Should you walk away from your mortgage? You should only walk away from your mortgage when it makes sense to turn your house over to the bank.
The first requirement for you to walk away from the mortgage is that you must be “upside down. " That is, you must owe more than the house is worth.
The second requirement is that there is no hard money lender available to purchase your home. If you can arrange a “short sale" this is a better choice than walking away from the mortgage.
The third requirement is that the bank won't grant you a “Deed in Lieu of Foreclosure" (DIL) If the bank will accept title to the house in exchange for eliminating the debt in full, you don't have to leave a vacant home ready for foreclosure.
But assuming that you owe more than the house is worth and cannot arrange a short sale or DIL, you may just want to walk away from the mortgage.
There are some things you should know though.
First, when you walk away from the mortgage, you are guaranteeing that you will have a foreclosure on your record. The foreclosure stays on your credit report for seven years. Most experts agree that you cannot get a new mortgage for at least four years after foreclosure.
Second, if you live in a state that allows for deficiency judgments, the bank can hit you for the difference between the amount owed and the auction price. This means that in addition to having the foreclosure on your record, you may also have to declare bankruptcy to protect your income and any other assets. Then you'll have the deadly combination of both a bankruptcy and a foreclosure on your record.
Third, recognize that you can stay in your home rent and payment free for a period of time. If you just walk away from the mortgage, you may be paying rent on a new place during a time that you could be living payment free. This might give you a small nest egg for the future.
If you're thinking you might just walk away from your mortgage, you need to get the new free report The Foreclosure Survival Guide which outlines the foreclosure process and details your many options. Homeowners faced with foreclosure need information to make the right choices. Get your copy of The Foreclosure Survival Guide today.