If you voluntarily walk away from a home does that make you a bad person or is it a smart business decision?

I recently had lunch with someone who I consider a very astute businessman who has business concerns all over the world.

Here is his scenario: home was purchased 3 years ago for $600,000 and his mortgage payments are about $4,500, including HOA, etc.  The home is now worth about $300,000 and he is planning on retiring in the next ten years. Now for a little forecasting. Let’s use a 5% appreciation each year for the next 10 years and the home would be worth in 10 years about $465,000.  Still considerably less than the original purchase price and not to mention the $540,000 in additional mortgage payments for the 10 years. Sounds like a no-brainer when you do the math but let’s look at the other issue.

Does a strategic default make you a “bad” person? Read the linked article from a University of Arizona Law Professor advising consumers to stop paying underwater mortgages. We have somehow bought into the myth that buying a home involves other intrinsic values when truly it is just a business decision. Sure your going to take a credit hit, but that is usually completely repairable after about two years.

The decision is yours to make, just make sure it’s a good business decision for you. And as always before you make your decision, always seek competent legal advice.