Many news outlets have been reporting lately on the troubling trend of "walkaways," who are leaving their "upside-down" homes and sending "jingle mail" to their lenders. In other words, people are giving up on their mortgages. Here's a quick look at the terms that have been coined to describe this trend:
As house prices continue to fall, many borrowers are finding that they owe more to their lenders than their house's current value, according to US News & World Report. Apparently, some borrowers walk away to avoid foreclosure, some walk away because they no longer view mortgage payments as a sound investment and some are seeking help from online businesses to hasten and facilitate the foreclosure process.
But beware: All three options could be devastating to your financial health and credit score.
If walking away from your home or giving in to foreclosure sounds like a tempting solution, consider the following:
Because of the structure of the modern mortgage market, your home loan was likely put in a pool with thousands of other loans and sold piecemeal to investors. Most borrowers don't know who holds their mortgages, which can lead to a sense of anonymity and help people justify walking away from a house that's headed for foreclosure.
But you could still owe income tax on the balance you never paid, and the IRS will likely see that you pay it. Instead of walking away from foreclosure, try one of the following.
You know that both foreclosure and walking away are bad for your credit health. In fact, even before you file, your credit may have already been damaged by months of late mortgage payments. What you may need most of all is a fresh start. A chance to wipe the slate clean, and move forward without the stress and burden of your past debt problems.
For many people, filing bankruptcy gives them the fresh start they need and allows them to move forward with their life. Filing bankruptcy may allow you to keep your home and clear your debt without sacrificing
Remember: foreclosure is inconvenient and costly for lenders, so they're often willing to work out new terms with struggling borrowers. It's usually better for them to make slightly less money by adjusting a loan's terms than to lose money by proceeding with foreclosure.
If you're facing foreclosure, you may want to immediately get in touch with a local bankruptcy lawyer who can explain how filing Chapter 13 bankruptcy has helped others stop foreclosure in the past and how it may be able to help you keep your home as well.