True Story
After years of pulling down more than $100,000 annually, one Eastside salesman learned last year that he’d no longer earn commission and his base salary would be cut by more than two-thirds. He and his wife couldn’t afford the payments on their home anymore, and, worse, their marriage was failing, so they decided to divorce and sell the house. A workable plan, except for the fact that their neighborhood was glutted with two years’ worth of housing inventory. Ironically they had more than $60,000 in cash to bring to the table to sell the house for less than they’d paid, but with legal fees from the divorce mounting and the prospect of starting over in their now separate lives, they decided to hold onto their reserves and let the house go into foreclosure.

Realty Check
“Folks are asking themselves, ‘What’s my credit score worth to me?’ ” says National Association of Mortgage Fiduciaries founder Jillayne Schlicke, who counseled the distressed couple.

Nearly 21 percent of homeowners in Seattle, Bellevue, and Tacoma had negative equity as of the fourth quarter of 2008, according to Seattle-based real estate Web site Zillow. In King County alone almost 2,300 homeowners received notice of auction in the same period. It’s hard to say how many of those were willful defaults, but Schlicke says that it’s more than just falling home values that are making people throw in the towel. “Negative equity isn’t making people walk away,” she says. “It’s negative equity combined with divorce or loss of a job.”

Walking away made sense for that Eastside couple, but it’s a dicey proposition if you took out two mortgages to buy your house. A couple years ago, when anyone and his dog could get a loan, plenty of borderline borrowers who didn’t have enough cash to put 20 percent down—and thereby avoid paying for mortgage insurance—applied for two loans. They may be able to walk away from their debt on one of those notes if they enter foreclosure, but they won’t necessarily escape the other, real estate attorney Craig Blackmon points out.

Last Word
If you’re confident your job is safe and you’re still able to make your monthly mortgage payment, there’s no sense screaming uncle just because your house is worth less than you owe. “You need a place to live anyway,” Blackmon says, “and the market will come back eventually.”

TIP No foreclosure is as easy as mailing your keys to the bank and skipping away to financial freedom. And—no surprise here—it’s a process you don’t want to dive into on your own. “I recognize that these people are in a very, very difficult situation,” real estate attorney Craig Blackmon says. “But if you owe $400,000 and you’re thinking about walking away from that debt, you need to find the $1,000 or so to hire an attorney so you know you’re doing—and can do—the best for your circumstances.”

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