With approximately 11 million current homeowners underwater on their mortgages, not many of these individuals understand the consequences of their actions if they “walk away” from paying their mortgages. The popular term called strategic default is when a person walks away from paying their mortgage payments, which usually results in a short sale or foreclosure.
In general, if you are considering walking away from your mortgage, the major consequences of your actions are as follows:
Impaired Credit: Most people are unaware how their credit will be affected if they default on their mortgage payments. If you instead work with your bank and do a short sale, you may be able to qualify for a new home purchase in as little as 3 years. If you instead choose to walk away and have your home foreclosed on by the bank, your credit score will be significantly impacted for 7 to 10 years, or more. Also, by defaulting on your mortgage, you will cause your credit card companies to possibly cancel or lower your credit limits. As a result, you will have difficulty obtaining financing for large items such as automobiles, furniture, and of course, houses.
Deficiency Risks: If you default on your mortgage, your lender may come after you for the difference between what you owe on your mortgage and and what your short sale or foreclosure proceeds were along with legal fees and interest incurred during the process. In the State of Florida, there is no anti-deficiency protection laws from banks or lending institutions pursuing the difference between what borrowers owe and what the home sells for in foreclosure. If you are concerned about a deficiency judgment, then it is imperative to consult with a real estate lawyer, who can provide you with the necessary legal advice for your unique situation. Please do not consult with your neighbor or friend that just sold their home through the short sale process. Each bank and situation is different, so please hire a real estate attorney, or ask us to refer you to one.
Tax Consequences: Again, each situation is different depending on if the home you are defaulting on is your primary or secondary residence. There is a chance that you will have tax consequences by defaulting on your mortgage. It is also important to consult with your tax accountant in order to know all of your options before you consider defaulting on your mortgage payments.
Moving: People sometimes do not realize the consequences of walking away from their mortgage and then having to move into a new property. Individuals may be living in their current home for many years and now will have to move into a rental community and then have to possibly explain credit report issues to future landlords. You will also have moving expenses including deposits, moving trucks, utilities, and more which can quickly add up. Another issue is moving your children to new schools, commuting to work, and moving away from friends and family. As a result, it is imperative to speak with a real estate professional and your financial adviser before making any decision to default on your mortgage payments.
Professional Implications: By defaulting, you may have professional consequences where your credit report and profile matters. Remember, you do not want to not only loose your house and your job.
Bottom Line: If you are not fully informed of the consequences of your actions of walking away from your mortgage, you are making a HUGE mistake! Get educated and call a real estate professional that specializes in short sales and foreclosures as well as your tax accountant and real estate attorney. After getting all of the facts, you can then make an informed decision.
The Parkland Parrot Real Estate Team specializes in short sales and has helped many Parkland and South Florida homeowners that are possibly facing foreclosure. We know the numbers, we analyze the market, our clients make better decisions. If you are interested in speaking with a Parkland real estate team member, please do not hesitate to contact us at 954-609-0591 or send us a message here.
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