It’s all too easy to get disheartened about your mortgage difficulties and simply decide to pack up and walk away from your home, especially if your mortgage is now substantially greater than the value of your house. However, abandoning a property does not always mean an unencumbered, fresh start. Your lender could pursue a deficiency judgment after foreclosure, where your bank sues you for the shortfall in the mortgage not covered by the sale of your home.
Only a handful of states disallow deficiency judgments: Delaware, Iowa, Massachusetts, Mississippi, Nebraska, South Dakota and West Virginia. Some like Alaska, Arizona Arkansas, California, Kentucky, Montana, North Carolina, and Oklahoma allow a short changed lender to bring suit against a borrower only under defined circumstances. If you are mulling the walk away option, it’s best to look into your specific state’s laws to see if you could still be liable for the balance of your debt after you’ve lost your home.
Practically speaking, many lenders will not take the time and trouble to sue you for a deficiency judgment. You’ve moved from your residence, so the lender has to track down your current whereabouts for service of the court required documents. You’ve probably lost your property due to financial hardship, so the likelihood of recovering any money is slim, yet this moribund economy will turn around someday. The last thing you need is to get back on your feet financially only to find a notice from your former lender demanding that you show in court to repay tens of thousands of dollars in bad debt.
At ForeclosureIQ.com, we are dedicated to preserving home ownership, but if you can’t sustain a house of your own, we urge you to approach your lender about a short sale, deed in lieu of foreclosure, or cash for keys. In all of these options, it’s useful to have your paperwork reviewed by a local low cost or free HUD approved housing counselor to ensure that you are not still liable for any debt.