Take precautions before giving up home

Consumers should take precautions before walking away from their homes or they could face unnecessary legal consequences.

That’s the word today from Consumer Credit Counseling Service of Greater Atlanta, which is warning homeowners they may be sued by the mortgage company if they just “turn in the keys.”

Instead, CCCS says, homeowners should get a document that frees them of all future liability before they walk away or they get could sued to recover the amount owed.

What’s more, consumers who sell their home for less than the amount owed — known as a “short sale” — can be sued for the unpaid balance. CCCS warns that can happen even after the sale of the home takes place.

“A borrower facing a foreclosure should assume that a post-foreclosure lawsuit is possible,” Emory University law professor Frank Alexander said in a CCCS news release.

“In addition, no homeowner should ever participate in a short sale without receiving a signed agreement clarifying that all outstanding debt has been forgiven. The same is true for all deed-in-lieu of foreclosure actions.”

This advice also applies to home-equity loans or second mortgages, CCCS says.

Alexander predicts an increase in the number of lawsuits filed by mortgage companies to obtain garnishment of a homeowner’s wages. That’s because some borrowers who walk away still have decent incomes.

Essentially, do not compound the problem with a half-baked solution.

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5 comments Add your comment

TnGelding

February 22nd, 2010
9:00 am

If you can afford to, stay in the home no matter how upside down you are. Prices will eventually recover and the cost of moving and other expenses will make it viable. Those that walk away that can afford to pay should be sued. But the mortgage companies need to look no further than the nearest mirror to find the real problem. The incestuous industry needed to be cleaned up.

Laura

February 22nd, 2010
3:52 pm

@TnGelding – I don’t think you’re a fool, but I would advise reading some of the literature and articles written by economists concerning the recovery of the real estate market – many of them disagree with your analysis. Most of them think the real estate market is going to take a full ten years or more to recover to 2003-2004 levels, and even then, most don’t believe individuals with houses $100,000 or more underwater will ever recover what those people paid for them unless they live in them 30 years or more. If you’re 35 years old, have a good job and are getting paid, you can probably afford to do that. There are others that are late middle age (55-65 years old), have either lost their jobs or are not being paid at the ones they do have (my husband is a shareholder in a law firm where no one but the principal partner, lower level attorneys and support staff have been paid in seven months) and have nothing left but their retirement assets with which to pay on a house that has lost over $100,000 or more and won’t gain back the lost investment for what could be more than ten years. No expert whose opinions I have read on this subject believe that ANYONE should be using 401K, IRA or other pension funds to pay for a house that is that far underwater. You could spend everything you have on a house that may never recover its losses, and your retirement funds will all be gone when it’s time for you to retire and you’ll still have a house that isn’t paid for and is worth less than you paid for it initially. Social Security isn’t going to cover most people’s needs in the next twenty years and could be completely bankrupt by that time. I just don’t think this situation has a one-size-fits-all solution to it – a lot depends on the financial situation of the borrowers, their ages and a lot of other intrinsic factors to numerous to list here.

Truss

February 22nd, 2010
7:00 pm

Amen Laura! You are 100% correct in that there is no one size fits all solution. If you think about the whole thing carefully there is no way it can recover that quickly. There are a lot of people in a loan that is $100k + underwater and nearly all of them have had an income loss of some type. With the job market like it is and the housing industry like it is it sure seems logical this thing is going to take some time to recover. I have a home $100k + underwater, lost my job, nothing available in my area for 8 months but finally find something out of state at 1/3 less income, the bank wont work with me on the pased due, I dont qualify for assistance…what do you do just keep flushing your money down the toilet? You move on!

JohnF

February 23rd, 2010
11:26 am

Whether the housing market is going to recover soon or take longer is not the focus of today’s blog. It’s whether you can just walk away from an obligation without expecting the bank to come after you. If you can afford to pay the mortgage then the banks will not allow a short sale and they will come after you for the deficiency..or they will sell your loan to companies that specialize in deficiency judgement suits which are always in the bank’s favor in Georgia. I invested in some property (at the peak) that is currently listed $80,000 below what we paid and $15,000 below our mortgage balance. I’d love to walk away…screw the moral implications..but they’ll get their money now or get it later and my 799 credit score will be gone. So I’m still selling this nightmare at a short sale price and taking out a home equity line of credit on my primary home (which is paid off) to make up the difference at closing.

TnGelding

February 23rd, 2010
11:15 pm

Certainly there are some extreme examples. I never understood why anyone would buy a house that they could have built for 1/3 of the price.

Thank you JohnF for doing the right thing. Where has our integrity gone? Or did we ever have any?