Bailing on Mortgage Not a Good Idea
An estimated 11 million home owners owe more on their mortgage than their property is currently worth. That’s made more home owners consider walking away from their mortgage and home ownership, even those who can still comfortably afford to make their payments (known as “strategic default”).
Walking away from a mortgage usually results in either a short sale or foreclosure. So what are the consequences of walking away? There may be far more consequences than what most home owners ever considered.
The consequences include everything from badly affected credit to potential tax consequences and deficiency risks. There are even possible professional implications, Justin McHood with Academy Mortgage in Chandler, Ariz., warns in an article at Zillow.com.
Home owners’ credit scores will be badly hit regardless of whether they attempt a short sale or have their property foreclosed on. (See How Missed Mortgage Payments Hurt Credit Scores)
There also could be the potential for deficiency risks when walking away from a home, which largely varies from state to state. (View anti-deficiency laws by state.) In some states, lenders may sue you for the difference between what you owe and what your short-sale or foreclosure proceeds are, McHood notes.
Home owners considering walking away also should weigh the potential difficulty they may face from moving too. For example, if moving into a rental property, they’ll have to convince a landlord to rent to them after they have the red flag of missed mortgage payments on their credit record. And paying for moving expenses — which many walkaways fail to consider — can quickly add up too.
Plus, home owners may find professional consequences from walking away from a mortgage, as the number of employers eyeing employees’ credit profiles continues to grow.