Many people who were badly hit by the housing bust might have avoided talking to a bankruptcy lawyer because they heard about the so-called “lock-in effect.” The “lock-in effect” hypothesizes that underwater homeowners will refuse to move to new locations where work is available because they don’t want to sell their homes at a loss, preferring instead to stay and pay until their equity position improves. In early July 2013, the Cleveland branch of the Federal Reserve published a paper demonstrating that the “lock-in effect” is false. Here are some of its findings:
- Looking at credit report data, the paper’s authors determined the circumstances under which underwater homeowners relocated to a new place for work. Based on these findings, they then created a “theoretical model” that simulated whether underwater homeowners would relocate for new work.
- The authors found that the homeowners were much more likely to leave an underwater home if a job were available, more so, in fact, than renters.
- They concluded that homeowners were staying in their homes not because of the “lock-in effect” but because there were no jobs in places worth moving to.
Link to the paper here.
Although the paper states that it’s not the first of its kind to discredit the “lock-in effect,” it is one of the most significant ones to do so, and it implies that the federal policymakers need not focus on regional over national job creation.
Washington policymakers, though, are not underwater homeowners, and legislators tend to be quite wealthy, so if your mortgage is underwater, then you should at least not be tempted to stay in your home if a good job opportunity arises elsewhere. In that case a short-sale might be to your advantage. Otherwise, you should definitely discuss your circumstances with an experienced New York bankruptcy lawyer. You might be able to shed an underwater subordinate mortgage in chapter 7 and strip the lien off it in a chapter 13 filing, for example, but other strategies are available and can be tailored to your needs.
For answers to more questions about underwater homes, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy attorney Brooklyn NY Bruce Weiner for a free initial consultation.
