TransUnion statistics on indebtedness in America has revealed that 50 percent of homeowners facing foreclosure continue to pay their credit card bills on time. One homeowner facing foreclosure explained this phenomenon and the reasoning behind the choice to pay credit card debt while allowing a home to go into foreclosure.
Jeff Horton of Orlando stopped paying the mortgage on his home 19 months ago, and said he still hasn’t heard from his lender, Bank of America. He bought the home in 2007 for $265,000 only to find out that the value plunged to less than half that a year later. A condo he purchased in late 2005 for $140,000 is now worth $34,000, he said. Horton said he can’t even rent the properties at a price that would cover his mortgages.
This sentiment is common amongst debtors facing foreclosure. They figure that there is no point to paying a mortgage on an asset which has lost most of its value. But they may be making a huge mistake by allowing the foreclosure situation to simmer on the back burner. And it is simply on the back burner because it’s unlikely the bank is simply going to let them have the house or that the issue will resolve itself. What will happen is that eventually the bank will file foreclosure against the debtor and may even sue them for the deficiency balance on the loan. At the end of the day the debtor will still owe the bank $140,000. The only way he may be able to escape from paying this mortgage is by filing bankruptcy. If this debtor had filed bankruptcy a year ago he would already be well on his way to rebuilding his credit and even preparing to buy another house for a fair amount.