Sellers: Should I Walk Away from My Mortgage? What are my Options?
WALKING AWAY FROM MORTGAGE CAN ALSO BE CALLED A “STRATEGIC DEFAULT”. SOME PEOPLE FEEL THERE’S A MORAL OBLIGATION TO FULFILL AND NOT WALK AWAY. OTHERS FEEL THERE SHOULDN’T BE. WHAT DO YOU THINK?
When a mortgage is called “upside down”, they usually mean the principal balance on the loan is much, much higher than the value of the property.
If you’re thinking about walking away, knowing it is not the only option. Consider these also.
YOU HAVE THE FOLLOWING OPTIONS
- Short Sale
- Loan Modification
- Keep making your payments
Find an attorney who specializes in short sales to help explain your options. A short sale can be very beneficial, as the seller can be entitled to an incentive from the bank when qualified. It is also much less damaging to your personal credit reports. Many people that we have counseled thought they were going to do a strategic default when in fact we determined they qualified for a short sale because of their financial situation. Everyone’s situation is uniquely different and must be analyzed by an attorney who understands all the different nuances. We do this service for FREE. And if we handle your short sale it’s FREE too… the banks and the buyers pay all the fees and costs and you get an attorney on your team. The banks have lawyers and now you can too.
If you are struggling financially and really want to keep the house at all costs then a loan modification might work for you. The banks aren’t too interested in doing loan modifications and keep the parameters very tight. We would be happy to analyze your situation to determine if you might qualify for a loan modification.
Keep making your payments
You of course can do nothing and keep making your payments but most people know this option ONLY helps the banks who are back making record profits! If you are continuing to make your mortgage payments and suffering personally then you might qualify for a short sale. Most people don’t realize that the bank doesn’t always come first and do things like stop funding their retirement accounts or cut them back just to be able to make their mortgage payment. Contact us and we will do a full financial analysis of your situation as part of your FREE consultation.
Consequences when doing nothing!
If you choose to walk away from your mortgage your credit will take a big hit. Some drop as much as 150 points. You can’t stop this but you can minimize the damage on the way down. A short sale does less damage then the inevitable FORECLOSURE if you just walk away. You also have more control since the bank decides when it will foreclose and until then you are responsible for maintaining the property that is still in your name.
In today’s world, a good credit score helps in many ways. So you can’t avoid some damage to your credit score, but you can speed the recovery period by successfully doing a short sale.
Sometimes the bank can come after you when your house goes in a foreclosure. California now has good protections when you do a short sale but you must have good legal representation. California real estate agents cannot (and should not) give legal advice. They are not lawyers and it’s illegal if they do give legal advice and it’s usually bad advice to boot. Do NOT talk to a real estate agent about your short sale. You need to contact an office that specializes in distressed assets like we do.
MORAL CONSIDERATIONS – IS IT WRONG, OR IS IT RIGHT?
Moral considerations are usually up to the seller. Some perceive walking away as a justification, and others feel it’s immoral to stop payment. I can assure you that when you got your mortgage the deal was that if you make your payments you get the title after you have made all 360 payments – assuming a 30 year mortgage. The deal also was that if you stop making your payments they get the house back. This is the protections you get under California law. I will analyze your situation further but most first mortgages can be dealt with little resulting damage to the homeowner. You should NOT feel a moral obligation to your bank. Jon Stewart did a GREAT comedy video regarding the Mortgage Bankers Association. You should find it in YouTube and watch it. The gist of is that they let their commercial building go back to their lender because it was upside down and THEY COULD… So they are preaching that you should’t do what they did.
Here are some things to keep in mind when you are under water on your mortgage:
- Don’t ever just walk away from your home. Always get all the legal advice you can in order to make intelligent decisions because the consequences can be harmful.
- For government programs go to: makinghomesaffordable.gov
- Contact us right away for a FREE consultation. We are here to help you.