Anatomy Of An Intentional Foreclosure

Sandra Hughes hitting home, intentional foreclosure, Karen Traynor
CBS
This is the latest in a CBS series "Hitting Home" that explores how the weakening economy affects people.

For Karen Traynor, buying a condo closer to her job in San Francisco seemed like a sound financial decision.

"We have always owned our homes," Traynor said.

But in the last year, this home seemed to drop in value by the day - forcing Traynor to make a much more devastating decision, CBS News correspondent Sandra Hughes reports.

"It would be an intentional foreclosure," Traynor said.

Meaning Traynor will walk away from her mortgage and let the bank foreclose on her property.

Her adjustable-rate mortgage will be reset in June. And although she can afford the $900 increase in payments, she doesn't think it makes financial sense.

"I am not doing anything illegal. I am not scamming anybody," she said.

When real estate was booming, Traynor bought her 2-bedroom condo for $505,000 after it appraised for $520,000. Although she took out a 100 percent loan, she figured she had some equity.

Now, she would be lucky to unload her property for $340,000. That's a $165,000 loss.

"Everything is negotiable in business," Traynor said. "And so this is just another business decision. I just don't see why this is anything different."

Neither, apparently, do dozens of angry e-mailers on the blogosphere. Calling herself "condoblue," Karen Traynor wrote about her personal decision to walk away from her mortgage on the very popular Los Angeles Times real estate blog, L.A. Land.

Moderator Peter Viles couldn't believe the response.

"Tremendous anger against the lenders, remember the lenders made a lot of money off this," Viles said.

He expected readers would be angry with Traynor's decision, judging it as unethical and financially short-sighted. But after he created a poll asking whether it was a decision of integrity or business, "more than 60 percent said the smart thing to do was walk away," he said.


Guest blogger Peter Viles shares more reader reaction at Couric & Co.
But how smart was it?

"We own another home. We really don't need credit,'' said Traynor.

Even with a fall-back position, Traynor is making a financial decision that will affect her for some time.

"It is devastating to think that my credit scores are going to drop 200 points," she said.

Experts say a foreclosure is a black mark on your credit for five years - a barrier for future borrowing - and attaining another mortgage.