Walk away from your mortgage
More people are walking away from their mortgage. This article explains how you can not only walk away from your mortgage but walk away from all your credit cards too. You can be debt free and this article tells you how. I am not judging you or this situation. I am just giving you the information as I see it.
I am the developer of a home study course called Mortgage Relief Formula. I have been there and done that — and have worked with hundreds of homeowners. This information comes from years of experience and continued study.
Your mortgage foreclosure and your credit score
Many people are concerned about their credit score. I hear this all day long from people I coach or people who purchase my Mortgage Relief Formula. "I have worked for years on my credit score," someone I will call Samantha told me. "I am worried about what will happen to it but I can't afford to keep making these payments."
Samantha is typical. She has an income of maybe $3000 take-home per month and her house was purchased for $500,000. She bought the house thinking it would keep going up, up and up. She would get rich owning a house.
Of course, what millions of people have discovered is that house prices go down. And the sharper the rise, the more viscious the fall.
So now each month that Samantha is making payments on her negative amortization loan, she owes a higher balance than the month before. And to make matters worse, her house is maybe worth $350,000. She doesn't know because it's too hard to tell at this point what it is worth. Nothing has sold since last August in her development.
Samantha had no business buying a house that cost that much. And she was speculating in real estate, something that most people shouldn't be doing anyway. But the banks cooperated and were more than generous because they lent her 90% on the first mortgage and 10% on the second mortgage. She did not have to put in any down payment at all on her house purchase.
Samantha cannot afford this loss every month so she has been living on credit cards to make up for the income shortage. Her debt is something like $60,000 on credit cards now.
So I will use Samantha (not her real name and facts slightly changed to disguise her identity) as my example.
Stop worrying about your FICO credit score
Most of what we believe does not come true. Samantha is worried about her credit score. She really should be more concerned with getting out of debt.
She faces foreclosure and bankruptcy. Neither are the end of the world. But they do not help your credit score much. In fact the whole credit score thing is overblown. Who cares about their credit score if they can rent a car, buy a house, and pay their bills?
And even if you have terrible credit you can do all these things. You may not be able to get 2% balance transfer offers and you may not be able to get $20,000 credit lines but you can do just fine with a horrible FICO score.
So back to Samantha. She can do two things. She can do a mortgage short sale and settle her credit card debts. Or she can simply walk away.
Let me discuss both options.
Walk away from your mortgage
Samantha can say goodbye to her mortgage. She can stay there at the house for a long time, sometimes. The lender may not foreclose right away. She can put the money she would be paying on the mortgage into a savings account instead. They cannot come after her savings until later anyway, if at all.
She could also buy gold or silver coins with the money and hold her savings as portable wealth. The money is not on the books of any bank that way and is safer from being seized by creditors in the long run. And gold and silver give her some protection against inflation. She could also just hold onto it in the form of cash for that matter.
The point is that she should be saving money so she can use it later to pre-pay rent.
Eventually they will foreclose. Because Samantha's second mortgage has no equity they will not foreclose. The first mortgage will foreclose. Samantha can continue to live there rent free while she saves money.
The foreclosure will then take place. Either a sherriff's sale or a trustee's sale depending upon where Samantha lives. It can be a non-judicial foreclosure or judicial foreclosure.
Up until that point Samantha has been the owner of her house. Now she becomes a tenant. A tenant who is not paying rent. So depending upon state law, she faces an eviction proceeding. In some states there is no need for a hearing but in other states there is a process that must be followed to evict a tenant.
She can move out now.
And she can rent an apartment. There are two types of landlords. Larger corporate or professionally managed landlords and then there are small landlords. The first group probably won't rent to her. The second group probably will. And she has that savings that she can use to prepay rent so that the risk is gone for the landlord.
She will find abundant places to rent for maybe half of what she was spending when she owned the house.
The second mortgage holder can pursue you
Samantha will still owe money perhaps as a deficiency judgment on the first mortgage and on the second mortgage. In states with non judicial foreclosure, the lender that forecloses usually cannot pursue the borrower later.
But since Samantha has two mortgages, her second mortgage holder can still come after Samantha. They have not foreclosed. They are going to be wiped out in the foreclosure process as soon as the first mortgage forecloses. But they still have the ability to come after Samantha later. They will have to file a breach of contract law suit and have Samantha served with the complaint.
The second mortgage holder has to get a judgment against her and then they may go after her "assets".
But Samantha can always file for bankruptcy.
Filing bankruptcy in a second mortgage foreclosure situation
The new means test for bankruptcy says that only if people fall below a certain income level can they get a discharge of their debts. Otherwise they have to pay off their debts at least partially for $167 or more per month for up to five years.
However, the easy thing for Samantha to do is simply quit her job. If her income drops for up to five months she can get a chapter seven discharge and it's all over. The means test actually rewards Samantha for having higher living expenses and lower income because that is the way for her to get a chapter seven bankruptcy discharge of her debts!
Walk away from credit card debt
Samantha can also walk away from her credit card debt. These companies may file lawsuits but often they just charge the balances off. She can change her phone number, and exercise her right to tell the creditors not to contact her. That will put an end to that. Nobody has to put up with harrassment by creditors or collection representatives.
She can get a secured credit card if she wants a card, or she can get a credit card with a low limit that is unsecured from some companies that deal with people with bad credit. Of course the fees will be high and the interest rate will be high, but she can use this to rent a car and those few things that require a credit card.
Or she can use prepaid credit cards or debit cards and do just fine.
The alternative for Samantha is she can avoid walking away and instead resolve things through a more cooperative settlement process. I am not saying she should do either one, but I am giving you the information as I see it for you to see what your options are.
Do a mortgage short sale and settle credit card debts without bankruptcy
Samantha can arrange a mortgage short sale. That will pay each of her lenders something. The first mortgage will get most of the money. The second mortgage holder will get a little. And they will release their mortgages and let the house be sold.
What if there are not buyers around? Samantha can lower the price until someone bites. Someone always bites in most situations if the price is low enough. My nine day house sale will let you sell your house quickly.
Now Samantha can then settle her credit card debts by mailing letters to her credit cards. She does not need to talk to a single person. She can do it all by mail. She can get not only interest rate reductions but principal reductions. She can make small payments to the credit cards over a few years. The credit card companies must promise to report positively about her credit. The credit card banks will get more this way than they would in bankruptcy.
Both systems work. Walking away from your mortgage. Walking away from your credit cards. Eventually it all rolls off your credit report. But the second solution, doing a mortgage short sale and settling credit card debts, that works better in that it helps your credit and gets you out from under.
I hope this has been helpful to you. I have the Mortgage Relief Formula home study course that teaches you how to walk away from your mortgage, how to do a mortgage short sale, how to setttle credit card debts for pennies or dimes on the dollar, and how to sell your house in nine days, without a broker, and get top dollar even when there are no buyers. I also teach you how to buy a house with no money down and no credit or even if you have really bad credit.
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27 Comments on Walk away from your mortgage »
Mr Sandman @ 7:27 pm:
didn't know how else to contact you again, Richard.
I just finished hearing my first run of the 88 minutes audio you had with Lee Mckinney, Sara, Valerie, and others. I must say to even get thru that first hearing without going batty with the "baby" noises in the background was a real challenge. Yet the information was so valuable that I could learn to hear it again and again and tune out that kid !!! I am afraid to think it was Lee's child. but I don't dare say anything about where those sounds were coming from. It is major distraction but adds a hint of realism to the whole thing. Life being full of so many distractions anyway, this should be a tolerable anomoly.
I have now received in excess of $ 10,000 worth of information in just one day. I have been at this computer now for 12 straight hours just listening to , copying, and downloading everything I can about your Program and links. Too bad we got cut-off earlier…. (Wife has been selling everything in the home that is not nailed down,) ( and I have to help her load the customers cars at whim) Preparing for the 'inevitable' short sale move. I remain your student.
William Rios
a.k.a……Mr.Sandman
linda squires @ 2:25 pm:
what will happen if I do not contact my mortgage company and walk away from my house, I am 2 months behind on payments, Jan. 2009 I already did a remodification but with the economy I still cannot afford the mortgage, my husband is a truckdriver and the trucking industry has slowed down tremdously, we are so far in debt that a large house payment does not help. w e are already out of the house renting another one, my husband wants to just walk away but I want to do a deed in leau of foreclosure what would be the best option.
Deed in lieu may or may not be possible. If you have one loan it may be possible. If you have two on the house, such as a home equity line of credit, it may not be. Also, in some states, deed in lieu is done and in other states it is not.
Better is to think in terms of short sale. A short sale is ideal if you just want to get rid of the whole thing and also help your credit. It cuts your vulnerability to a deficiency judgment and helps you move on quicker with much less damage to your FICO score.
warmly
—Richard
Brandy @ 6:37 pm:
I listened to your program and wondering about your report saying that the lender can come after you for the 2nd mortgage. Can they do this even if it is a non recourse loan and the property was your place of residence, no refinancing or any other modifications, money only used to purchase the home? This is in CA. What if you don't have any assets but are married and your husband does, even if he is not on the loan or anything like that? Thanks so much, you give great info
Wayne @ 10:41 pm:
Well, here in a nutshell is why this whole country is going to hell in a handbasket.
No honor, no responsibility, no decency, it's all about let's screw the honest, the hard-working, the responsible. Great plan for a nation.
Mike @ 8:30 am:
Well Wayne to your comment "No honor, no responsibility, no decency, it's all about let's screw the honest, the hard-working, the responsible" ok…. so the corrupt bankers and credit card companies that are ratejacking and adding insane fees wherever possible are decent,honest and responsible? screw them! they are thieves and liars just like the wall street scums who can drive a company into the ground overnight with dishonest stock manipulation, give me a break the economy is in the toilet and many people with no jobs to be had have no other choice but to default so I say don't pay they will write it off anyhow through dishonest handouts and bailouts and to the website author great article.
Anderbot @ 6:55 am:
I am in the military and just got a divorce. I owe $242K on the one mortgage and am sole owner of the house. I've never missed a payment.
The problem is that I'm moving in January which is 5 months away. I can't pay on two places and I don't qualify for the military's reimbursement program. Houses in the neighborhood are worth far less than when I bought mine in 2007. My options seem to be sell for a $20K loss, rent it for a $7K per year loss or foreclose.
My questions regarding foreclosure in Mississippi are: Can I walk away from this mortgage and NOT face a deficiency judgement? I do have other assets, and I fear that I could be a target.
Also, I've been told short sales are not possible if you have made all the payments and have other assets. Is this true?
Thanks,
Anderbot
Donald @ 11:42 am:
I've always believed in taking care of my bills but after nearly 40 years of responsible handling of money and debt I find that I am drastically underwater on my residence and two modest rental houses all financed at 15 years, 6% interest and with only six more years to go! Let me tell you, I didn't sign up for my houses to be worth less than 20% of their former value.
So now that I have lost all of my equity, doesn't it just seem right that the banks should share a little of the pain? Their loss will be far less than the amount of equity I have lost.
Cindy @ 6:42 pm:
I live in Michigan and want to walk a way from my mortgage.I've already lost money with the housing market depreciating so fast. I did a conventional loan, put a significant amount of money down, and I still owe more on the house than it is worth. I just want to cut my loses and move on. Help me out!
Ben Rey @ 9:55 pm:
I wanted to get some advice. I presently live in a condo (S.W. Collier County, Florida) that is half of what I owe. I also pay 235 a month on association dues, which nothing is done, but weed wacking the grass and hedges. I also purchased an acre property which is not on my name (family) but I've been paying for a few years and it also is worth about 1/3 of what I paid. 100 grand!
I had planned on renting out the condo and building a house on the lot, but even building a house for 55 dollars a square foot, then about 85,000 left on the lot and to top it off the impact fees being around 38,000 the value of compariables did not match. The closes house was around 300,000 dollars which was about 80,000 less than I was going to pay total and I needed to be at about 500,000 to get a loan at 100% percent.
What should I do when I don't want to live in the condo due to out growing it and association dues and then not wanting to let the property go?
Please advise.
Respectfully submitted.
Ben-Rey
Juliette @ 11:20 pm:
Thank you, sir, for your information through this website. It is helping me to better understand the downfall that I've already started in my mortgage default and my wrestling with the idea of also walking away from my credit debt. I hate to do this as I struggle with the ethical side of being a consumer, but since my layoff in 2008, exhausting all of my investments, savings and retirement funds-I have little other recourse now that I only earn 50% of my former salary.
This website has helped me to understand what to expect, what to do on my part, and that I need to let go of the "good credit score" stigma. I admit it is difficult to think I once held a FICO of 800, and will watch it plummet to maybe 600 or less, but, this website has helped me with the emotional stress of this whole financial fiasco myself and many Americans are in.
Thank you for your insight!
Scheppster @ 9:17 am:
Last June 2009 filed chapter 7 trying to keep house. Have a home equity loan that is not willing to modify. I am current on both mortgage and home equity, but running of of money I should have let house go during bankruptsy but that was not what I wanted to do. Way underwater on house, any options left?.
Mark @ 4:57 pm:
Oh yeah, the decent hardworking people at the mortagage companies. The ones that have threatened foreclosure 5 times on the last 4 years because of "missing" payments; payments that were made, but lost in their bereaucratic maze. We have gone through modificications just to keep a roof over our heads, each time absorbing thousands in legal fees for their house lawyers, and upping our payment each time. We could afford our payment OK when this started, but we didn't have the extra to get our own attornies to fight it, so now we are in way over our heads. Yep, I would sure feel bad about screwing over those honest, hardworking folks. Idiot.
Mark @ 5:01 pm:
Sorry, above comment directed to "Wayne"!
Mark Gordon Cooper @ 12:49 am:
Pretty simple Middle Class Americans, offer your Bank a "Take My Cash offer or We give them the Keys", if they say "No to my Cash" then we document it and you go purchase another property and I pay for it, you get a 80% LTV 30 year Note at competitive rates, no credit check and no foreclosure check, just a Private Note and new property with 20% Equity. How Stupid does the Banks think the Middle Class Americans are? I have just stopped the Bank's game. Strategic Cash Offers or Take the UpSideDown Mortgage Bank! Pretty simple and go purchase another home, get a 80% LTV loan from me at competitive rates. Life goes on, you have 20% Equity and no more Up Side Down. If the bank is smart, then you stay in your home and still have an 80% LTV Note. Either way you win, America WIns and the Middle Class Wins.
Gee Wiz, the market will adjust itself, how many times have you heard that one?
Let's Antee up US Banks and get with our Program. We are not Bluffing, Principal Reduction or Take this Up Side Down Mortgage Back!
This is real and I am personally going to solve this crisis one American Homeowner at a time, get rid of that Up Side Down Mortgage Now!
Magnetic Field @ 2:43 pm:
I am 57 years old with no savings. I have been in a handyman special in Gary, In since 1991. I have no fantasies of ever seeing a return on my investment in this house. It's a roof over my head nothing more. My mortgage is $ 611 a month. It goes up and down depending on the escrow for taxes and insurance. I only have two credit cards ( debt between the two at less than $ 4 K).
First the house was a land contract in 1991 and then a mortgage since June of 1997. The hard part is keeping up with the repairs and the high utilitiy bills. I have never missed a payment or been late. If I ever get to that point I will walk away and buy a trailer (or mobile home) and call it a day.
I am so happy that I have a job (I work in a nursing home). God bless everybody with mortgage problems right now. I just hope my health holds out so I get caught up eventually with all my debt. At this rate I won't be able to retire until I am 70 years old. LOL
Dustin @ 12:54 pm:
I would like some advice, please help… i have been trying to recover my house in many ways and i am now renting it to try an get it caught up it is currently only one month behind but its causing me a great deal of stress and i would like to know what would happen if it foreclosed while renting it the property is in WV can they come after me for a judgment seems like WV they cant but i don't know if there's a difference if your renting your property any way the tenants are a pain an the lease is almost up should i move back in an let it foreclose i owe 150,000 their going for 90,000 should i consider short sale died in lue of foreclosure i just cant seem to afford to move back in even after i regain control of the payments its to much.
Danny @ 2:42 pm:
Well,the hardest part in walking away,for me,anyway,is accepting the situation as a no-win. i mean,i have always paid my bills,i have always believed that that is what i am supposed to do.but after 7 years of faithfully making payments,i realize that this house has kept me suppressed to the point whereas i am only existing,not living.we were bred to believe that when you grow up,you are to buy a house. i thought that buying this house was expected of me,and it would make part of my life feel complete.it did for a short while.but the honeymoon was over very quickly.i can just afford making all my bills every month,but,old houses have a way of draining your pocket and soul.my house has some serious problems that i cannot even imagine paying the cost of fixing. so, after a whole lot of soul searching,i am now at ease as to not paying the mortgage company 1 more cent.i will stay here til they kick me out. i am lucky as i am a single man who doesnt need much.i have an old trailer lined up to move into whenever the situation calls for it.sure,i will be renting again,but for half the money i had been paying as a homeowner.i will get hammered with some taxes next year,i know.but that will pass. i guess what i have been trying to say is,if you are buying a house,and all your money is tied up in it,to keep it running every month,is it enough to keep you happy?i say heck no!!! i am going to rent cheap,buy my little possessions to make my everyday life enjoyable,and kiss the dream turned nightmare of buying a house goodbye.good luck to you all who are on the fence
Danny @ 3:37 pm:
oh,and a little message to the mortgage company with initials W F ….how about letting me speak to a specialist who speaks good english instead of forwarding my call to someone in india .that seriously pissed me off trying to have a conversation with a person i can only halfway understand.
TA @ 2:40 pm:
I walked away last year here in Texas. Guess what? I already OWN a new home, my credit is all but fixed (685 ain't bad,) and I only paid 3k in lawyers fees. Totally a viable option in a non-recourse state.
Christoppher Rush @ 11:31 am:
hi, i live in California, and walked away about two years ago. it has been about a year and half since foreclosure. about 6 months after the foreclosure, the second loan wrote to me asking for payment in full 67k. i wrote back to them as follows.
The debt you reference was a secured loan on my former California residence. I say "former" because I no longer own it because the first lender foreclosed on the home. While I suspect you already know the applicable law here in California relating to limitations associated with the second secured lender's sole remedy, I suggest that you should be mindful of the language in California Code of Civil Procedure Section 580b, which prohibits deficiency judgments with limited exceptions where “purchase money” securities are involved. For this purpose, “purchase money” means a third-party lender advancing funds to a buyer to be used to pay all or part of the purchase price of a dwelling of not more than four units to be occupied in part or entirely by the buyer.
Given that the proceeds of the loan in question were used to pay part of the purchase price of my former California residence, I suggest that there is simply no debt owed since the creditor failed to exercise their sole remedy of foreclosure. I must insist that you immediately cease any and all collection activity or any other actions that impair my reputation and creditworthiness.
I have not heard back from them since.
So why do you say so firmly that the second loan can come after you for the deficiency. I'm not sure that statement is entirely true. I've heard from several other sources that it is not true in California, as long as the loans were used to purchase a primary residence.
mike @ 11:44 am:
Banks walk away from Mortgages all the time. some people frown upon this like its some bad thing..fact is people get screwed by bad financial situations all the time and make some hard choices to get out of them. over time banks make a killing on mortgages over the years. mu girl is paying 432k over 30 years for a 217k mortgage on a house thats 170k. now tell me who is geting screwed?
Sean @ 10:59 am:
I filed BK and listed my home on the BK; however, I am upside down to the tune of $80,000 and it will take 15 years (estimated by economist) to recover that money. I want to walk away from the house, but I want to stay in the house until I am literally forced to move via sheriff sale. The house is already listed in the BK and no second mortgage. How long can I realistically stay in the house rent free? I am 69 years old and I want to move to a healthier state. The money I save from not paying rent can go towards down-payment on new house (I need 18 more months to qualify) for new loan, and I can have a sizable down-payment. I want to stay here, in Texas, as long as possible rent free. Those clowns have made enough money from me.
bill livesay @ 3:13 pm:
we cannot pay our credit card debt,we are upside down in the home mortage,my question is my wife has a 200,000 anunity,can you walk away from credit without paying into the anunity
Henry D @ 11:40 pm:
I am 70 years old, retired, and a veteran. I have one home that's paid in full and a second home (condo) with a balance of $163,000 with a 7% interest rate. The mortgage and HOA fee is $1,600 monthly. Recently, condos in same complex have sold for $60-80K, which makes my property valued at about $65K. I am no longer willing to pay high mortgage. What should I do? Deed in lieu? Loan modification? Debt cancellation?
Please help.
javier @ 5:16 pm:
I have aparment was paid in full and I took out a credit line for 224,000, now the apartment is worth 80,000.
what you recoomend I should do?.
thanks
Javier
Deb @ 10:30 pm:
To TA, I thought Texas is a recourse state in that a deficiency judgement can be pursued if the bank chose to. I am in Texas and underwater. The bank will not modify or refinance because of the continued loss in equity. Can you provide some info on how you were able to do it? Thanks
Barbara @ 3:13 pm:
My husband and I can't afford to fix up the house . We owe 117,000 on it and to sell it, we would get half of that as it is. We are 70 and 65 years of age and my husband had to retire. I can't work. He can't find work. We get about 48,000 a year between the two of us. What do you think the best option is for us? We want to just get out of here. It has been a stressful year trying to fix things to no avail.