This morning, on NPR's Morning Edition, Alex Blumberg interviewed Mary Kindsley, an attorney who works at a helpline providing legal services for people with real estate questions. They discussed homeowners who deliberately default on their home loans as a strict business decision. Blumberg gives the example that "you buy your house for 400 grand; now, it's worth 200. You might decide to stop paying your mortgage and simply buy another house, similar to the one you already own but for half the price. The old house: the bank can have it". While this is perfectly legal in many states, Blumberg and Kindsley discuss the non-business part of this tactic: the ethical stance that "people should honor their debts and pay them if they're at all able to" (Kindsley).
The point, as Blumberg reitarates is that "from an underwater homeowner's perspective, it's a strict cost benefit analysis. You suffer a blow to your credit score on the one hand, but you get a far cheaper house on the other". I don't see how a bank, in the economic climate we are in, would look at a borrower who has done this well. Sure there is no way for them to know that you purposely defaulted on your loan. But with a damaged credit score due to foreclosure, what bank will lend you money for a new home? As a person who is currently underwater on my home loan, it has taken me close to a year and a half to get a hope of loan modification from my bank. There is still a "trial period" of payments to go through before the bank makes their decision, and then I might get some relief via a modification to my loan. And I have a very good credit score.
For those who have done this, hoped for foreclosure, I say they are smart to have done so and gotten a new cheaper home out of it. They are, however, depreciating the value of the homes around them even further by adding a foreclosed home to the neighborhood. For those who are struggling to stay in the home they don't want to leave, like one of my neighbors, I hope things turn around soon and we all have homes to live in that are somewhat affordable.
NPR.org Why Some Homeowners Hope For Foreclosure