Should homeowners walk away from upside down mortgages?

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Quinn Schuler - View Bio

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One associate professor at the University of Arizona is stirring up some controversy after a paper he wrote explaining that it may be in people's best financial interest to walk away from their home when they are upside down on their mortgage.

In the current economy, and especially growth areas like Arizona, home prices have fallen dramatically. This has caused homeowners to owe more to the bank than their home is worth. Homeowners in this position are often unable to sell their home, and face a choice, walk away from the home or continue paying a mortgage that they are losing money on.

Brent White, associate professor of Law at the UA thinks some homeowners should just walk away from the home. White says about 50% of homeowners in Arizona are upside down on their homes.

"The government, lenders, financial institutions cultivate emotions like fear and shame in homeowners to keep them from walking away from their home, even when it would be in their best financial interest," says White.

White recommends that anyone in this position seek guidance from an attorney or financial advisor before making any decisions.

To read his paper, click here, http://ssrn.com/abstract=1494467.