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Businesses Can, but Individuals Cannot Walk Away from their Mortgage

By Sally Maison
Published: Sunday, January 31st, 2010

Individual homeowners find it extremely difficult to walk away from their mortgage not just because it would damage their credit score. They are also pressured by society to uphold their contracts, even if at such a great financial expense.

Businesses Can, but Individuals Cannot Walk Away from their Mortgage11,232 apartments in Manhattan were let go by Tishman Speyer Properties because the company cannot pay for their mortgage. Rick Gilson in South Dakota plans to do the same but he is afraid of its consequences.

Experts say there seems to be a double standard when it comes to mortgages. Both the real estate company and Rick face the same problem: their properties are underwater. This means that they owe more on their mortgage payment than their properties’ actual market value. However, Tishman can walk away without feeling much guilt. Rick’s case, on the other hand, is not that simple. He is not just worry about his credit score or anything a poor credit rating could cost him in the future.

Rick still owes more than $30,000 for his mobile home’s mortgage but its current value is just about $14,000. He has been paying for that same property for 12 years now and he cannot find any easy exit. He said he has been taught to pay and it is what he will keep doing. He believes not walking away is the right thing to do.
Even now that the economy is recovering, individual homeowners remain at the center of the mortgage crisis. Nearly 11 million Americans, or one in every four homeowners, have their property underwater. In some states like Arizona, California, Florida, Michigan, and Nevada, they make up 40 percent of all property owners.

Walking away from a mortgage could ruin a credit score for seven years but some experts believe it is the best thing to do when a property’s value is just way below the amount owed on its mortgage. They suggest looking for rental housing which costs less when beset with high mortgage payment on a property with low value.

But other industry analysts argue that personal credit ratings will not be the only ones to suffer if more and more Americans walk away from their mortgage. They say it will cause another huge mortgage crisis and could further hurt the economy.

Meanwhile, law professor Brent White says it is legal to give up mortgage payment but the society pressures people like Rick to keep paying.

Tishman easily defaulted on a $4.4 billion mortgage but Rick finds it almost unimaginable to default the mortgage on his $31,000 mobile home.

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