As real estate professionals, we have the legal and ethical responsibility to offer honest and sound advice to our clients, while ideally maintaining the goal in mind to ensure a healthy and vibrant real estate market. Ideally, a pulsating market with healthy activity and sales is beneficial to everyone. However, we are faced with situations everyday where we may have to offer advice that while accurate and sound, seemingly benefits no one.
As we have learned from the foreclosure crisis in the last few years, with the drastic drop in home values and high unemployment rates, nearly 25% of mortgage holders – over 11 million people – in America are “underwater;” their homes are worth less than what they owe on their mortgage.
How many times have you been in a situation where you knew in your heart that your client should give serious consideration to “walking away” from their mortgage, only to remain silent for any number of reasons? It is certainly difficult to break it to a client that what they thought would be a sound investment offers almost no prospect of even breaking even in the coming years. While there are some people who opted to mail back their keys to the bank awaiting on the sheriff‘s arrival to be evicted, there are still many people continuing to make their payment despite being underwater. For whom paying their mortgage is a matter of principle, a contract, a promise they must fulfill.
Although our discipline may be real estate, we may ponder whether or not our client would be better off saving for their retirement than paying on a mortgage from which they will never recover. When the home becomes a money pit, people struggling and living paycheck to paycheck, spending their last dollars to save their homes, sacrificing essentials such as food and medication, it may be best to attempt a principle reduction or even to ditch that mortgage. While it isn’t our decision to make, and we may not be privy to a client’s particular financial situation, suggesting that a client speak with an attorney or investment professional regarding this matter seems part of the duty belonging to a full service real estate professional.
Consequently, we know that when people walk away from their mortgages it has a devastating impact on the neighborhood. The home values are deteriorated leading neighborhoods to collapse, surge of vacant, abandoned homes and boarded up properties attracting thieves and looters has become a major problem. Newer developments where the developer went broke leaving only a few units occupied surrounded by empty lots and roads to nowhere. Crisis like this create a spiral making the house next door worthless and destroying neighborhood. In some instances even the banks are walking away from their ownership interest. Just last week in California, a bank demolished more than a half dozen BRAND NEW HOMES just to avoid paying the local real estate property taxes. In some neighborhoods in Cleveland the city has decided to demolish all vacant homes, otherwise in good shape to turn into green space as to help restore values of the neighboring properties.
Some may believe ditching the mortgage is a selfish act, and some may view it as essential in cases where the homeowner cannot support his or her current lifestyle and the mortgage at the same time. Either way, while not our decision to make, it is our decision to whether or not we arm our clients with as much knowledge as possible so as to better equip them in making their “lifetime” decisions.