Foreclosure Watch: At Some Point, Is It Smarter to Walk Away from Your Mortgage?

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The news is making the rounds that in the first half of 2009, 1.53 million properties in the U.S. were in the foreclosure process. That’s up 15 percent companred to the previous year. The figures are certainly the result of the rise in unemployment and slow, confusing relief efforts from the government and lenders. It’s also likely that many people are looking at their drastically depreciated homes—and their inflated mortgage payments—and are strategically walking away.

As a Time story reported recently, perhaps 25 percent or more of mortgage defaults may be strategic. You look at what you still owe. You look at what you’re buying. And you simply say, “Why bother?”

The whole idea of the strategic walk-away makes sense based on where the highest percentage of defaults are occurring—in states where speculators drove prices sky high and where housing prices have plummeted more recently. Foreclosure rates are worst in states such as Florida, Nevada, Arizona, and California, according to a RealtyTrac study (the study also revealed the overall 1.53 million foreclosure number).

A recent Times editorial noted that the government had helped arranged around 50,000 “at-risk” loans to help people keep their homes. As many as 20,000 more loans were being approved each week. Even so, these efforts fall short—especially since by most accounts getting such a loan is a confusing, time-consuming process. If the home in question has substantially depreciated in value, some homeowners aren’t bothering with the trouble and are walking away instead, bad credit history notwithstanding.

Recession-related real estate troubles can be seen almost everywhere: Harlem, Las Vegas, Nantucket, and beyond. Homeowners in desperate situations are also falling prey to scammers promising to help renegotiate mortgages, making a bad situation even worse.

Even though it’s an awful time to sell a home, many people are being forced to do just that—it might be a big loss, but taking a hit doesn’t do damage to your credit history the way walking away from a mortgage does. If you do need to sell, check out these smart cost-effective tips for making your house attractive to buyers without you having to drop too much dough.