Given the housing destruction all throughout the country from 2008-2010, it’s not uncommon for people to have lost their homes to foreclosure or short-sale. One’s credit score usually gets demolished by 200 points or more, and stays that way for 3 years or longer.
One of my close friends named Tom, decided to follow through on my getting laid off plan because he’s burnt out and no longer has the desire to work in software sales anymore. He’s got enough income saved up to last him for about 2 years if he maintains his current lifestyle, which is not lavish by any means.
If Tom successfully engineers his lay off, he wants to travel for 6 months, and then see if he can find a job in sales at one of the big internet/tech companies such as SalesForce or Google. Given his income will literally go to 0, except for his 6 months severance, and $1,800/month in unemployment benefits, he no longer wants to keep paying for his underwater condo he bought at the top of the market.
Tom’s payment is around $4,500 a month (includes property taxes and HOA), which was digestable when he was making $10,000 a month after taxes. But now that he has barely any income, he finds it a big waste to spend so much to live in a 2 bedroom, 2 bathroom condo now that he wants to go travel. Without a job anymore, Tom no longer feels morally obligated to pay his mortgage, since the bank did agree to lend him the money based on the colateral value of the property. Besides, California is a non-recourse state, meaning that the bank can’t go after Tom’s other assets.