Mortgage Defaulting Do’s and Don’ts:

Millions of homeowners reach the point where they feel they have exhausted every last
option. They can no longer make payments on their mortgage, their credit is in
tatters, their patience and pride has been worn down by banks that refuse to
work with them on a load modification or short sale strategies that will leave
them financially vulnerable.

When it comes down to a choice to either “pay or walk away” more and more homeowners
are opting to abandon their homes to the foreclosure process.

If you decide to default on your mortgage and allow the lender to foreclose on the
house, the important thing to remember is to avoid any risky behaviors that
will have negative consequences for you once you have walked away. This sort of
planned foreclosure is called a “strategic default.” Here’s how to protect
yourself from prolonged and serious legal consequences:

1. Do know the type of foreclosure you are facing.

Non-judicial foreclosures do not go through the state court system. Essentially, homeowners simply stop
paying their mortgage and wait for their lender to institute foreclosure
proceedings. Depending on the housing market in their area, banks may be more
or less eager to take back a particular property.

I know people who are still living in their homes several years after they have
stopped making mortgage payments.
A judicial foreclosure proceeds through the state court system and in states where
it is allowed a judgment for the deficiency (between what the house is worth
and what you owe on the mortgage) will be rendered against you in a court of
law.
In some states, lenders have the ability to sue for the unpaid balance for a
period of time ranging from 6 months to 6 years depending on the circumstances.
Research whether you live in a “non-recourse” state where lenders can take back
the house, but not touch your other collateral or assets to close the gap in
what you still owe them.

2. Don’t try to get “revenge” on the lender. No matter how angry you are over the circumstances
that have caused you to abandon your home, do not take it out on the house!
There are serious legal consequences to destroying a home in foreclosure.

3. Do remember that until the bank forecloses, you are still the owner of the property. Even if you
aren’t living in the house, you are the responsible party until lender legally
takes possession.  When you leave, be sure to leave the house in good condition. Do a walk-through and
make sure everything is okay. Take pictures that show the home is in good
condition.  Keep your liability insurance current—remember, if someone is injured on the
property, you are still the owner of record.

Ifyou continue to live in the area, do occasional drive-bys. Make sure the house
has not been broken in to or vandalized. Even if you are angry with your
mortgage holder, try to have some compassion for your neighbors. Homes that
have been foreclosed devalue the entire neighborhood; homes that have been
foreclosed and are in bad repair drop everyone’s property values even more.

4. Do have a responsible plan for the future. Get a strong financial
plan in place that will let you use the money formerly put toward your mortgage
payments to regain stability.

Rent a home if the rent is less than your monthly mortgage (otherwise, why leave the
home at all?)

Know that your credit score will suffer moderate to severe negative impact depending
on the circumstances around your decision to allow foreclosure.

Remind yourself that bad credit is a relatively short-term outcome (from 1 to 10 years)
and be prepared to work to repair yours. Avoid other offers that entice you to
live beyond your current means. After all, wasn’t it “easy credit” that got you
and other homeowners into this situation in the first place?

In all of the solutions for getting out from an underwater housing situation, you
must force the lender to come to you. You cannot count on parity, equality,
good faith—you can’t count on any promises—on the part of the lender.

The fact is, you took their money on their terms and now they are entitled to take
your money every month, change your interest, take or sell your house.

Homeowners in trouble need to be smart about their options to walk away, it’s the only way
to maintain the possibility of ever gaining back their piece of the American
Dream.

by Bob Massi, an attorney and Fox News Legal Analyst.

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