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Walking away from a mortgage

An abandoned home in Prescott, Arizona, one of the areas with a high foreclosure rate, according to Richard Hagar.
Richard Hagar
An abandoned home in Prescott, Arizona, one of the areas with a high foreclosure rate, according to Richard Hagar.

It's happening all over the country, including in the Pacific Northwest. People are walking away from their mortgages. In most cases, the homes that are being abandoned are valued for less than their mortgage. 

Foreclosures have a big ripple effect

Home owners who are doing this are usually aware that such a move will damage their credit and mean a loss for the bank. But walking away from a mortgage also has a huge knock-on effect that reaches far beyond the borrower and the lending institution. 

Richard Hagar, an appraiser with American Home Appraisals, tells KPLU's John Maynard that the bank has to borrow the money from someone else (retirement funds, individuals, etc), so that means those folks lose out, too:

The bank has to borrow that money from someone else so that you could borrow it and buy the house.

Abandoned homes also bring down the value of homes in their community. He points to places such as the Phoenix area and Detroit where there are miles of abandoned homes. Not only is it dangerous and ugly as homes fall apart, but the city loses vital taxes that come with home  ownership.

Don't underestimate what bad credit means for your future

Finally, Richard Hagar warns that the damage to a person's credit rating caused by defaulting on a home loan is significant.  He says it's quite possible that the person who has defaulted won't be able to buy another home for years. Their credit card interest rates will go up. And it may even be difficult to rent because of a landlord's reluctance do business with someone with bad credit.

Hagar's advice: Do everything you can to work out a payment plan with your bank to pay off your mortgage.  Foreclosures, he says, should be  a last resort.





John Maynard started working in radio in the seventies as a DJ at Seattle’s KJR AM which at the time was the dominant AM station in the Seattle market. After a brief stint as a restaurateur and night club owner, Maynard returned to radio with Robin Erickson, creating the hugely popular “Robin and Maynard Show.” In the more than 20 years under that marquee, Maynard flew with the Blue Angels, piloted the Goodyear Blimp, sang with Donny Osmond and hung out in a Universal Studios bar with Kojak (Telly Savalas).
Richard Hagar's real estate career spans more than 30 years. He currently serves as a real estate investor, real estate agent, appraiser, and an SRA with the Appraisal Institute.