Ask Me Help Desk - Defaulting on mortgage loan

I have an arm that is maturing and my taxes rolled into my mortgage. The mortgage by itself is OK, however, all combined, it puts me in a difficult position financially. Im a single income father and for what I'm paying in mortgages and fees, I could rent a pallacial estate and have no headaches. What legal rammifications are there regarding defaults? I am primarily a cash transaction kind of guy, and do not rely on credit too much. What could I expect? I have two cars less than 2 years old, all the credit cards I'll ever need,(best buy, home depot, Lowe's, rooms to go, paypal, discover, visa, mastercard) with minimum balances. I need advice regarding a "walk away" type scenario.

Thanks

Don't be so quick to walk away. Mortgage rates have come down substantially in the last week or two. Have you looked into refinancing? You may be able to get a new loan with a more affordable monthly payment.

I am upside down severely in this property, I live in Florida and fell victim to the housing inflation crisis from two years ago

Defaulting will affect your credit. It could cause the interest to rise on your credit cards. Renting is not the best answer since you lose some signiciant tax breaks and the investment value eventually the loan will be repaid.

I would try reworking your mortgage

Hmm... then here are your choices:

1. Walk away. If you do this the bank will foreclose, sell the house for whatever it can get, and you will owe them the balance. This destroys your credit for several years. You will have great difficulty getting any new loans for at least 3 to 5 years.

2. Get permission from your lender for a short sale. This is where you sell the house for less than the value of the mortgage. You will still owe the lender the balance and your credit will be hurt but not as badly as if there had been a foreclosure.

3. Deed in lieu of foreclosure, if the lender agrees. This basically works the same as a short sale, except that instead of you selling the property, you give a deed to the bank and they sell it. You're still responsible for any remaining balance from the loan, but again your credit isn't hurt as badly as in the case of a foreclosure.

4. Declare bankruptcy. This is similar to walking away. It gets you out of the loan but your credit gets destroyed for several years.

5. Working something out with your lender. In the current housing market, your lender DOES NOT want to be in the real estate business. They want you to keep the house and keep making payments. Try calling them. They may be willing to work out a refinance with you to make your payments more affordable. Yes, the house may not currently appraise for the value of the loan. But if they can keep you in the house, and you keep making payments that you can afford, then they are happy and you are happy.

Obviously I recommend option number 5 as your first step.

Quote:

Originally Posted by LisaB4657

Hmm...then here are your choices:

1. Walk away. If you do this the bank will foreclose, sell the house for whatever it can get, and you will owe them the balance. This destroys your credit for several years. You will have great difficulty getting any new loans for at least 3 to 5 years.

2. Get permission from your lender for a short sale. This is where you sell the house for less than the value of the mortgage. You will still owe the lender the balance and your credit will be hurt but not as badly as if there had been a foreclosure.

3. Deed in lieu of foreclosure, if the lender agrees. This basically works the same as a short sale, except that instead of you selling the property, you give a deed to the bank and they sell it. You're still responsible for any remaining balance from the loan, but again your credit isn't hurt as badly as in the case of a foreclosure.

4. Declare bankruptcy. This is similar to walking away. It gets you out of the loan but your credit gets destroyed for several years.

5. Working something out with your lender. In the current housing market, your lender DOES NOT want to be in the real estate business. They want you to keep the house and keep making payments. Try calling them. They may be willing to work out a refinance with you to make your payments more affordable. Yes, the house may not currently appraise for the value of the loan. But if they can keep you in the house, and you keep making payments that you can afford, then they are happy and you are happy.

Obviously I recommend option number 5 as your first step.

Perhaps your suggestions are state specific, as I, until recently, originated loans is Michigan for the last 5 or so years. During that time, I have never seen a lender attempt to collect the balance owed on a foreclosed property, nor a short sale. If you walk away, in MI at least, that's the end of the story. You have six months from your Notice of Default to get back on pace prior to a sheriff sale and another six month redemption period following the sheriff sale before you actually get "evicted". Secondly, as ras short sales are concerned, I again, have never seen a lender attempt to collect the remaining balance. I can tell you this, if you short sell your home, you will be liable for taxation of any relieved, but unsatisfied debt, as it is considered capital gain. Once again, perhaps this is state specific. However, I put in 5 long years into subprime and alt-a origination, but who knows. Maybe that's how they do things in Jersey. :o

Quote:

Originally Posted by Fastfun1

Perhaps your suggestions are state specific, as I, until recently, originated loans is Michigan for the last 5 or so years. During that time, I have never seen a lender attempt to collect the balance owed on a foreclosed property, nor a short sale. If you walk away, in MI at least, that's the end of the story. You have six months from your Notice of Default to get back on pace prior to a sheriff sale and another six month redemption period following the sheriff sale before you actually get "evicted". Secondly, as ras short sales are concerned, I again, have never seen a lender attempt to collect the remaining balance. I can tell you this, if you short sell your home, you will be liable for taxation of any releived, but unsatisfied debt, as it is considered capital gain. Once again, perhaps this is state specific. However, I put in 5 long years into subprime and alt-a origination, but who knows. Maybe that's how they do things in Jersey. :o

In the subprime market, what's the point of going after someone who doesn't have any assets? That's not the case with the OP. This person is not judgment-proof.

Every note and mortgage I've ever read or wrote stated that the mortgagor was liable for any deficiency, plus costs and fees. Whether a lender chooses to go after them for it is up to the lender, but I'm certainly not going to tell a person that they can walk away with no worries.