If the value of your home is less than the amount of your mortgage does it make sense to keep making your payments or should you just walk away? If you can’t get the bank to reduce the principal of your loan, what should you do? Well, no one can tell you that because every situation is different, but, as The Times points out this weekend, the penalties for defaulting on your mortgage may not be as onerous as they once were. First of all, more and more banks and saying OK to short sales, in which the owner sells the house for less than the value of the mortgage; secondly, even if you go into foreclosure, the bank is unlikely to chase you down to make up the difference between the sales price and the mortgage amount. If the lender does forgive some piece of your debt, however, some states will still try to treat the forgiven debt as taxable income. Lastly, some legal experts expect that the credit rating agencies won’t hit you as hard for a foreclosure now as they might have in the past. It just seems obvious that a foreclosure in 2008 or 2009 doesn’t have as much information value as a foreclosure five years ago, said legal prof Todd J. Zywicki. Are any readers currently underwater and considering voluntarily bailing on their home?
Thoughts on Walking Away From Your Home Loan [NY Times]
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