders require them so the home seller cannot benefit financially -That the lender is taking a loss should not be forgotten, even if you believe they are Banksters.
    He further claims to have “unfair advantage” when he buys at the foreclosure auction. Considering that there are deep pocket investors standing next to him I wonder what is his “secret sauce”? Then, if still unable to get your house, he can call some one at the foreclosing bank and get a deal. Good luck to that.

    • David,

      Thanks for taking the time to investigate, and thanks even more for your thoughtful comments.

      This is a tough mess the country is in. It’s going to take a lot of thoughtful effort to get back out (IMHO).

      Our unfair advantage at the auctions is very easy to understand… We have the most motivated buyer, and we have the lowest cost structure. Pure and simple, we are able to outbid the “deep pocket investor” at auction because we do not need to evict, rehab, and flip the property. We buy the property AS IS and sell it AS IS back to the existing owner.

      We try to never forget that the lender *is* taking a loss. We believe the lender has a right to recover the maximum amount from the property sale in order to minimize that loss.

      We simply believe the lender will maximize their return by selling the property to us. I hope that comes across.

      I’d like to address the “What am I doing to my neighbors?” issue you raised, David. We believe that is an important concern, so every one of our transactions is designed to stabilize local home values.

      What’s even stronger is that because we bring our customers to solid positive equity (we target 90% LTV to start and 80% LTV or better within the first 13 months)… because the homeowners have a completely different relationship with the property, they behave VERY differently.

      One of my favorite examples is that property that had so much discussion on Fat Wallet. That homeowner had made *no* home improvements since 2006 when they first saw the housing bubble starting to crest. For the last 2 years, they had not even bothered to put out Christmas decorations.

      Through HL, they lowered their mortgage balance by $206K and their monthly payments went down by $540 (every month!).

      As a direct result, within 1 week of taking back ownership of their home, they planted 6 new trees, and for the first time in years, they decorated for Christmas.

      On a purely technical front, we replaced a $168K distressed sale in the neighborhood with a $215K fair market comp. We also prevented a speculator from evicting an established family/neighbor and replacing them with temporary renters. But, the real value is that the original family is now actively maintaining a property they own real equity in. by changing them from a severely underwater borrower to a positive equity homeowner, that neighborhood benefits tremendously (IMHO).

    • Hi Davidz,

      If anyone is having a moral dilemma about walking away from a house that is substantially underwater… they should only make that decision based on financial reasons– if they are only upside down 5%-10%, or they will never get out from under (i.e. Las Vegas, Palmdale, parts of Florida). They should also laugh at all the moral implications…just like the this quote… “Sometimes the hypocrisy is staggering: last winter, the Mortgage Bankers Association—the very body whose president attacked defaulters for betraying their families and their communities—got its creditors to let it do a short sale of its headquarters, dumping it for thirty-four million dollars less than the value of the building’s mortgage”. ….I mean their you have it in a nutshell…and forget 3-7 years, if you work on rebuilding your credit immediately, it’s 2-3 years before you re-qualify for a FHA 3.5% first time buyer again. Factors that you can’t quantify- your kids staying in the same school (which can be avoided if you can afford to rent in the same area, a big “if”), like your neighbors – they are friends of you and the kids, etc. BUT all those PALE in comparison to the financial factors. Do you live in a Deficiency Judgment state? If so, do you pay the deficiency or have the desire to file BK, have you recently had a Chapter7 discharged? If so no BK for you, unless you can amend it. Basically if you could never afford to pay the shortfall, take the loss now while the mess is fresh, everyone will brush it off 3-5 years from now as you were just another casualty. Also who knows what the tax implications will be 3-5-10 years from now, take your beating and rebuild. here is a good article- both funny and informative… http://www.irvinehousingblog.com/blog/comments/strategic-default-is-the-bankers-stigma-of-convenience

      here is an article that points out the

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  18. Nobody knows what the future holds and that’s the BIG rub with loan mods. As each year passes we get older and our ability to earn income decreases, as does health. Why gamble with the unknown. I’d work with “what is” work with the very near future. A bad deal today is just gets worse as time passes. The easy decision made with emotion today is not in the best interest. Every loan mod I’ve seen, and as a Realtor, I seen a lot are not good deals for the owners. The lenders are in business to make money not give away revenue. These lenders are not looking out for the property owners best interest.

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