THE TRUTH ABOUT “WALKING AWAY”
Is there really such a thing as walking away from your home & mortgage? Typically homeowners who are unable to pay their mortgage are overwhelmed by their current situation, and walking away may seem like the only option. Often they may think, I’ll just rent for the next few years, then start again. But there’s something they are not considering.
Simply walking away from your home and your mortgage and allowing the home to be taken back by the bank does not automatically release that homeowner from the debt of that mortgage.
Let’s say homeowner Tom has a $300K mortgage on his home with lender BankX. He can no longer pay his mortgage and the current market value of the home is $235K. Tom decides to move away and start over. He vacates the house.
BankX pursues the foreclosure process in the courts and eventually takes the home back in a sheriff sale. Eventually BankX lists the property for sale as an REO (real estate owned) – it has been vacant for over six months. Its value has declined due to the condition of the home and the fact that it is now an REO property.
Bank X lists the home for $189K. It sells for $180.
BankX spent $40K in court costs, attorney fees, taxes, insurance, cost of selling, etc to sell this property. After all of the costs, BankX netted $140K for the property.
Since the mortgage amount was $300K, BankX took a loss of $160K on this property.
Now Bank X may secure a “deficiency judgment” against seller Tom in the amount of $160K plus legal fees.
A deficiency judgment is defined by the real estate dictionary as a court order permitting the lender to collect the amount of debt, which is still left unpaid by the mortgagor even after foreclosure of the property or any type of security put against the loan.
Bank X may pursue the judgment, but more often they will sell that deficiency to a collection agency, which may hold it for years before pursuing the debt.
If you find yourself in a situation where you are unable to make you mortgage payments, speak to a Realtor and real estate attorney to learn about all of your options.
Jeanne Jordan, Realtor, SFC