What Happens When a Distressed Home Owner Walks Away?

By
Services for Real Estate Pros with Aston McLaren Inc

What Happens When a Distressed Home Owner Walks Away? Many distressed home owners are tempted to walk away from the property.  They are emotionally detached from what was once their pride and joy. Some distressed home owners walk away because they are emotionally drained or they can no longer afford the maintenance and utilities. Others walk away to pursue another real estate opportunity.

 

This is NEVER a GOOD OPTION!!!


underwater mortgage

 

The global reason that distressed home owns should not walk away is that the lender is exponentially more likely to pursue its remedies against an owner that walks away from a property. The investor on the loan will spend extra time and money on the property and they have historically pursued their rights against owners that “walk away”.

The specific reasons that an owner should not walk away are as follows:

1.      There are tax ramifications to the resolution of a distressed home. When an owner walks away, the lender will dispose of the property in a manner that all but assures that they will protect their interests and not the home owners’ interests. This includes selling the property far below market value and this increases the tax burden on the owner.  The home owner has no protection against this if they walk away.

2.     The home owners’ credit will be damaged in a manner that is far worse than other options that are available to the owner.  Many home owners tell me that this does not matter. It may not matter today, but it WILL matter in the future. The negative impact of foreclosure is very severe and it can be mitigated. There are options that minimize or negate the negative impact of foreclosure.

3.     The lender is more likely to seek a deficiency judgment. When a distressed home owner walks away from a home, the lender is more likely to seek a deficiency judgment.  I know this because I am a foreclosure attorney and I know when and why lenders take this action. It is very predictable. Realize that a lender has YEARS to sue you for a deficiency and at some point in the future, you will care about this.

3   3.A. When a lender DOES seek a deficiency and the owners walked away, the amount of the deficiency will be a lot higher. The home owner has no protection against this when they walk away.  They do have rights and options available to them to negate or minimize the deficiency judgment.

4.    When a home owner walks away, they will have more difficulty getting a loan of any type in the future. This includes credit cards and auto loans. This is in addition to the credit ramifications illustrated above. Again, you may not care now, but this impact lasts for a number of years and it is likely that you will regret walking away.

5.   There are numerous creative options to enable you to rent or own a home. There are options to negate all of the negative impact mentioned in this blog.

6.    Walking away from a home is an emotionally driven decision. Emotionally driven decisions are rarely the best decisions.

Paddy Deighan J.D. Ph.D

http://www.homesavers.pro


 

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Rainer
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Steven Cook
No Longer Processing Mortgages. - Tacoma, WA
- Pierce, King, Kitsap, Thurston, Mason Counties

Paddy -- what most of these folks don't understand is that UNTIL the lender puts it into foreclosure, they are just racking up more 90/120/150 day deliquincies, and that even when it goes into foreclosure it is not done.  VA requires a 2 year wait after foreclosure COMPLETION, FHA requires 3 years, and Conforming(Conventional) require 7 years from COMPLETION, before they will consider backing another loan for this person.

Mar 06, 2013 02:12 PM #1
Rainmaker
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Inna Ivchenko
Mannis Real Estate Group - Calabasas, CA
Los Angeles / Valley Homes

Walking away is probably the worst solution, even it seems sometimes as the easiest one..... I agree with you. This is an excellent blog post.

 

Sep 16, 2014 07:21 PM #2
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Rainmaker
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Paddy Deighan JD PhD

Paddy Deighan J.D. Ph.D
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