It might as well be an actual flood. Calling a mortgage “underwater” does not do justice to the disaster of having one’s home equity wiped out. Sadly this is a common fate for many Las Vegas homeowners. No matter how often we hear of people short-selling their homes or strategically defaulting on them, people will remain in their residences, stubbornly paying mortgage bills even neighbors are leaving and the neighborhood becomes quiet.
Why do people do stay in an underwater home? Here are five reasons we can think of:
(1) Obligation. People think it’s wrong to break a contract, even with a bank that loaned money recklessly.
(2) Love of home. For some people, homeownership is a great achievement at almost any cost. Others may be enamored in the home they’ve purchased and do not want to leave. They may also fear the impact moving into a smaller home will have on their children.
(3) Reputation. Continuing to pay on the mortgage while curtailing other spending will make it appear that owners do not have financial problems.
(4) Credit rating worries. The law is not fair to underwater homeowners. Unlike automobile loans, they can’t renegotiate the loan principal with bans. Thus, leaving the home will not be good for their credit ratings.
(5) Holding out for relief. Some homeowners may be hoping that Congress will change course and find a way to provide effective mortgage relief for them.
While these reasons may convince homeowners to remain in their overvalued homes and continue paying their mortgages on them, they don’t hold water, so to speak.
One great concern is that homeowners are merely delaying the inevitable. Even if income is sufficient to pay the mortgage, it may not be going forward. One job loss or medical injury can put the underwater homeowner worse off than buying a new home or moving into a rental unit. If you owe more on your mortgage than your house is worth, our advice is to compare your mortgage payments plus costs (repairs, homeowner dues, and taxes) against the cost of renting. Then try to see how much money you’ll save over ten years if you move to a rental. The sum will probably be substantial.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation by calling 702-880-5554.