There has been a lot in the news lately about homeowners who are upside down and underwater on the mortgages and have decided to walk away from their homes and their mortgage. The question in the back of my mind is whether this is a walk down a yellow brick road, or a path to ruin.
The New York Times has another story discussing this trend. Interestingly, the story calls into question just how prevalent people walking away from their mortgage is. While there is no concrete evidence yet, it may be that more people are talking about walking away than actually doing it.
Of course the primary reason that people are walking away is that the home’s value has dropped far below what is owed, and the economic contraction has left homeowners with less money to pay their bills. But the stories stop short of discussing the legal consequences for walking away from your home.
First, you can rest assured that your credit score is going to take a big hit. I’m sure that comes as no surprise to anyone. But, the bad news doesn’t stop there. When the lender forecloses and sells the property, there may be a deficiency that you still owe to the bank. It’s hard to say whether or not the bank will come after you for that amount, but there is no guarantee that they won’t. Some homeowners might think that all they need to do is mail the keys to the bank after they move out. I’m not sure this is a good idea. If anything happens to the house, you might be liable for that damage, and I would never counsel a client to do so. Finally, think twice about “redecorating” before you leave, doing things like putting concrete down the toilet or removing the cabinets. This kind of property damage will only antagonize the borrower into coming after you for the deficiency.
If you are going to walk away from your mortgage, negotiate the process with your lender. Ask them about executing a deed in lieu of foreclosure for full satisfaction of the loan. This will ensure that you won’t be responsible for any deficiency after the sale. While it won’t make it any easier to walk away from your home, it will bring more certainty to the process.
If the lender refuses to work with you or proceeds with foreclosure and you still end up owing money on the mortgage, bankruptcy may be an option. Bankruptcy may help you eliminate that deficiency or allow you to reorganize your finances and create a more manageable repayment plan.
If you have any questions about whether you can file bankruptcy if you walk away from your mortgage, we hope you’ll come in for a free, no-obligation consultation with an experienced Denver, Colorado bankruptcy lawyer. You can make an appointment using our online scheduling system or by calling 303.331.3403 to set up a time that is convenient for you.