There is too much information but too little understanding of mortgage and the effects of walking away from it. This has been creating more confusion than clarity. Walking away from mortgage may result in foreclosure or a short sale. The following is a quick primer to help everyone understand the effects of walking away from a mortgage.
What will happen if you walk away from a mortgage?
* The main effect when there is a short selling or foreclosure will be that your credit score will take a beating. Due to short selling or foreclosure, you may not be able to apply for a new home loan for some time.
In addition to losing your credit score, you may be refused credit cards or the credit card companies may choose to lower your credit limits. You may not be able to get finances for buying vehicles or furniture and you may not get any revolving account also.
* You may face deficiency risks if you walk away from your mortgage. This means that the lender concerned may try to recover the difference between what you owe him and the proceeds of the short sale or foreclosure by suing you. Anti-deficiency protection is not prevalent in all the states of US. Even if such a law is prevalent in the state, you can’t assume that you are free from troubles. Deficiency risk arises from many factors. The main factors can be summed up as:
- A second mortgage on the property,
- If you have availed of refinance,
- If your mortgage is the one that you entered into when you initially purchased the property
It is wrong to assume that you can walk away scot-free from your mortgage without considering the aspect of deficiency risk. Therefore, you should always seek legal advice from experts like a competent real estate lawyer in this regard.
* If you decide to walk away from your mortgage, there are chances of some tax liability also. Especially, if the mortgage is on a second home or an investment property, chances of tax liability are more and hence, it is better you consult a taxation expert.
* The main consequence of walking away from your mortgage is that you will incur costs for moving your household items to a new home. You may move into a rented home and this may be painful because you have all along been living in your own house. When you look for a rented apartment or house, you may have to explain your situation including your defaulting on mortgage payments to your new landlord. You may have to look for new schools for your kids; you and your family members will start living in a new surrounding and your community and social activities in the old area may come to an abrupt end.
* There may be career-wise and professional problems also if you walk away from your mortgage. Your reputation may be hit in your workplace.
So, you should take into account all these aspects also before deciding to walk away from your mortgage.
This post is written by Edward Gary from GetPRed.com. He has been working as a financial analyst and provides tips and assistance on the various benefits of binary options trading which is slowly turning out to be a smarter way to trade on all markets.