Foreclosure Avalanch Coming

1st March 2008, 08:32 am

The New York Times recently published an article about people walking away from their houses and foreclosure using the services of a company called You Walk Away. I actually hit their web site a few days before while using Stumble to find new financial web sites. I thought about writing about them, but the NY Times beat me to it.

You Walk Away started business in January of this year. They say they currently have only 500 clients. It looks like they will soon have more business than they can handle.

For just under $1000, You Walk Away provides meetings with a lawyer and an accountant. The article featured a family that decided to use You Walk Away’s services to abandon their loan. For those that think that they are still liable for the balance of the load after the house has been foreclosed and sold, the article points out that may not be the case in all states. You Walk Away assured the client that “in California he was not liable for his debt.” It then went on to state that, “He stopped paying his mortgage and used the money to pay down other debts.”

The article ended with the following statement from the You Walk Away client,

Mr. Zulueta said he felt he had let down the lender, himself, and his family.

“But you got to move on,” he said. “I know in a few years my credit’s going to be fine. If I want to get another house, it’s going to be there. I’m not the only one who went through this. I know I’m working the system, but you got to do what you got to do. There’s always loopholes.”

Other statements in the article are very scary.

Todd Sinai, an associate professor of real estate at the Wharton School of Business at the University of Pennsylvania said, “Now it’s like they can do their renting from the bank, and if house values go up, they become the owner. If they go down, you have the choice to give the house back to the bank. You aren’t any worse off than renting, and you got a chance to do extremely well. If it’s heads I win, tails the bank loses, it’s worth the gamble.”

Christian Menegatti, lead analyst at RGE Monitor, said the firm predicted more homeowners would walk away from their homes if prices continued to drop, regardless of their financial circumstances. If home prices drop an additional 10 percent, Mr. Menegatti said, 20 million households will owe more than the value of their homes.

If you thought most of the subprime lending write offs were behind us, this article might change your mind.