This is the inaugural edition of Ask Fizzle. Over the last few weeks, reader questions have begun to arrive in my mailbox, and if traffic and readership is any indication, I expect that trend will continue.
I’ll take some time on the blog (about once a month for now) to briefly answer all your questions and poll the community for further discussion.
Underwater Homes: Stay & Pay or Free & Flee
Mike in New York sent in this question last week:
“Dear Fizzle – If your home value is now “underwater” would you walk away and let the bank foreclose or stay and pay?”
Thanks for your question, Mike. You bring up a great (and controversial) topic that has been talked about at great length in the personal finance community. It also brings up a dilemma for those who have a choice in the matter, because it’s a difficult decision without a ‘winning’ option.
In my recent recollection, three blogs covered this topic and asked for community input –
- Consumerism Commentary (Should You Walk Away From a House and Mortgage?)
- The Smarter Wallet (Got An Upside Down Mortgage? Would You Foreclose and Walk Away From Your Mortgage?)
- Christian Personal Finance (It is wrong to walk away from your mortgage?)
Between the comments on those three posts, there are hundreds of viewpoints shared by people in different situations – some who have never had homes, some who are paying their mortgage, and some who have walked away.
I was the first commenter on Consumerism Commentary about this topic, and at the time thought the right course of action was clear-cut:
“I think this is an ethical question and the answer in my mind is simple – if you could afford to pay for it then, you should continue paying for it now. Unfortunately, we have a system in which buyer’s remorse is translated to abandonment and a mere slap on the wrist.”
Having read some of the other comments that followed me, I think I jumped the gun. While I have very strong convictions about personal responsibility and keeping promises (which I consider a loan to be), I can see the financial logic in wanting to foreclose.
I can’t say for sure what I would do in your situation because a. I don’t yet have a home, which makes it hard to relate, and b. every situation is a little bit different. Hence, we get 100 different viewpoints, most with great arguments, and most disagreeing with one another.
The consequences of either action are not pleasant. Staying & paying involves continuing to sink money into an asset that is no longer worth what you’re spending. Foreclosing is a messy process, hits your credit report, and in some states (Florida excluded, thankfully), the bank can sue you for the difference. Either way, you’ll probably get an income statement for loan forgiveness, which can have tax implications.
Is it right to walk away? I consider this ethical question to be very important. The key here is choice – many of those foreclosing are out of a job, bankrupt, etc., whether by their own fault or not – and simply cannot continue to pay. But for those who have choice (and although some may disagree), ethics play a part.
Until we have stability in the housing market, the road to recovery will be shaky. I encourage you to read the three posts I mentioned, and I leave you with this question to ponder –
What if everyone who was currently underwater on their home walked away today?
Cat Cost Control & Exercise
Bayah sent in this question a few weeks ago, in response to my June post about controlling pet costs:
“I just had a chance to read your pet post. It seems pretty geared towards pups. Any tips for how to exercise my larger than most cat? Or save money on sedation costs because she freaks out at the vet? OR how to save money on food when she eats all of hers and her little sister’s and any human food available?”
Thanks for your question, Bayah! I’ve had a horrible cat allergy since childhood, so my pet preferences might indeed be a little skewed.
Unfortunately, I am not a vet, so my expertise on pet weight is minimal. I treat my own dog’s diet like I treat my own – calories in minus calories out plus exercise equals a healthy weight. We’ve been successful at keeping our dog at the optimal weight by strictly controlling how much she eats (she has bad legs and can’t exercise excessively). We also rarely permit her to eat human food, not only because of weight, but because it usually upsets her stomach anyway.
Here are a few resources you may want to check out for help with pet food savings:
- How to Save Money on Cat Food & Caring for Pets
- How to Save Money on Cat Food
There are also a few sedation alternatives on the market, including Rescue Remedy and Comfort Zone. I have personally tried neither, but they may be worth a shot if you’re concerned about costs.
Finally, when it comes to cat exercise I’m clueless as well, but thankfully there are a few resources I can point you to:
- Cat Exercises (as well as a link to some more weight management tips)
- Prevent Obesity in Your Cat (part one of a multi-video series on cat exercise)
- Exercise and Feline Fitness
I wish you the best of luck with your feline!
Send In Your Questions
As I mentioned, I hope Ask Fizzle will become a regular post on the blog, as I love helping out all of you with specific concerns about your money. I welcome all reader questions, so shoot me an email — wojo at fiscalfizzle.com.
Photo by Leo Lau
5 thoughts on “Ask Fizzle: Home Foreclosures and Cat Workouts”
Thanks for the coverage. Walking away is an incredibly tough dilemma indeed. My inclination is that I wouldn’t do it, if I were ever in this situation, because I love my home. I’d tough it out. But many people are backed in the corner and have no other choice — I’d like to think that most people who do have the choice won’t do it.
I’d like to think so too; otherwise, I fear a worse collapse of the system than what we saw over the last few years. I think many people are in your position as well (stability for kids plays a part, too!), and are too attached beyond the simple finances.
Before I start, Wojciech, I hope you don’t mind if say hello to Logo Girl! I’ve got a big crush on her. 😉
Okay, let me compose myself… 😉
Having been in that position for seven long years during the southern California housing slump of the 1990s, I don’t feel bad saying heck yes it’s unethical (!) – assuming the owners have the means to pay their mortgage, of course.
I was stuck for seven years in a house I had completely outgrown, but that’s the way it goes. If I wanted to move badly enough I would have sucked it up and paid the extra $15000 required to get out from under that mortgage.
It all worked out, I got into my next house at the absolute bottom of the last housing run-up in 1997 (remember that one?) and still have massive equity built up despite the huge losses suffered over the past couple of years. 🙂
My $0.02 (after taxes),
Len Penzo dot Com
Thanks for sharing, Len! I think renting is becoming ‘cool’ again, for the reasons you mention – people saw houses as in-and-out investments for a long time and suddenly realized that they could get stuck. A lot of them didn’t like it!
For those of us looking for stability and a long-term commitment, homes are a good bet (although circumstances change unpredictably, so who knows what will happen in 3-5 years?).
Ultimately, it should be a very personal decision, and far from automatic.
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