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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