There have been a number of recent news reports about people choosing to “walk away” from their under water homes. One recent example is this CNN story:
Former homeowners may still be on the hook if there’s a difference between what they owed on their mortgage and what the bank could sell it for at auction. And these “deficiency judgments” are ticking time bombs that can explode years after borrowers lose their homes.
While some states are “non-recourse,” meaning that the mortgage lender can’t get more than they receive at the foreclosure sale, most are not, and allow the lender to get a judgment against the borrower for any loss it suffers when the house is sold. This includes not only principal, but also interest, late fees, auction costs, trustee fees, court costs and legal fees–which often run into the tens (or even hundreds) of thousands of dollars. And this deficiency can end up as a judgment, not only trashing your credit for years, but allowing the lender to garnish wages, and attach bank accounts and cars.
The solution? Make sure that you know what your rights are before you walk away.
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