Three years into the housing crisis, nearly 15 million homeowners owe more than their homes are worth, and an estimated one in four mortgage defaults is voluntary. A recent poll found that a third of respondents would do the same -- walk away -- under similar circumstances.
And some experts wonder why strategic default rates aren't even higher. In October, University of Arizona law professor Brent White published a provocative paper (.pdf file) saying that homeowners are letting fears of wrecked credit and reputations cloud decisions about their financial best interests.
So we put some questions to five homeowners who did walk away. Was getting out from under the mortgage worth the hit to their credit ratings? What about the guilt and disgrace we've been warned about? Are the lives they have today better or worse than the lives they left behind?
The answer: It depends -- on both their individual financial situations and their personal values. Few expressed regret, though it's worth pointing out that all but one asked that their last names not be used.
Kathy: 'We're incredibly happy'
Kathy, 34, was single when she bought her 600-square-foot San Diego condo for $235,000 at the height of the real-estate frenzy. After she married Darren, 42, she and her new husband decided that the condo was too small. By then the market had collapsed, and the condo was worth less than she'd paid for it.Kathy continued to make payments while foreclosures piled up in her building. In the end, her condo's reduced value was not why she decided to walk.
Still, the couple stuck it out for two years before strategically defaulting in 2009. Kathy was scared to call the bank to cancel the automatic mortgage payments. However, she says: "They were lovely. There wasn't any of the drama that I was afraid of."
The financial relief was immediate.
Kathy and Darren didn't have much trouble renting. Their 20-pound dog was a bigger problem than their default record. In San Diego, she points out, landlords are used to foreclosures.
The rent on the more spacious two-bedroom condo unit, which includes a garage, is the same as the mortgage on their tiny former home. "It's got birds; it's got grass and no drug dealers," Kathy says. "We're incredibly happy."
Because California is a nonrecourse state, Kathy does not face a deficiency judgment, the biggest threat to defaulters. In recourse states, a lender can come after a former homeowner for the difference between what was owed and what the lender was able to get for selling the home.
Some people had asked Kathy whether she felt she had a moral obligation to the bank, but she said she didn't feel they were being judgmental. Several of her friends have also walked away, and others have told her they wished they had the courage to do so.
"In California, everybody gets it," she says. "People have been incredibly supportive."
Kathy hasn't checked her credit scores and doesn't intend to. She and her husband plan to avoid using credit as much as possible. (Foreclosure can lop off as much as 160 points from a top-notch 780 credit score, according to Fair Isaac, the creator of the FICO score.)
"After the debacle with the condo, the concept of homeownership is meaningless to me," she says. "It's about happiness."
Patty: One stress lifted, but life's still hard
New Yorker Patty Sayles, 66, was doing fine until her husband began suffering from Alzheimer's disease. She had to choose between paying for his nursing-home care and paying her mortgage.With the help of an attorney, Sayles might have held on to the house for another year. But the constant phone calls from creditors, debt resolution specialists and foreclosure prevention companies wore her down.
"I couldn't take the phone calls," she says. "Every day I got phone calls from lawyers saying, 'I can take care of it.' It's all fraud stuff."
Sayles walked away from her house in October. She also filed for bankruptcy.
Sayles moved in with her daughter, which has been difficult on both of them, but she doesn't feel she had any other choice. Otherwise, "I'd be in the park," Sayles says.
Her husband's nursing home gets paid first, and that takes his entire pension. Sayles' other debts were discharged in the bankruptcy, but she doesn't have the income or savings to rent a place of her own.
New York allows deficiency judgments, but filing for bankruptcy protects Sayles from facing one. Such judgments are considered the most significant hazard of walking away from a mortgage.
"If you didn't do a bankruptcy and you don't do a deal with the bank, you will definitely get hit with a deficiency," says Sayles' attorney, Edward Nieger. "It may take a year or two because they are so backed up, but they will get you."
Like Kathy, Sayles hasn't looked at her credit score. As long as her husband is in the nursing home, she won't be buying or renting a home or doing anything else that would require a good credit score.
Continued: A smaller life, but the worst is over