With a record number of foreclosures in the last couple years, there are thousands of homeowners who have simply walked away from their homes and properties. In fact, there are so many people doing this that there is a term that now describes the act of someone walking away from their underwater mortgage – “strategic default.” Many of these homeowners think they are doing the best thing for their finances by essentially starting over, but these “strategic defaults” are costing them more than they think.
According to experts in the mortgage industry, walking away from your mortgage can have serious financial consequences. For one thing, the lender of the mortgage loan can come after you for the balance owed on the property. Even if the home sells after you leave, if there is a difference between the amount owed and the purchase price, you could be responsible for that difference. The bank can get judgments on your assets in order to pay for that price difference. This means they can legally come after your car, savings account and any investments you may have.
In addition to that, a foreclosure stays on your credit history for seven years. It doesn’t matter if it was a “strategic default” or a normal foreclosure, you won’t be able to get this off your history for a long time. If you try to get another mortgage loan within that time, this item is going to be a major factor in the lender’s decision to loan you the money or not. For the first few years it is on your report, it may be impossible to get another home loan. However, the damage does gradually fade the longer it stays on your history as long as you continue to make payments on your other credit accounts. According to Peter Fredman, a consumer attorney in California, Freddie Mac and Fannie Mae will refuse to give you another mortgage for the first four years following your foreclosure whether it was voluntary or not. In fact, Fannie Mae recently announced that homeowners who strategically default on their mortgage will not get another Fannie-backed loan for the full seven years following the foreclosure.
Finally, you may still be responsible for state taxes on your foreclosed home. The Mortgage Forgiveness Debt Relief Act of 2007 protects you from being responsible for federal tax liability following a foreclosure, but the states can still legally pursue for the tax money that you owe.
Before you simply walk away from your mortgage, take some time to seriously consider the consequences and all of your alternative options. You may still arrive at the same decision, but at least you’ll know it’s the best decision that you can make.
Comments
Denise
September 20, 2010
The information here is not necessarily true. In California, for instance, the bank can NOT come after the buyer for the difference in price.
Be careful what you believe - especially if an article is filled with misspellings and misused words.
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CA Hagy
October 13, 2010
I'm not sure what you mean by "filled with misspellings and misused words." And regarding your first point, the article does not state that the bank can come after the buyer in every state for the difference in price. It states that it can happen. But every state is different. I thought that was a given.
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