Walking Away From Your House, Not Always a Good Idea!

An estimated 11 million home owners owe more on their mortgage than their property is currently worth. That’s made more home owners consider walking away from their mortgage and their home, even those who can still comfortably afford to make their payments (known as “strategic default”).

Walking away from a mortgage usually results in either a short sale or foreclosure. So what are the consequences of walking away? There may be far more consequences than what most home owners ever considered if you do not know everything yu should know.

The consequences include everything from badly affected credit to potential tax consequences and deficiency risks. Home owners' credit scores will be badly hit regardless of whether they attempt a short sale or have their property foreclosed on.

There also could be the potential for deficiency judgment, when walking away from a home, which largely varies from state to state. In some states, lenders may sue you for the difference between what you owe and what your short-sale or foreclosure proceeds are.

A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note, or loan, in full. The availability of a deficiency judgment depends on whether the lender has a recourse or nonrecourse loan, which is largely a matter of state law. In some jurisdictions, first mortgages are non-recourse loans, but second and subsequent ones are recourse loans.

Being sued for a deficiency judgment after foreclosure seems to be one of the greatest worries of homeowners in danger of losing their homes. Not only are they behind by thousands of dollars on their mortgage payment and facing a public auction of their house, the ordeal may continue even longer. If they are sued for a deficiency judgment for the amount that the bank does not recover from the sale, then they may have to pay tens of thousands of dollars years into the future for their one financial hardship that led to foreclosure.