It's an increasing trend. Homeowners walking away from their mortgages even if they can afford the payments. There are businesses that help homeowners do this.
An increasing number of homeowners are deciding it's worth the hit to their credit and financial record to walk away from an underwater loan. That's when the loan costs more than what the house is worth.
Several real estate experts agree, the F-word is no longer taboo. The F-word being "foreclosure".
"It is freely talked about. There are so many people, they're not alone," said Marsha Francois, a realtor, with Keller Williams Realty in Palm Springs. Francois says a growing number of people are purposely walking away from their mortgage.
"Their home has de-valued so much, their loan is now much higher than what they want it to be," she said. "It's a business decision."
Since more people are choosing to do walk away, businesses have popped up to help with the process.
YouWalkAway.com is one of them. Homeowners pay roughly $1,000 dollars. The company provides legal information and help fighting off collection calls.
Jon Maddux, CEO, said they have four-thousand clients across the country. Eighty percent of them were in strategic default.
"(They) live in the property during the time of this default. Save that money they would normally be paying towards rent and use that money to pay off other debts," Maddux said about the benefits.
Opponents of this practice argue there are moral issues and negative consequences involved.
Francois says there is also negative impact to your credit and financial history. Foreclosures stay on record for at least seven years.
"It's still going to hurt their credit," she said.
Tax Liabilities
Additional taxes can be another negative consequence. According to the Internal Revenue Service, if you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable as income.
Homeowners, in foreclosure or short sale, could face thousands of dollars in state taxes.
Say you have a $300,000 dollar mortgage, your home is short-sold or foreclosed upon for $200,000 dollars. That $100,000 dollars is considered forgiven debt or personal income by the state. This means a homeowner could get an additional tax bill of nearly ten thousand dollars.
The legislature is considering a bill that would allow mortgage forgiveness, as is done by the federal government. However, Governor Schwarzenegger vetoed a state mortgage forgiveness bill, over the weekend, because of attached provisions. According to the Governor's office, the Governor plans to sign the bill if other provisions covering business taxes are not attached. The Senate pro tem's office says this is not the end of it.
Valerie Van Winkle, Canyon National Bank Senior Vice President, says those in strategic default could face other long-term consequences too, including trouble getting credit cards or future loans.
Van Winkle says strategic defaults could also have a negative impact on borrowers across the board.
"There is a chance it will be harder for people to borrow money if banks are tightening up on credit standards. I think for sure that's definitely going to happen," Van Winkle said.
