When Are You Too Far Under Water To Hold Onto Your House?

MINNEAPOLIS (WCCO) — Do you know what your house is worth? For most of us, it’s pretty depressing. More and more houses are worth less than the owners paid, or worse yet, less than the owners owe.

That’s called being under water, and it raises the question, if your value keeps sinking, is there a time you’re actually better walking away?

In many ways, Matt Weber is the face of the suburbs. He’s got the standard package with wife Breanne, three cute kids and a very comfortable home. And, he’s dealt with a now very common problem.

“We had it for sale the day I was laid off,” he said about his last home. “We got with a realtor right away, tried to sell it, nothing happened.”

That house cost the couple everything. They bought it in Marshall, Minn. about four years ago, and had to sell it when Weber got laid off two years later.

“We were at $40,000 under what we owed for it when we finally did a short sale,” he said.

And they’re not alone. By one estimate, 23 percent of the homes in America are worth less than their mortgages. And 29 percent of the new listings in the Twin Cities this month are either short sales or foreclosures. So, when is it time to panic? When are you too far under water to hold onto your house?

“You’re not losing any money until you have to sell,” said Terri Harder of Keller Williams Realty.

And that’s the rule of thumb. Under water only matters if you need to sell. So, if you can make the monthly payments, you should. Because the alternatives have lasting consequences.

“Nobody wants a foreclosure,” said Harder. “Nobody wants a bankruptcy. But if it’s imminent, then yeah, you need to plan for it. You can’t just slide into it.”

Nicole Middendorf of Strategic Financial Inc. agrees.

She said it’s doubly important to protect retirement money, because it’s taxed when you pull it out, and can often be protected in bankruptcy. So, if financial disaster is inevitable, take care of it early instead of waiting. But realize that it will ruin your credit.

“Any time you aren’t responsible with your money,” she said, “any time you don’t pay your bills, it’s going to hurt you.”

Which brings us back to Weber, and his new house. His short sale took care of his primary and secondary mortgage — without going on his credit report.

“At this point, our credit back is up to where it was before,” he said. “We could purchase again, but we really have no interest in purchasing again.”

Instead they rent, from a family that moved and didn’t sell, because they’re under water themselves.

“They’re really in the same situation if they tried to sell,” said Weber. “So it works out great for us.”

  • short sales can still hurt

    This man is VERY lucky that the bank actually did what they agreed and didnt report the short sale on his credit. I did a short sale for over $110,000 less than we paid for our home. Tried the modification route and the bank denied that, and ended up doing a short sale. Our realtor worked with the bank and they agreed to report the sale as “paid as agreed”. The bank ended up reporting this as a forclosure on my credit and also never reported any of the payments we made on the mortgage either. I have contacted the bank and they refuse to remedy this situation and have also contacted the attorney general and many laywers and no body is willing to take on the lender (chase home finance).. My credit score has bounced back as this sale was 3 years ago, but still cannot get a loan, credit card or even a apartment to accept me becasue of the way the bank handled this and did fradulent practices.

    • Fed Up

      Chase was terrible. They refused to help me with a loan modification due to me paying my bills on-time, every time. I hope that you can find some representation and run them over the ringers.

  • biglou64

    Get a lawyer if you are doing a short sale. They can save your butt and keep the sale from ruining your credit. Well worth the money.

    • Happy to be free of the mtge myself

      or not. We spent better than $21K in legal fees – 3 different firms that allegedly specialized in this – and ended up really taking it in the chops anyway.
      If this was a do over I would immediately do a BK and salvage what I can.
      I’m sure lenders vary but National City, now PNC, was horrific.
      My neighbor said the same with US Bank.
      good luck to all in this situation and even if it ends up in a BK life will go on, you will be able to buy again if desired at a future point, and like the OP above said – renting might be the smartest thing for most of us. Housing will continue to drop and dumb to toss $$$ away again. They may modify or trash the mortgage ded. in years ahead (and should) which will cause a major drop again….

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    […] If the value of your home keeps sinking, is there a time you're actually better walking away? Read more on CBS Minnesota […]

  • dan

    I feel for the guy losing his job and not being able to make the payments. He didnt walk away. He communicated with the bank for a mutually agreeable contract cancellation.
    People who just walk away because the home is upside down make me sick. How is this any different than a new car. It s worth less the moment you drive it off the lot and if you didnt have a down payment you will always owe more than the car is worth. You dont see people walking away from their cars do you? You signed a legal contract with a lender. Make your payments and stick it out. Like they said in the article you are not losing any money until you have to sell.

    • Mark in Stillwater

      kinda funny dan – why is it any different than all the grand ol’ USA Corporations filing a BK to shed debt, obligations, often times financial obligations to the employees that in fact MADE the company from day 1.
      Of course it’s no different – the shareholders, banks, brokerage houses and everyone else likely has made a boatload of money over the years. The company will be up and running, lean and mean, on Day 1.
      It don’t work that way for people tho, does it. They have a price to pay for years and years.
      I’m not a proponent of walking away from an obligation just for fun. Yet there is a time, a place, a reason it makes a great deal of sense. Don’t critique people for doing something that is right for them because of their situation …. you may be in the same shoes someday

      • dan

        So part of your arguement is that since everyone has made money on real estate transactions they can afford to lose when the market tanks? Wow, sounds like the Democrat way of thinking. If I profit good for me, but if I lose money I have to look for someone else to blame or take the loss.

        Again I feel bad for people who lose their jobs, get sick or were fooled into a mortgage. The rest of the walk aways are the ones that make me sick.

        • @dan

          dan —- you seeing the modern day America my boy. Started in the late 60’s and here we are

          companies been using the walk away strategy forever too so it’s nuttin’ new. nor right. just the I in America

          • dan

            I was raised better than that!

      • Billy

        I believe filing for corporate or personal bankruptcy is a legal practice in the grand ole USA.
        Defaulting on a legal note is not and people that whine about it afterwards because they decided to walk away should be lielong renters. Again this does not include people that lose their job, health issues or were scammed into a mortgage

  • Jessica

    Here is my question. How is this the “homeowner’s” fault? The banks are the ones responsible for giving bad loans and causing this housing market. They need to now in return make it right by reducing everyone who is under water with a mortage to market value. This would solve the housing market problem. We purchased our home in 2007 for $200,000 and now we can’t even sell it for $130,000 if we tried. I am holding out for a while to see what Chase does and have told them if they don’t want to fix this mortage so it is at market value then we will walk away. They don’t want us to. I read an article recently that said Chase and Bank of America were slowly reducing mortgages to market value. I am not in a hurry to move so I am going to wait this out a little bit longer. Also, Obama wants so desperately to get re-elected we may just get our house for free from him so he can have our vote. This is how a lot of people actually think, scary isn’t it? Anyways, I can always short sale if I want as well. I am not going to let the banks control my life. I will do what I want when I am ready.

    • broke but it's my problem Jessica

      You made a poor decision Jessica – many of us have. Not sure why you’d walk tho – for the sake of walking because you made a bad investment per se?
      I don’t think it’s that easy to just walk away or file bankruptcy w/o implications and costs. Impossibe? – never said that.
      But is this truly the banks fault???? hardly unless they came by, picked you up, showed you properties, put a gun to your head to sign. Then – yep, it is.
      If you have the means, no huge changes in your financial world (I mean HUGE) – no one, that means us the US taxpayers – have a damn obligation to bail you out because you made a lousy decision to pay (btw-welcome to MY world too).

    • dan

      What? How is this the homeowners fault? The fact that lenders/banks made programs available to you to buy a home , you applied for the loan and agreed to the terms and now its not your fault?
      Sounds like you are a poor investor and got caught up in all the hype

    • Claire


      I am sure the banks would agree to that paying you for your loss if you are sure to send them your equity check when you sell the house. If the banks have to take it on the chin when you make a bad choice they should also have the option of making money when you make a profit. Fair is Fair, right? Oh, unless you are a Democrat then you would only expect someone to reimburse you for your poor choices in life.

      • pleeeeeezzz Claire

        come on Claire for cripes sake. This isn’t a political issue. The people I know who either have shorted and walked or been foreclosed on and continued to live there until the sheriif sale have been all Republicans. That’s a fact. As I am —- so it’s crosses all party lines and that pure bullchit to make it anything else.
        Bitter today huh? Did you not get any last night? lol

        • Claire

          “have all been Republicans” How many people do you know that have walked away from their homes? You must either be in the business or live in a pretty cruddy neighborhood.

      • Stuck in St Paul

        In 2005 we saw a mortgage broker who claimed that we were pre-approved for $200,000 home, to which I said, that sounds like too much. We took out a $169,000 loan on my home with a 5/1ARM. After 3 years we tried to refi and banks put us into a interest only loan. Our income has stayed essentially the same since 2005, however we now have a 5yr old daughter. We tried to be smart about what we were doing and tried not to over extend ourselves, we have now foreclosed on our home. We tried to do things the right way and trusted the experts and this is where it lead us. Yes we did sign on the line voluntarily, however we trusted the experts that told us; real estate is a solid investment. BTW, our credit is shot and we will be paying higher interest on loans for many years, so we DO pay for our mistakes. I get very upset when people act like foreclosing is the easy way out. It wasn’t easy, but the best for our family. Please stop judging others, stereotyping hurts everyone, and makes you look foolish!

        • Dawn

          Something doesnt make sense here. Rates were wonderful in 2005, why did you go with a 5/1 ARM? Did you plan on moving in less than 5 years?
          If you had a 5 year ARM the adusted rates today are much lower than when you purchased the home, hence you should have had lower payments. The only other reason I can think of that you would have a 5/1 is if you had poor credit and took out a B/C loan in which they would have higher rates and usually didnt offer 30 yr rates

    • short sales can still hurt

      Good luck working with chase. They will string you along for months promising to help, and then they will foreclose on your house without sending any paperwork to you. It happend to me. I found a attorney who finally gave me some good advice and I have legal grounds to sue them for inaccurate info on my credit report due to the fair credit reporting act… not sure how much money I am going to get from them but They will also have to pay attorneys fees and court costs under the law. I hope that everything works for you though.

  • save up

    Unfortunatly, what was taboo a handful of years ago has become acceptable. I’m glad that I recognized that houses were so overpriced and didn’t over-buy as so many did. We all knew they were overpriced and that the credit terms weren’t appropriate but greed got the best of many. Times are tight but my solution was to have 5 years of housepayments saved up so in the event of layoff, I can still keep the house. A little bit of sacrifice in the good years can really help in the lean times.

  • Sue

    I don’t fault the man in the article, as he fell on hard times. But folks who walk away just because the value has dropped tick me off. The bank didn’t force anyone to sign a loan contract. People in this day and age think they need the biggest house on the block even though they can’t afford it. I think it’s called champagne on a beer budget. Everytime a bank writes off a loan, the rest of us pay down the road with higher rates and fees.

    The only thing I question, is why do banks lend to these people later on? If they didn’t pay the last time why should they the next time. I wouldn’t give them a dime.

    • crazy - but it does work too

      Sue – banks are as greedy and sleazy as anything. If they didn’t require high profits (read shareholder demands) . The shareholders are … surprise … you and me. That means we demand a taste or return on our savings/investments. Imagine that!
      So the logic follows, and mostly I buy into it, that that individual will not default again. This assumes they meet current undedrwriting of course. Actually makes some sense – they been thru the mill already and likely won’t once again put themselves in the same position. They learned a lesson per se.
      That is the concept anyway ….. same business modal used for business, government, etc

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