Why I decided to walk away
Gene Kessler has owned four homes in his lifetime, and until recently had enjoyed homeownership for 45 years. But this month, Kessler, who is 67, became a statistic in America's ongoing foreclosure saga.
"I bought this house at the top of the market seven years ago," he says. "It was put up for a sheriff's sale just last week."
In Kessler's case, however, he's not bemoaning the loss of his three-bedroom home in New Ulm, Minn. Rather, Kessler is relieved that he's no longer on the hook for a $1,250 a month mortgage on a home whose value has declined dramatically.
Keller is among the nation's growing number of homeowners who are engaging in a strategic default. These homeowners--either by choice or by circumstance--stop paying their mortgages after making a calculated decision that continuing to pay is simply not in their best financial interest.
Like most homeowners, Kessler had run the numbers and asked himself questions like, "How much house can I afford?" before he forked over a $40,000 down payment on the 2,000-square-foot, brick home that cost him $164,900.
But with the sagging housing market, all that equity has dried up. Kessler's home is now worth just $111,000--putting him severely underwater.
That's why he began considering a strategic default.
Walking away serves two purposes
"I found out about the process of walking away and how it would affect my credit," he says. "I also found out that big businesses and smart investors have been doing this for years, so emotionally I don't feel bad about this at all."
For Kessler, a strategic default serves two purposes:
- It bolsters his finances; and
- Lets him exit homeownership on his own terms.
Living mortgage free
Since he hasn't made a mortgage payment for six months, Kessler's home was just put up for auction in a sheriff's sale. No one bid on the house, so Kessler's lender, Americu Mortgage, reclaimed the home. But Kessler still lives there.
Under Minnesota law, a homeowner has six months after a sheriff's sale to legally remain in a property. This "redemption period" gives homeowners (who want it) the opportunity to catch up with overdue payments.
So overall, Kessler's strategic default will let him live mortgage free for a year.
"This was purely a strategic foreclosure," he says. "It allows me to start over and it gives me a little bit of time to do that."
"I'm taking the money that I would've been paying toward the mortgage--about $15,000 over a year--and putting it into a savings account to prepare for my next move," Kessler adds.
Not feeling sorry for the banks
Since his payoff amount was about $140,000, Kessler said, "Even if I sold it, I would have had to bring a lot of money to the closing table and I'm not going to risk any kind of retirement funds I have to satisfy a bank."
"They've made a ton of money off me in the 45 years that I've been a homeowner, and I figure the banks are a big cause for the housing meltdown anyway."
Kessler worked with a company called YouWalkAway.com, which provides guidance and services to homeowners weighing a strategic default.
"We have 6,000 clients and get about 150 new clients each month," says Jon Maddux, CEO of YouWalkAway.com. Lately, individuals like Kessler are more commonplace.
More retirees walking away
"One trend we're seeing is a lot more people who are nearing retirement age," Maddux says. "Many have never missed a payment in their life on anything. They're scared to do this, but they've been sent to us from their financial planner or someone they trust."
Kessler says he's grateful he learned about YouWalkAway.com via a public television show, because he's now expecting a far less stressful future.
Although he's retired, Kessler earns a few thousand dollars a month selling high-end pottery and wood artisan lamps that he makes. So when he moves in six months, Kessler plans to relocate to Santa Fe, N.M.
"It has a nicer climate, beautiful vistas and great restaurants too," Kessler says--not to mention nice, affordable housing.
But even though mortgage rates today are near record lows, those attractive mortgage rates alone won't tempt Kessler. He plans to simply rent.
"I don't think I'll ever buy…again"
"I don't think I'll ever buy another house again," Kessler says. "I like the feeling of not having that mortgage hanging over my head."
As for his credit, Kessler expects the damage to last for about two or three years. Meantime, he's keeping up his credit rating by staying current on all his other bills.
To others who are underwater or struggling with hefty mortgages, Kessler's advice is simple: "If you really want to get out of a house, just go ahead and do it."
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