The Difference Between a House and a Home
This month, The New Yorker ran one of those articles that seemed a lot more common a year ago. In it, they described the phenomenon of simply walking away from real estate where the loan exceeds the value of the property. The point of the piece is this: why is it no big deal for corporations (like American Airlines) to default on their obligations and shed troublesome assets, but it is considered a social taboo for individuals to do the same with their homes? Here’s an emblematic quote: “A good percentage of Americans are in much the same position as American Airlines: they can still pay their debts, but doing so is like setting a pile of money on fire every months. These people have no hope of ever making a return on their investment in their homes. So for many of them the rational solution would be a ‘strategic default’ – walking away from the mortgage and letting the bank take the house. Yet the vast majority of underwater borrowers keep faithfully paying their mortgages…The question is why more people aren’t just walking away.” There are a lot of reasons why that’s the case, but James Surowiscki, the author of the piece, appears willfully ignorant of them all. His most obvious error lies in the way he poses the question. To him, and to American Airlines, what is at stake is an “investment,” but most of the people who come through our doors don’t call their house an investment, they call it a home. It’s hardly “setting a pile of money on fire each month” to keep a roof over your family, stay in the school district you love, and go for walks to the neighborhood park. It would be “setting money on fire” only if renting a replacement house was free. If the CEO of American Airlines had home-videos of his toddler learning to walk in the lobby of his corporate headquarters, even he might feel a lump in his throat at the prospect of walking away from an upside-down property. A mortgage payment is an investment secondly. Primarily, its paying for the right to live where you want. That’s not to say that there aren’t many situations when it makes since to file bankruptcy and walk away from your home, but only that the deciding factor should not be whether the home is worth less than the loan. Of much greater importance is whether the mortgage payment represents such an out-sized portion of the family’s expenses that to continue making the payment encroaches on other determiners of quality of life. It is this quality of life that should dictate whether a home is surrendered or maintained in a bankruptcy case, not whether a decision meets the calculated rationality of a corporate board.
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For more than 20 years, the Sasser Law Firm has been helping individuals and business owners sort through financial hardships to see the light at the end of the tunnel. Our North Carolina bankruptcy attorneys are all board-certified specialists, which means we have passed a complex exam, undergone a thorough peer review, and continue to earn legal education credits in this ever-evolving area of law.
