What are the repercussions of walking away from a home that is underwater?
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What are the repercussions of walking away from a home that is underwater?
I have owned my home for 7 years. I have been paying additional premium each month. I just had it appraised, and I am still underwater by 40k. The way I look at it is, I could pay my mortgage for the next 5 years and then I would be at break even, Or I could stop paying for a year – save that money, find a nice rental (less than my mortgage by 1k). Save 12k per year for 4 years, then at the end of 5 years, I won’t be in a house I “own” but I will now have 80k (+any other savings) and would be in position to pay cash while the market is still down. What is the downside to this scenario?
Asked on August 22, 2011 Michigan
Answers:
FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney
Answered 13 years ago | Contributor
If you walk away from a home that you own, you face the following unpleasant possibilities and realities assuming the home's loan that you have is purchase money (original loan for its purchase):
1. your credit will have a personal blemish where depending upon its degree, you might be unable to obtain loans to buy a home or buy some item;
2. if the existing loan is "purchase money," meaning used to acquire the property and not a refinanced loan, most likely you would not be subject to any deficiency judgment if the home is foreclosed upon or sold for less than the amount of your loan in that most states have anti-deficiency laws concerning purchase money loans;
3. if the existing loan is not purchase money, you very well could be subject to a deficiency judgment if the home is foreclosed upon where the bid amount is less than what is owing on the loan.
One option is to try and rent out the home for close to what your mortgage is and you rent a place for less than the home's current monthly debt.
Good luck.
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