Deciding On The Financial Sense Of A Foreclosure

Last updated on: May 24, 2022

Sometimes foreclosure does not come as a surprise to some homeowners because they purposefully make a decision to walk away from their mortgage. There may be multiple reasons behind this decision, including avoiding having to repay an underwater mortgage. When deciding how to proceed, a homeowner may ask himself what the consequences of walking away would be, and whether the court would inquire as to their motives or intent.

The question of whether or not you can walk away from a foreclosure when you can afford the payments is more an ethical one than it is a legal one. In foreclosure proceedings, the court does not look at the homeowner’s intent in failing to make payments. In most cases, the only question is of whether or not the homeowner made the required payments, and whether the mortgage lender can prove it has the right to foreclose. Therefore, to some homeowners, walking away ends up looking like more of a business decision than an emotional one. If a homeowner does not have other concerns, such as how a foreclosure can affect their employment, or image if they are business owners, then walking away from an underwater mortgage can seem like a reasonable solution to a financial problem.

Intent may play a role if the mortgage lender is involved in negotiations with the homeowner as to deficiencies after the home is sold. In a recourse state like Florida, which allows a mortgage lender to pursue the difference between what the home sells for and the amount still owed on a mortgage, walking away may not be a good idea because the bank can seek this deficiency. The homeowner can seek to negotiate with the mortgage lender and have the deficiency waived, however, if the mortgage lender is aware of the homeowner’s other significant assets, it may not be willing to negotiate. Homeowners should note that even if the mortgage lender does not pursue a deficiency judgment, the amount of the deficiency may be taxed by the Internal Revenue Service as a forgiven debt.

Walking away and allowing a home to be foreclosed carries the same consequences in terms of taking a hit on your credit. Just because you could still afford to make payments does not mean that your credit will not be affected by a foreclosure. Foreclosure can negatively affect a person’s credit for years. The only difference from other foreclosed homeowners is that a homeowner choosing to walk away may have more options when it comes to purchasing additional assets without relying solely on credit. A homeowner who can still afford payments making the decision to walk away from their mortgage may also have other assets, including another home, and can afford to wait for his credit to rebound after a foreclosure.

Contact Us For Legal Assistance

If you are considering walking away from your home as a calculated option to avoid financial losses, you should discuss the impact of this decision with an experienced foreclosure attorney. Contact the North Miami foreclosure attorneys at Charlip Law Group, L.C. for a consultation on your case.

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