A lot of people have bought houses for resale that they now can’t sell. As a result, they are making payments on their own homes plus the home the bought. It’s only a matter of time before they run out of money and patience, and stop making payments. In California, about all that happens is that they bruise their credit and disappoint their lenders when the home goes into foreclosure.
In other States, walking away from a debt can result not only in bruised credit, but also in law suits for performance on the promissory Note instead of a foreclosure of the mortgage or Deed of Trust. When a debtor loses this suit, this opens the door for a general judgment lien against all their assets. Their creditor can pick and choose to levy against heirlooms, fine furniture, jewelry, etc. In some States, he can even garnish wages. The bottom line is that working harder to survive this temporary downturn in the housing market will avoid incurring troubles that can extend far beyond the current cycle.
A long time ago in a far away place, I too had a more expensive water front house I couldn’t sell, so I moved in and rented my old house with its low payments for cash flow that I used to pay for the house I moved into. I could just as easily have sold my old house, which was in a different price bracket where the market was still strong, and used the sale proceeds to either support the payments on my larger house, or pay down the loan in order to refinance at much lower payments. As an investor, I might not have been able to get a new loan, but as an owner-occupant, it would have been easy.
Continued next time.
