Should I Just Let the House Go?
We get this question all the time, and there is more to it than meets the eye. A family has purchased a house which is now underwater (that is they owe more on it than it is currently worth) and due to a loss of income, they find themselves unable to make the payments and ask whether they should just vacate and let the foreclosure proceed.
A word of caution, there are many issues and pitfalls involved in a "do it yourself" foreclosure proceeding.
First, if a foreclosure occurs and the house is sold for substantially less than the mortgage loan, the bank can still come after you for the deficiency (the difference). In other words, supposed you owe $250,000 on the house, but it is sold at foreclosure for $150,000, you could still be liable for the $100,000 difference.
Secondly, suppose that the lender forecloses, and then "forgives" the $100,000 debt. More than likely, you will receive a 1099 Tax Form stating that you received $100,000 in income by virtue of the debt forgiveness, thus landing you with a huge unforeseen tax bill at the end of the year. And tax debt, unlike garden variety unsecured debt, is not generally not dischargeable in bankruptcy for at least two years.
Third, there are legal remedies inside of and outside of bankruptcy protection which can help make your mortgage payments affordable (by lowering the interest rate, etc.) so that you may be able to keep your home after all. Further, Congress is currently debating a bill that could allow the principle of a mortgage to be "written down" to the home's actual value in a Chapter 13 proceeding.
Again, there are many technicalities to foreclosure and it is not advisable to face a foreclosure without knowledgeable legal representation. If you have any foreclosure-related questions, feel free to fill out the form to the left and click submit. We are here to help.