When you become behind on your mortgage and are facing foreclosure the smart move might be to just walk away.
When you are no longer able to make mortgage payments, foreclosure may be on your mind. There are some circumstances where making good on your mortgage might not make good financial sense. In these cases, you may want to start looking for ways to walk around from your mortgage.
When To Walk Away
The first step of walking away from your mortgage is determining if this is the best financial course of action. Walking away is good idea if you are “underwater” on your mortgage. This means that you owe more to the bank than what the property is reasonably worth. In past decades this may have been a reason to hang to a property and wait for the market to rebound. In 2011, however, the real estate market is unlikely to rebound any time in the near future. You might find that dumping your mortgage and renting or purchasing a new property before the default shows up on your credit report will put more money in your pocket than continuing to pay for an overvalued home.
Options Before Walking Away
Before you make your final decision to walk away, you should consider other options that will keep you in your house. Like bankruptcy, walking away from a mortgage is an avenue of last resort. Talk to your lender about reducing your monthly payments, refinancing at a lower interest rate or adjusting the value of your loan to reflect the changes in the market. These options are far better for your credit rating (and potentially your sanity) than simply walking away from your mortgage.
Once you have determined that walking away from your mortgage makes good financial sense, you can begin the process.
- Consider the legal ramifications. If you live in a “no-recourse” state, your lender has few options for recouping his money other than seizing the real estate in question. This is a minority of states. Still, if you live in a recourse state, unless you have considerable assets, it is generally not in the bank’s financial interest to sue you.
- Consider the financial ramifications. A foreclosure will damage your credit, there’s no doubt about it. You won’t be able to purchase a new home or car for a couple years once the foreclosure hits your credit report. Still, you may be able to keep a respectable credit rating.
- Stop paying your mortgage. This is really all that walking away from your mortgage means -- that you stop making payments. Some people take the step of mailing keys to their lender, while others do not. Some people move out right away. Others stay in the property as long as they are legally able to. What you choose to do will depend on the specific circumstances of your situation.
After You Walk Away
Be prepared to hear from your bank on a regular basis after you walk away. As with any debt that you have decided not to pay, you will receive collection notices in the mail. Get ready to dodge a lot of phone calls.
There’s also the small matter of the foreclosure process. Walking away from your home still involves foreclosure. This will likely be through the judicial sale procedure. The judicial foreclosure process includes:
- Your lender will file a suit against you in civil court.
- The court will contact you by mail demanding that you make all outstanding payments.
- In most cases you will have 30 days to respond to the notice.
- After the 30 days expires and you have not made the required payments, the court will issue a judgment against you.
- At this point, the lender will generally request permission to sell the property through auction.
- Some time several months after the judgment your home will be auctioned, usually by the sheriff’s office.
- When the property is sold the sheriff will issue you an eviction notice. At this point you must immediately vacate your old home.
You don’t have to go through the process of walking away from a mortgage all by yourself. While you should always be cautious and do your research, there are companies who, for a fee, will deal with all the legal paperwork required in a walk away. These services are of particular interest to those who want to remain in their homes without paying their mortgage. If you want to stay in your home for several months after walking away, consult a walk-away service.