4

Getting Personal: Underwater - should you swim away?

Tess and David Lazarus discuss how they’ve both been victims of identity theft -– and not just once! They got a call from one listener who was puzzled about a solicitation from a debt consolidation company. Ever gotten one of those letters and wondered how they got your name? David knows how. And a second listener wanted advice on what to do if you’re $140,000 underwater. Swim for it?

About the author

David Lazarus is an American business and consumer columnist for the Los Angeles Times.
Log in to post4 Comments

Maybe I'm old fashioned, but I don't see how walking away from home debt is an honorable thing to do. If the property increased in value, would the lender be entitled to a portion of the increased equity? No. Why, then, is the lender expected to simply take a loss with the collaterol loses value? Certainly there are a number of good reasons why a homeowner would walk away from a property, not the least of which is that he or she needs to move to find gainful employment. But the fact that they are underwater with the debt isn't one of the reasons.

We can all agree that large banks are not warm and fuzzy places, and that few tears are shed when they take a loss, but when a bank lends me money to buy a house, the bank is lending the money to me, personally. It is a personal responsibility. I owe the bank that money. Unless I'm bankrupt, I need to repay that debt. The fact that the underlying investment lost value notwithstanding. And yes, I'm upside down on a mortgage. It is a condo in New Jersey, and I now live in Texas. I'm renting it out and am losing about $700 a month doing so.

Tess, David,

Like most listeners, I expect the two of you to really know the ins and outs of personal finance, and trust your advice as the last word on the subject of money.

Hence I was disappointed when your answer to the caller who was being contacted by the purported debt mediation service Credit Arbitrators came up short. You suggested the listener, Doug "step up" and get off mailing lists via the Direct Marketing Association's website (the URL for that is: http://www.dmachoice.org/ and should've been given or listed on your website), which while not a bad idea in general, is not what would directly address Doug's issue.

You completely fail to mention that the three credit bureaus offer a "service" to people that lets them remove their information from the Equifax, Experian, Innovis, and TransUnion, (collectively the "Consumer Credit Reporting Companies”) "preapproved/prescreened credit and insurance offers" list. This should stop things like preapproved credit cards coming to your door as well as the offer Doug received. The URL for this "service" (I use quotes as I feel this should be an opt-in situation, not one where the consumer is forced to opt-out after being added to the lists automatically and against their wishes) is:

https://www.optoutprescreen.com/

You are limited to opting-out online for 5-years, or opting-out permanently via writing by printing a form on the site, another way they have long tried to make it more difficult to get off their lists.

Next time please do a little more homework before sending listeners off with incomplete information. Hopefully Doug will see this and find his solution.

Best,
Tolga

I could not believe my ears when I heard Tess and David Lazarus cavalierly tell the caller that he should walk away from his home. Neither Tess nor Mr. Lazarus bothered with the fact that Florida is a recourse state (that means the bank can demand payment of the balance due on the mortgage after the foreclosure). Hopefully the caller will not follow up on this extremely poor advice; if he does he will be out of a house, owe the money on the mortgage anyway, and have a totally destroyed credit profile. I was also shocked to note that neither Tess nor Mr. Lazarus bothered to ask if the caller could carry the mortgage (I assume he can given the way he framed the question). Assuming the caller can cover the mortgage payment he should. The value of the house is irrelevant. I don’t suppose the caller was demanding the bank take the house back when the market valued it over his purchase price, why should he think he can walk when the market values the house below his purchase price? The contract is on the financing, not the house. The house is only collateral. I was also disappointed that Tess and Mr. Lazarus failed to note that in 2013 the Federal Government will once again be charging imputed income on that portion of the mortgage that was not paid when someone walks from their obligation to pay their mortgage on the walker's income taxes. All in all a pretty poor job guys.

Your guest's advice to an underwater homeowner was incomplete to the point of negligence. Unless you live in a "non recourse" state (Fla is not one) your lender can indeed seek a deficiency judgement against you after taking the house.
Foreclosure and damage to your credit score may well not "be the end of it," contrary to what the columnist said. Underwater homeowners should go to HUD.gov for information about free counseling on alternatives to foreclosure. Caveat, anything you tell the counselor may be passed on to your lender. Also, consulting an attorney who is familiar with foreclosure litigation can provide confidential, but probably not free, advice.

With Generous Support From...