Walking away from your mortgage.

It seems to me there are better options. Why not keep the house and rent it to tenants for a couple of years? Even if the rental income is not enough to pay the mortgage each month, his loss over a couple of years probably would not come to $50,000. In times when credit is tight and house sales are slow, sometimes rents rise. And, who knows, in a few years real estate may have recovered enough to sell without a loss, or at a much smaller loss. Or, look at the really bright side. Maybe he will do well in his new job and will be able to keep the house as rental property for 10 or 20 years,when it will be worth two or three times as much.

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This is exactly what I did 16 years ago when in a similar situation. After about 4 or 5 years, I was able to sell the house for an $11000 profit instead of taking probably a $20000 loss. The rent checks made the mortgage payments and covered expenses in the mean time. The key is finding a very good property manager. (Mine sought out middle-aged to elderly renters with good credit.)

Bob

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Yes, he'll still be $50k in the negative. He has signed a note for the full amount and the bank has every right to expect it repaid. When I served on the credit committee at our credit union several years ago, I had an opportunity to see a credit report for a member who had walked away from a mortgage in California. The bank was claiming a balance still owed of $22k.

Elizabeth Richardson

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Patience and time works wonders. Too many people in these emergency situations are under pressure and believe they have to act quickly and take a big loss. But sometimes slowing down and doing nothing for a while would not increase the loss by much and could actually turn a loss into a gain. Yes, a good property manager is essentially, especially for someone who is living in another state. Handling rental property may seem like a headache, but it is a lot better than taking a $50,000 loss or dealing with foreclosuire and bad credit.

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I saw no reply suggesting he talk to the bank. They may agree to a 'short sale', and if they do, he can ask up front what the impact would be to his credit rating. As others noted, there is no 'walking away' without some repercussion. A tenant may solve the problem if it becomes close to break-even. Not knowing the city or any of the numbers, we don't know if that's a viable solution. JOE

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You need to establish some facts. A purchase money mortgage in California is typically "non-recourse (to other assets of his)". They can't come after you if it goes to trustee sale (judicial foreclosure is another matter and rare). If your friend refinanced, this option is closed. The second mortgage may be a "recourse" (to other assets) loan. I would establish whether the loans are recourse or non- recourse and the amounts before making any decisions. You friend may have access to a CPA or accountant who is familiar with these specific matters. In general banks come after you if you have assets. This would seem to describe your friend with a job. If you are jobless and sleeping in your car they won't try too hard. They may periodically demand payment (remember these notes get assigned and re-assigned all the time like anything else that ends up in a collection agency) just to make sure.

Figure out where your friend stands before making any decisions.

Another threadon this topic:

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