According to MarketWatch and 24/7WallSt., as of April 2010, more than 11.3 million homeowners had underwater mortgages, meaning the value of the house was less than what the owner owed on the mortgage. Additionally, according to the "Los Angeles Times," citing the Mortgage Bankers Assn., at the beginning of 2010, one in ten mortgages were overdue or in foreclosure. If your house is underwater, or if you have reviewed all other options (such as modifying your mortgage, refinancing your mortgage or forbearance) and you cannot pay your loan, walking away from your mortgage might make good financial sense.
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Things you need
- Recent Mortgage Statement
Determine if what you still owe on your mortgage is more than the value of your home.
You can determine the value of your home by having a real estate agent or real estate appraiser visit your home. Many real estate agents offer free estimates. Additionally, there are several online tools that will allow you to calculate your own estimate. (Be aware that a real estate agent or home appraiser will be able to provide the most accurate estimate of your home's worth.)
Determine what legal ramifications, if any, you might face. Mortgage law, and the legal consequences of walking away from your home, varies by state. Some states, such as California, are no-recourse states, meaning lenders cannot legally attempt to recover funds from other assets, such as a bank account, while other states, such as New York, are recourse states, meaning lenders can seek recourse via other assets. A real estate law attorney will be able to answer this question in a short consultation. Such consultations might be low cost or even free. If you retain the lawyer's services, there likely will be higher fees.
Be aware that walking away from your home will negatively impact your credit rating; however, also be aware that by maintaining good credit in other areas of your personal finances, you might be able to have a good credit rating again in less than five years. According to Brent White, University of Arizona professor and expert in real estate issues, it is possible for those who walk away from their mortgages to have a good credit rating of 660 within two years of a foreclosure. Your credit record will report your mortgage default for seven years.
Do not pay your mortgage. After approximately three months of not paying your mortgage, your lender will begin the foreclosure process, either through the court system or a sale by the lender. The timing varies, but some months after the foreclosure process is begun, the court will send you an eviction notice, requiring you to vacate your home if you have not already done so.
Consider other housing options before the eviction process is complete so that you have a place to live. Renting or living with family or friends while you recover financially are all options.
Tips and warnings
- Consider a Home Affordable Refinance, Home Affordable Modification, Forbearance, alternate repayment plans or HomeSaver Advance loans before choosing to walk away from your mortgage. Such options might allow you to keep your home.
- Carefully research lenders offering mortgage modification helpers before deciding on your next step.
- Do not do business with companies or individuals who charge for housing counselling services or a modification on a delinquent loan.
- Be wary of individuals or businesses who pressure you, especially in terms of signing papers.
- Be wary of individuals or businesses who promise to save your home if you transfer the deed to your home. Only discuss this with your mortgage company.
- Do not make mortgage payments to anyone but your mortgage company.
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- MarketWatch: 11.3 million homeowners underwater on mortgage
- 24/7 WallSt: http://247wallst.com/2010/04/15/foreclosure-rates-hit-all-time-high-in-march/
- Los Angeles Times: Foreclosures will keep rising through 2010, report says
- The Sacramento Bee: Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis
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