I am upside down on my home, should I walk away?

By | June 10, 2010

Due to the recent economic downturn many individuals have lost their jobs. There are countless others who are living paycheck to paycheck, are on unemployment or have no income whatsoever. These individuals have a constant question nagging in their minds, “I am upside down in my home, should I walk away?”

Walking away from a home is a major event. You may have significant legal and tax consequences.  But ultimately you will have to  do what is best for you and your family. If you cannot afford a mortgage and your lender is unwilling to work with you, then it might be the time to strategically default on your home.

In our forum now, we’re seeing a tremendous amount of homeowners that are now deciding to bail on their underwater properties.  When I first started this website in early 2007, most everyone was looking to get a loan modification and almost no one was looking to walk away.  Now, I would say that this trend is about 50/50 with more and more Americans deciding to ditch their homes.

You’re going to have to weigh your options and liabilities to determine if it is feasible to walk away from your home. There are many questions that you need to get answered before you make the leap. This means that you’ll have to get educated on your state’s foreclosure and tax laws. It would also be wise to speak with a licensed real estate lawyer in your state that can help you answer some questions.

If you live in a state like California or Arizona and you have a purchase money mortgage, then your loan is not a recourse mortgage.  What this means is that if you walk away, your lender cannot sue you for a deficiency judgment.  That should help make your choice much easier. But if you have the refinance mortgage or an investment property that you’re worried about, then you might be out of luck because state laws may not protect you and your lender may be able to pursue you for a deficiency judgment. That should be your biggest worry if you’re contemplating bailing on your property. If you’re not so lucky to be in California or Arizona, then you need a study your state’s foreclosure laws and see if you have a similar consumer protection law to help you. Not all states have them, but quite a few do.

What you need to keep in mind is that even if your state is a recourse state , that you only can do so much. If you cannot afford your mortgage, then you cannot afford your home. If you’re without a job, money and assets, then you are really insolvent. Meaning that you are flat broke and they would be really lucky to squeeze a dime out of you if anything. What they call this in the legal business is a uncollectible debt. An uncollectible debt means that if you’re sued by a creditor that they would be unable to collect from you because you have no assets. 

Their next option to pursue you would be a possible wage garnishment. You need to check with your state’s wage garnishment laws to see how you will fare there. Many states have protections to protect consumers when they are insolvent and living paycheck to paycheck. If you have no extra money out of your paycheck to pay a creditor, then your state may bar that creditor from garnishing your wages. By all means, DO NOT IGNORE a court summons to appear. If you do, you could land up in jail for failure to appear by the judge. This seems to be a new trend in a few states like Minnesota now.

The best thing to do is speak with 3 to 4 lawyers in your state to get a free consultation. You will also want to get educated on your state’s foreclosure laws.

In the end, you have to do what is best for you. If you are tens of thousands of dollars or more underwater and it will take decades to recover, then you definitely should contemplate walking away from your home. Even though this is your home and it is an emotional decision, it is not one for the bank. This is a business decision for them and you need to start treating your household like a business also. What is best for your bottom line is most likely not what is best for the banks bottom line.

If you would like to meet other homeowners like yourself, please join our free online help forum where you can get more answers to your questions. There are over 30,000 Americans in there helping one another. We would love to have you come join us.

Leave a Reply

Your email address will not be published. Required fields are marked *