Personal Finance

We know it sounds unbelievable, but the truth is that there is life after your underwater mortgage and there is life after foreclosure-and it’s not such a bad life after all! After the real estate bubble “popped” in 2007, we found ourselves underwater on several mortgages. We’re Realtors, after all, and we believed what the “experts” had to say about how property values would never stop rising.

Homeowners, even those who are able to pay, are far more likely to walk a way from a mortgage when the loss in their home value measures 25% or more. The risk of strategic mortgage default is even greater in states where banks cannot sue for deficiency (what you owe on the loan), however, there are still consequences to the homeowner that considers this action: You may be facing taxation on the balance of your loan by both state and federal government. In states where a deficiency judgment is allowed, you may be facing a lawsuit where the lender can not only sue for the balance of the loan but also sue for foreclosure costs.

Here’s what you need to do. Once you know you want to foreclose on your underwater mortgage, start planning before you miss a payment. Will you need a new car within the next 5 years? If you’ll be able to keep up with the payments, get that car now. The next things you can do are to apply for a mortgage modification OR hire a Realtor to list your house and negotiate a short sale on your house. You almost certainly won’t get a mortgage modification, and there’s a chance that you won’t be able to sell your house in the short sale and it will end up foreclosing anyway.

If you are planning to buy another home, it can affect the size of the down payment required on your new home, which could amount to thousands of dollars more than you may anticipate. It can also affect the interest rate that you are charged on credit cards, within contracts and a new mortgage. Of course, if you are well off financially, then none of this will matter, you can always pay cash for what you want, but before making the decision to walk away from your mortgage, it may be wise to get legal advice.

We’re not arguing that walking away from your mortgage is a sound moral decision. We don’t think morality is involved here! You have a contract that’s not in your best interests to continue. Your mortgage is sufficiently underwater and you officially have a bad investment on your hands. What do businesses do with bad investments? They walk away from them! We hope that what you’ve read here and what you’ll read elsewhere on our website will help you realize that walking away from your underwater mortgage may be a sound business decision. And morally, you’re not responsible to your mortgage lender-the lender gets your house, after all! But you are, ultimately, responsible for yourself and your family!

Learn more about Obama Mortgage Relief Plan Qualifications.