When you walk away from mortgage debt, you avoid many negative marks on your credit.
Yes, you read that right, you may actually avoid bad credit.
When you try to save your home, you may find yourself missing other payments such as not paying your credit card bill, in an attempt to satisfy the bank. Missing multiple payments on a credit card can actually be worse than having a foreclosure on your record.
Further, if the only ding on your credit is the foreclosure, you should be able to get back into a mortgage in less than five years.
If you choose to just walk away from mortgage debt, you have to decide whether to stay in the house as long as possible and wait for eviction, do a deed in lieu of foreclosure, or move out immediately.
By staying in the house for as long as possible, you will be able to live rent free. The money that you save on the mortgage can go toward paying off consumer debt, saving for pre-payment on a rental, or other financially worthy goals. Depending on your state, you may be able to stay in your home for up to 18 months without making any payments.
A Deed in Lieu of Foreclosure saves you the stigma of foreclosure. However, you will be forced to move right away. You also need to make sure that in a DIL, the bank signs its rights to seeking a deficiency judgment away. Otherwise, there is no reason for you to move out.
Abandoning the house only makes sense when you are relocating or have purchased the home for investment purposes. When you walk away from mortgage debt in this sense, you are saying that the house is no longer an asset. It is not your shelter, so what do you care about it?
If you have to relocate and cannot sell your house or work out a deal with the bank, you may have to let the financial markets take their course. If you purchased the property as an investment - either to rent it or to flip it - and you find that you are not able to realize the goal, abandoning it and letting the bank do with it what it will may make sense.
When you walk away from mortgage debt, you take a hit on your credit. But in this post-bubble market, that sometimes is the smartest thing to do.
If you would like more information on how to walk away from mortgage debt and all of the other solutions that distressed homeowners have available to them, get the new copy of my free report The Foreclosure Survival Guide .