Home Foreclosure – Should I Walk Away From My House?

by on January 23, 2013Shannon O'Brien

Jane Schrodinger was aghast when she learned that she was $80,000 underwater on her “sad little condo” in Washington state. After all, she purchased the condo back in 2008, when prices were low and interest rates were attractive enough to make buying more sensible than renting. Smart move, right?

home foreclosureAs we all so painfully learned, prices continued dropping until she ended up where she was – deep underwater on her mortgage. We can’t call Jane a “distressed” homeowner, though. Despite the fact that thoughts of her situation kept her up at night, she was perfectly capable of paying her mortgage every month.

She decided, however, to walk away from her obligation. Not only did Jane fully plan this walk-away, she chronicled the process in a series of blog posts.

Strategic Default

Jane is one of 68 million Americans who see nothing wrong with walking away from their agreement with their lender. This is a process known as “strategic default” – a sanitized name for something that lenders call “jingle mail” (because they typically receive the house keys in the mail) and many others call downright wrong.

Strategic default is, simply, planning (that’s the strategic part) to walk away from the obligation one holds to pay as agreed on her mortgage loan. That’s the default part. It differs from economic default in that the homeowner has the money to pay her mortgage, she just decides that it’s more beneficial not to.

Studies show that there is a certain sub-set of the population that is more prone to strategic default than others. As one might expect, the list includes homeowners who have been denied a loan modification, those who perceive their lender as being evil or greedy, homeowners with previous defaults, homeowners under the age of 45, and males. Surprisingly, a rather substantial portion of strategic defaulters are high FICO scoring, high net worth individuals – the kind of buyers lenders love to lend to.

Should You Walk Away?

While this conversation was more pertinent two years ago, an estimated 7 million Americans remained underwater on their mortgages at the end of 2012. That number is down 4 million from 2011. Many homeowners who could afford to stay in their homes decided to ride out the market and are now beginning to see the light at the end of the tunnel.

If you’re one of those who can pay the mortgage and you’re considering a strategic default, you may want to think about the following:

Your credit score – Jane had a near-perfect credit score when she made the decision to walk away from her loan. During the process she worked diligently to protect her score by obtaining new credit cards, using them and paying on time. That said, the American Bankers Association claims that a foreclosure will impact your FICO score by 100 to 400 points. Furthermore, the public affairs director for FICO, Craig Watts, says that FICO looks at foreclosure as “one of the stronger predictors of future credit risk.”

Buying again – Jane is fortunate that her husband Cory wasn’t a co-borrower on the condo. She happily walked away from the home knowing that they could and would buy again shortly after the default. If you aren’t in a similar situation, you may want to consider that you will be ineligible for a Fannie Mae mortgage for the next seven years. The ABA suggests that you kiss off your chances of buying another home for the next three to seven years.

Tax liability – One of Jane’s biggest concerns was the possible rescission of the Mortgage Forgiveness Debt Relief Act at the beginning of 2013. While congress has decided to extend the act, you may still be liable for state taxes on the amount of debt forgiven in the foreclosure.

Deficiency judgment – When you walk away from your mortgage obligation and the lender forecloses on the home, it will determine the difference between the amount of money you still owe on the home and the amount it was able to realize at auction or sale.

This amount is known as the “deficiency,” and, depending on which state you’re in, the lender may go to court to obtain a deficiency judgment against you. Not only will the amount of deficiency be included in this judgment, but you could also be on the hook for attorney’s fees and the costs incurred by the lender during the sale of the home. In some states, according to Forbes, lenders may also add penalties and interests to the amount owed.

Phantom title – Strategically defaulting homeowners who have lived rent- free for the period of time leading up to the lender deciding to foreclose typically decide to abandon the house when they receive notification that the lender has the foreclosure judgment and is moving toward auctioning the property. Off they go into their new life, pockets full of unpaid mortgage money and blissfully unaware of what is known as the “phantom title.”

Should the bank decide, for any number of reasons, to cancel the auction, title remains with the homeowner. Although the lender is required to notify the borrower that the house was not sold, most strategic defaulters don’t leave a forwarding address and, thus, fail to receive the notification.

What this means is that while you may think you’re finished with the house, it remains your legal responsibility. Phantom title holders may find their wages garnished or their tax refunds seized to reimburse municipalities for moneys spent having to maintain the house or complete repairs due to vandalism. According to Reuters senior correspondent Michelle Conlin, some of these items include “graffiti-scrubbing services, demolition crews, trash removal, gutter repair, exterior cleaning and lawn clipping.”

If the lender can find you, you just might get a court summons or the threat of a jail sentence.

Current housing market – Finally, before you decide to walk away, take a look at current housing market trends. There is a lot of optimism out there, according to the results of Fannie Mae’s December National Housing Survey, especially when it comes to mortgage rates and home prices.

“The highest share of consumers in the survey’s two-and-a-half-year history expect home prices to increase in the next 12 months,” said Doug Duncan, senior vice president and chief economist of Fannie Mae.

Anecdotal evidence from real estate agents across the country shows that buyer enthusiasm is high while housing inventory is low: the perfect setup for a healthy rise in home prices.

In a nutshell, if you are considering a strategic default, think long and hard on the old motivational quote: “Don’t quit before the miracle.”

{ 46 comments… read them below or add one }

Ron H October 23, 2014 at 9:15 am

I have a balloon payment due at the end of November 2014. I’ve tried unsuccessfully to obtain a modification because I have a conventional loan. Refinancing is not an option because I owe more than the home is worth and my lender is not willing to take a settlement. Are there any other options except for bankruptcy?

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Karl October 8, 2014 at 10:31 pm

My 3 apartment building is to be sold on foreclosure November 10th. I owe about 600k and I doubt that the bank will find a buyer. How long do I have after the sale date to move out? I’m in Chicago.

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chris October 23, 2014 at 4:40 am

You have 12-24 hours after it is sold at auction. In some states, you can hold out till the day it is in the new owners name. If you remain “cool” you can probably talk the new owner into letting it happen a lot slower. Tell him that at least you will be around, so it wont get vandalized on your watch, and just be friendly no matter how mad you feel. “its not his fault, you might have done it too.” Just treat him how you would expect. Most likely, they will bring in handy equipment that you can use when he isnt.

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Daniel September 21, 2014 at 7:41 am

I have a question, I am in the following situation. My Ex-Wife and I ASSUMED what we believed was the only mortgage from her dad in June 2009. I have since divorced and kept the house, my payments to the mortgage company are all up t date. I received a letter in the mail stating that my property is up for foreclosure sale in a few weeks! No one gives me information because that loan is not in my name. Since a title company was not used in the loan assumption I don’t have any title documentations. The loan, I learned was of about 16k and now with all the fees/interest it has accumulated is over 20k. What is the best way out?

Thanks in advance!

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Phyllis L. September 18, 2014 at 3:36 pm

My husband and I are underwater on our mortgage. We purchased in 2004 and are current on our payments. We have both since retired, my husband is 71, I am 57 but in poor health. The house has needed many repairs and is too much for us to maintain. We would like to rent an apartment or move to a seniors community. We want to walk away but don’t know how to get out. We live in Missouri. We would appreciate information or advice anyone can provide.

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chris October 23, 2014 at 4:42 am

if you find out how this goes, please tell me..

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tammy September 15, 2014 at 1:45 pm

I have a home that has been forclosed on, it was up for auction last Friday. I have yet to hear if it has sold. At what time am I not responsible for insurance and liability. My problem is that my ex boyfriend not on the paperwork has not moved out so I’ve been paying the utilities fearful that he would burn candles and such if I didn’t pay the utilities. I’ve been told that once in forclosure it is the banks responsibility. I would hate for something to happen and I’m held liable if he happens to catch it on fire and burn it down and or destroy it.

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chris October 23, 2014 at 4:43 am

once it is sold, you are not responsible. like a car.

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tammy September 15, 2014 at 1:44 pm

I have a home that has been forclosed on, it was up for auction last Friday. I have yet to hear if it has sold. At what time am I not responsible for insurance and liability. My problem is that my ex boyfriend not on the paperwork has not moved out so I’ve been paying the utilities fearful that he would burn candles and such if I didn’t pay the utilities. I’ve been told that once in forclosure it is the banks responsibility. I would hate for something to happen and I’m held liable if he happens to catch it on fire and burn it down and or destroy it.

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Gabriela September 10, 2014 at 3:41 pm

My mother bought a house in june 2009 and the house has so many problems from basement always flooding to the roof leaking (its a flat roof by the way) this house is horrible we want to leave but we feel stuck because we dont want my mothers credit to be ruined if we decide to give it to the bank. This house is not fit for us to live in we have mold in our basement and we probably have molding in our roof since it leaks every year. I do not want to live here anymore but like I said we feel stuck we dont know what to do anymore. If anyone can help us I would greatly appreciate it! Thank you!

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mandy m September 3, 2014 at 6:36 pm

question I need answered!!!!

when me and ex husband got married bought a house the loan and everything was in his name then we did a quit claim deed and added my name to that 5 years we did a loan modification and we both signed that.. years later we got a divorce and he got the house and I signed away all my rights to the house . he remarried moved out of state he rented out the house pocketed the payments did not make any mortgage payments now today I and him both got served foreclosure papers . how is this possible and what do I do next …. one lawyer said ignore it all your name was not on the orginal note . one lawyer said I should go to the court hearing and tell the judge I signed away all my rights and ex would not quit claim it back . any suggestions !!!!!! help please.

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chris October 23, 2014 at 4:45 am

dont say nothing

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N. S. Stallman July 30, 2014 at 6:54 pm

Hello,
We are in Notice of Default which ends on August 14th so time is of extreme importance. In December of 2013, we were behind on two payments (November and December). On 12/20/13 the bank issued a demand letter, stating they need a lot of money by January 15th–which we didn’t have. On the 26th of December I paid our November payment butvthe bank returned the payment 2 days later. I contacted the bank and theynsaid it was partial payment because of the letter. We tried in house modifications with both the first and second mortgagees. We’ve even filed bankruptcy to save our home. Our last ditch effort was a modification through an attorney. It is looking bleak per his last conversation. Would it he better to “walk away” or try to short sale? Any help greatly appreciated.
Mrs. Stallman

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Thomas - Seattle WA July 9, 2014 at 4:08 pm

So, if you’re still the legal owner in this scenario, and the “Phantom Title” can still haunt you… can you just flip the coin and play the other side?

Specifically, can’t I just rent the property out, at whatever market rate is, for as long of a lease as possible, and then collect the rent payments?

This REALLY encumbers the property. When the bank forecloses and the house is finally auctioned or repossessed, the bank ONLY starts collecting the incoming rent once it takes title back. And then the existing tenant is legally protected and allowed to live there until the lease expires.

Am I missing something? Seems ALL people who are walking away should rent the property… ESPECIALLY if you live in a non-recourse state for first mortgages like I do in Washington state.

Thanks! – Thomas

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Nanxi July 8, 2014 at 6:23 am

Hi All,
Hoping someone can assist me with my question. My mortgage was modified 3 yrs ago with Chase and monetarily I can afford the payments. My problem is that my neighborhood is getting unsafe so I spoke to Chase and have gotten numerous stories about what I can do. Every time I talk to them they ask if I need modification which I’ve explained numerous times been there done that. The woman told me that I can put the house through a short sale process and then apply for a deed in leau but what she can’t seem to explain is what is the difference between that and foreclosure? This is just as frustrating as when I modified with them that I get no answers or different ones every time I talk to them. I’m ready to jingle all the way, if I write to them my situation will this help speed along the process?

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Thomas - Seattle WA July 9, 2014 at 4:16 pm

“deed in lieu” is MUCH, MUCH, MUCH preferred to a foreclosure.

It still will hit your credit rating hard. But NO WHERE NEAR as damaging as a foreclosure.

Basically, it will note on your credit report that:
1. The bank agreed to reduce the principle balance owing on your loan and write off the difference.
2. You then sold this property for the full amount of the reduced principal balance.
3. And obviously, that you didn’t meet/fulfill the original terms of the loan.

Again, this is far better than a bankruptcy… ESPECIALLY if you live in a state where first mortgages are NOT dismissible in a bankruptcy. (Meaning, the bank can still come after you for the money EVEN AFTER you filed for bankruptcy.)

Hope this helps.

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James June 20, 2014 at 6:47 pm

“If the lender can find you, you just might get a court summons or the threat of a jail sentence”. Why are you misleading your readers. Not paying your mortgage is a matter for the civil court system. NO ONE, and I mean NO ONE has gone to jail because of foreclosure. You know that, why are you trying to scare your readers. Here’s your challenge. Name one person who has gone to jail for not paying there mortgage. we do not live in a debtor nation. And you know that, so once again , why would you scare your reader.

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imogene knowlton June 18, 2014 at 1:13 pm

we bought a house 35 years ago not knowing all that was wrong with it .we had some credit card needed to be paid off so we refinanced we did this 3 times bad mistakenow we owe 2 1/2 times more than what we paid .the house is not worth it.my husband and I are old and disable and can’t afford to have the repairsdone. is there any way we can get help or can we file bankruptcy on it

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Sgreene June 15, 2014 at 4:24 am

I am upside down in my home and in very deep credit card debt. My home was originally purchased in 2000 for $67K. During the refinance boom, we refinanced several times, up to $100k and now owe about $80k, our home is worth maybe $65K. After credit card bills, utilities and mortgage we have about $800 dollars left for groceries, medical expenses (prescriptions), gas for cars, etc. Our current FICO score is low so if we walked away from our mortgage that would not be a factor. The biggest concern is getting a mortgage again and a place to rent once the house is given back to the bank. It would be several, 7-10 years, before we would be out of credit card debt at our current rate of being able to pay, but if we did not have our $950.00 mortgage every month we could make a huge dent in the credit card debt… Any advice would be so much appreciated.

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Patricia June 11, 2014 at 9:36 pm

I live in Oklahoma and have signed to purchase a mobile home thru the park. I have been harassed by the management here constantly and given incorrect billing on the lot rent which is separate from the house payment . I have been paying the house payment and even the lot rent except when it is incorrect and they won’t correct it. Can I be foreclosed on since the house pmt is being made ? I want to move and try to sell my home but since they make their money by selling them over and over again . What can I do ? With my health problems I can’t take their extra harassment

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Gail June 9, 2014 at 6:20 am

My story is pretty long…..I have it on my computer at work, if you could please email me, then I could send it to you, rather than me typing this on my phone…..cause I can’t get on websites at work. Basically I have been in pre forecloser for 2 years now and don’t know what to do. I appreciate any advice. Thank you.

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Jen May 30, 2014 at 10:22 am

My other has a mortgage and she has been paying for it since 2000. Her loan got as low as $87,000 but she got sick and was behind in payments. The amount she borrowed was $140,000, she has paid them back close to $250,000. Her loan is now at a high of $175,000. Her house is now up for auction and she is in a distressed state. Also she found two buyers for the house but the bank never got a deposit from either buyer neither did they prepare a sale agreement and they told her that all is well and not to worry, 2 months later she found out that the buyers backed out because of lack of professionalism. They now do an auction every two weeks.

I would like advice on the above please. Thanks.

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Don Mead June 2, 2014 at 7:26 pm

If she is located somewhere in the central Florida area, I may be able to help. What she is going through is a frustrating process, but there is hope. Make sure she chooses a Realtor that either specializes in REO/Bank owned properties or has experience dealing with them and experience going to auction. Having a written agreement, or a contract is imperative and putting down a considerable payment (earnest money deposit) is 101.

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debbie April 23, 2014 at 3:49 pm

What if the property foreclosed and was purchased for more than mortgages. Can homeowner get this money back from court?

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Maria April 21, 2014 at 11:33 am

I am recently divorced and my ex husband will not cover the mortgage until we sell.
It has been on the market for several months with no bites. Should I call the bank and advise them that I can pay my portion but he can’t and perhaps they will work with me or should I just walk away?

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Debi October 11, 2014 at 10:18 am

Hi Maria, Did you ever find a response to your question? I am now recently divorced as of July. My house is in both of our names and I am living in the house making the full mortgage payments by myself. The house has been on the market since April with only 1 bite. It is listed with an agency. I have thought too about calling the bank but don’t know if that’s the wisest thing to do as I am able to make the payments and am not behind on any. Wondering if and how you resolved your situation.

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ryan walters March 20, 2014 at 10:34 am

I have tried working with my lender. Chase. Since 2012 one application after another .. they had stalled and delayed . Always requiring more modification. Paper work. So at this point yes they can foreclose

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Michelle April 28, 2014 at 5:56 pm

Ryan, we are in the same predicament with Chase. We are beyond stressed out, we have done everything they’ve asked for the past 5 months and are no further in the process than we were back in December!! I’m with you…they can have the house.

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Garry February 5, 2014 at 10:51 am

Looking for walk always or people that want to get out of there mortgage

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Bob March 23, 2014 at 9:02 am

Gary, what are you looking for?

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Julie March 24, 2014 at 10:57 am

In what state r u looking for people that need to get out of their mortgage?

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Danny Owens April 23, 2014 at 6:08 pm

Shoot me an email. I’m game.

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Cindy May 19, 2014 at 7:46 pm

Garry, what state are you looking for people wanting to get out of there mortgages?

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Terry May 29, 2014 at 8:49 pm

What are you looking for. I am walking away

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Mary Gregory July 8, 2014 at 1:58 pm

We are wanting to walk away from our mortgage. We had our home loan modified only to have our house payment go up $200 more dollars a month. We were struggling at $775/month. Now it is almost $1000. Can we walk away? How long would it take if they foreclosed for us to have to move? Thx

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Peggy January 12, 2014 at 7:21 pm

Ed I have looked into all that you just said. They wanted me to pay over 300,000 for my home. Then on final payment pay a balloon payment of 25,000. Well if I don’t have that 25,000 then they get my house for a mere 25,000 after I paid all that money to them. Not gonna happen. So I quit paying and they are now foreclosing on me. I have found all kinds of fraud. Like for example, did you know when you go sign for your house. You are actually the seller. Yes, you actually sell the home to them, and then pay them for it. They don’t own the house nor have they ever owned the land. Now if someone builds you a home. You owe that builder for materials and work done. But a bank does not own your home now or ever.

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Anna V November 18, 2013 at 11:15 pm

Ours is a combination. The Bank (the servicer) then the Loan Guaranteer (would that be who provided the funds?) refused to work with us when I called a year in advance with warning our income had decreased since 9/15/2008 and while we were still making payments, it would become troublesome soon, so, can we please get the interest rate modified while we still have time? Wow. What I game I uncovered…still playing strong in mid-2012!. Between the US Bank not even knowing what kind of mortgage we had (which didn’t turn out to be the one our paperwork seems to indicate we had, incidentally), and, putting us through the Bank plan of “lets ruin their credit so they don’t have any leg to stand on their already underwater, low equited mortgage”…then…trying to get any communication out of the Wisconsin Department of Veterans Affairs…who, it turns out are the Economic Hit Men enforcing their Goldman Sachs Bond Loan which they had marketed to us as a VA Loan only through Wisconsin…well…anyway…the price for being a Veteran and getting married and buying a house before even working on the kid? Yah. The house. So, at least the foreclosure judgment wasn’t issued on Veteran’s Day…they managed to wait until 11/14/2013. Anyway, don’t bother with the Wisconsin Department of Veterans Affairs if you are a veteran and ever really need anything…they look great on the internet…but…they would rather go through all of the time and money it takes to foreclose on a Veteran’s mortgage than find a way to give themselves twenty-five more years of interest from that very same Veteran. We are happy to help the WDVA further defund themselves, and, we anxiously await to see if we are going to have to bankrupt or not. So exciting…Living the Dream!

Oh, and, until it happens to you? Yah…don’t be thinking you are exempt…I was hoping we were…we almost rode it out until the very end….I was doing money magic & pulling funds out of my butt and doing all the tricks I learned while working for a bank…until the last overtime got cut… No one wants to help. I’ve made plenty of trouble…even contacting each and every politician… Even other Human Citizens have made it very clear: Well it is Your fault, you signed the bottom line.

Okay…well then…karma. Just another 836 sq ft 76 year old house that needs wall insulation and brand new windows on the market…cheap! for around $135,000…more than we actually owed on it now…LOLOL

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l johnson October 23, 2013 at 8:56 am

My neighbor kept stealing ground through the process of pouring footers, extending roof beams and pushing out walls from the inside. The county documented the expansions, but the codes and zoning officer refused to require the expansions to be removed. I paid for a survey, title report and provided the bank with the all the docs, as the neighbor created a zoning hardship — the back door is not usable.

The bank sent the documentation to every imaginable department and is now contemplating if the property is worth defending or to be charged off. According to the bank I am to be held liable for the debt even though I did everything possible. I am not in default–did not stop paying while the bank tried to figure out recourse….If the bank chooses not to act to protect its asset how am I liable?

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Pp October 6, 2013 at 12:49 pm

I need a question answered… I have a home with a mortgage held by a developer, she is a tyrant and made our paradise miserable! We hate coming home! We were thinking of buying another house and deeding this one back and be done with her. Since the mortgage is privately held, it’s not on our credit report and would not affect us. Am I correct in thinking this is an option?

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Stefano B. February 14, 2014 at 6:50 pm

Hello Pp,

I can clearly see the frustration you had with this developer. However, I need more clarification on what you mean by “deeding this one back”? Deeding how and to who?
If you actually mean to give a quit-claim deed to the mortgage lender and walking-away, depending on the terms you have with your lender, He/She might say OK (assuming they are really private/not a large bank).
Otherwise, you may have to sell the house (if is not upside down) or rent it to cover the monthly payments to the lenders.

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Gwen G October 5, 2013 at 7:37 pm

Finding this information, especially the well-thought out explanation by Ed Smith, is a watershed moment for me. My husband and I are both teachers. He is legally blind, but through accommodations he keeps going. We are so scared and so tired of trying to make ends meet. We are current on our mortgage – barely. We want to sell our house, but it needs a roof, the HVAC units need to be replaced, and there are many other deferred maintenance projects that my husband can’t repair due to his vision loss.

So our house is not sellable yet we don’t have enough money to prepare it to sell. On top of that, we are supporting our son and grandson, who is disabled. Our house is currently worth almost exactly what we owe on it – we have a first mortgage and a second interest-only line of credit mortgage. We feel desperate. Does anyone have advice for us?

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Stefano B. February 14, 2014 at 7:03 pm

Gwen G,

As a real estate builder and investor, I can surely say every home has a value (even with bad AC, roof, etc…). Even though you and your neighbors may think otherwise.

There are a few ways out of this:

1) You can rent out the house for a reduced rent in exchange for the renter to fix up the issues. (You will have to give him a fair rent so he can cover his repair costs. But the good side is that you don’t take a dime out of your pocket).
You will have to rent a place somewhere else (likely smaller than where you are now) and with the proceeds from the rent payment of your home, you can pay the mortgage.

2) Even though is quite a challenge, you may try. NEGOTIATE WITH THE BANK.
How? Here is what you do, you tell them of your hardship (have proof at hand) and say if they don’t work things out, you have no other option than “bankruptcy”.

3) If the ideas above fail, you can file “ch. 7 bankruptcy” and have the mortgage discharged. (You don’t keep the home! just to clarify. All you get is the debt dismissed). This is a last case option.

Lastly, if your home is in Miami, FL or within the tri-county area…I may be able to help you further.

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Candice September 28, 2013 at 2:35 pm

You have summed up exactly what I am feeling but couldn’t find the words to describe. I did not make a mortgage payment this month for the first time in six years and I, too, have perfect credit. I felt ashamed and disgusted with myself. Thank you so much for sharing your experience so that me and others out there don’t feel alone.

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Mark Moore May 22, 2013 at 4:15 pm

Ms. O’Brien, your article was amazingly good. Most articles tend to be heavily lopsided towards “default is just evil” or “stick it to the banksters”. The truth is closer to the middle. Thank you for articulating a more balanced view.

In your discussion of “phantom title”, I believe your readers should take an even stringer position. The property is rightfully theirs until *after* foreclosure. The only thing that changes at foreclosure is who is on title.

Readers should ask themselves what they would have done a year or two ago before they stopped making payments. Would they allow strangers onto their property? Would they allow strangers to intimidate them and their family members in their very own home?

My guess is of course not! They would ask the strangers to leave and to leave them alone. If the strangers persisted, the homeowner would call the cops.

If you are pre-foreclosure, you are EXACTLY the same legal owner of the property with the *exact* same rights to peaceful enjoyment of your home.

If you would not let people harass you normally, why on earth would you let them do it now, while you are still the 100% legal owner???

Even after foreclosure, the new owner has no right to harass, and they must follow a well defined eviction process which will give you plenty of time to vacate in an orderly manner.

Homeowners should not vacate before the foreclosure is complete because of the risk of phantom title, but also because it’s THEIR house still.

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Ed Smith January 27, 2013 at 8:30 pm

When homeowners are late on mortgage payments, the banks scream “default” as if missing payments is a crime. In truth, it is the banks that are often the parties that are, actually, committing crimes – and it is about time they were held accountable. In fact, the current situation is a national disgrace that should no longer be handled with the “deferred prosecution” of bankers (i.e. a voluntary alternative to adjudication where a prosecutor agrees to grant amnesty or immunity to the corrupt bankers in exchange for their agreement to fulfill certain requirements). It is an absolute outrage that any homeowner, that is willing to pay a reasonable and equitable mortgage payment based on current circumstances and economic conditions, should lose his or her home by a foreclosure shown to be the product of a fraudulent investment scheme on the part of, or known by, the foreclosing bank.

Consider the following and you be the judge:

1. Millions of homeowners have been foreclosed and lost their homes for being in default (i.e. missing mortgage payments).

2. A vast majority of these foreclosures took place in circumstances where the banking community, based on knowingly inflated property values and interest rates, pooled the homeowner’s mortgage with thousands of other mortgages – and then sold interests in those “securitized” pools of mortgages to investors. In doing so, the financial community made extraordinary amounts of extra money on the large income streams of mortgage payments generated by that pooling of mortgages.

3. In other words, it was the homeowners’ inflated payments that were supporting a wind-fall of extra banking profits and Wall Street bonuses.

4. However, the homeowner never even knew he or she was being used as an “investment pawn” to fuel what is now being exposed as, perhaps, the ultimate Ponzi-scheme that has all but destroyed the U.S. economy.

5. In most cases, the scheme was put into motion by and through the advent and use of a privately-owned company called “Mortgage Electronic Registration Systems, Inc.” (an invention inspired and organized by the country’s largest banks and mortgage finance firms to, allegedly, improve the servicing of mortgage loans by enabling their electronic transfer and tracking).

6. In fact, millions of borrowers showed up at the closing of their mortgage loans and were never told, nor realized, that they had (through, in most cases, one or two lines of small print in the beginning of only the mortgage document) given their mortgages to this “all-powerful” monster called Mortgage Electronic Registration Systems, Inc. that has been at the center of foreclosure controversy throughout the United States for the past several years.

7. Since it may not be legally possible for a mortgage to be modified after it has been transferred by Mortgage Electronic Registration Systems, Inc. to a third party (as the so-called “nominee” for the original lender), many homeowners are being further deceived by a host of government-endorsed (but knowingly disingenuous) mortgage modification programs which were, and are, merely “adding insult to injury” as schemes to extract more money out of homeowners under the guise of offering a permanent mortgage modification. These programs, on the whole, have been a failure.

8. Thousands and thousands of “applicants” have learned the hard way that the essence of a “mortgage modification application” is to (a) have the homeowner agree to being totally at fault, (b) extract financial information from the homeowner, (c) extract money from the homeowner while guaranteeing little or nothing, and then (d) ultimately declining the application; all orchestrated under unmercifully delayed and unresponsive processing procedures.

9. The ugly result of these circumstances is that, truth be told, the banks (especially in their capacity as “mortgage servicers”) know that a vast majority of the chains of title related to their mortgage loans are broken, and the preferred approach is simply to foreclose them to “start the chain of title all over again” with a “new” foreclosure deed which serves to erase the effect of the broken chain of title to the given property which, if properly contested and challenged, may very well have made the subject defaulted mortgage one that could not be legally foreclosed.

10. Tragically, both the state and federal regulators, as well as many Courts, are buying into the notion that America should be a “government of the banks, by the banks, for the banks” and not the government originally envisioned by Abraham Lincoln who, in the last section of the Gettysburg address, defined the nation’s task and objective that a “government of the people, by the people, for the people, shall not perish from the earth.”

The bottom line here is that tens of millions of homeowners (many of which are current on their mortgage loans and have no idea that they’ve also been duped) have been victims of intentionally deceptive and unfair trade practices which are illegal, if not criminal, in nature – and the deck is stacked in a manner which makes it all but impossible to do much about it absent very substantial resources to wage a court battle.

In the final analysis, the U.S. foreclosure crisis hardly exemplifies, under any stretch of the imagination, an application of the core principles that provide the foundation for a representative democracy.

Given these circumstances, the question is who is going to stand up and do something about it. Most don’t want to do anything for fear of political or occupational retaliation.

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Pyrowidow October 22, 2014 at 3:20 pm

Point 8 is absolutely true!!!

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