You're not alone. A lot of homeowners can't pay their mortgages. There are many reasons why you may not be able to afford your mortgage payments anymore. Job loss, sickness or bad investments are just a few reasons.

Are you thinking about walking away from your home? Some people are, even though they can afford the mortgage payments. Home values have dropped drastically, and many owners owe more on their homes than what they're worth. They're called underwater homeowners.

It may be tempting to walk away if you believe the house is now a bad investment. However, it may not be that easy. Many lenders are choosing to chase walkaway homeowners.

Walking Away from Your Home

Most homeowners would never think of walking away from their financial obligations. They feel it's their moral and ethical duty to try to pay back what they owe. Many of them would rather try to work with their lenders to pay back their mortgages.

However, the choice to walk away has grown in leaps and bounds. In fact, the banking industry has a name for what happens when homeowners who walk away and send their keys to their lenders: jingle mail. These owners would rather move to a rental and let the bank take their homes.

It Won't Stop Foreclosure

Walking away won't stop the foreclosure process. The lender will still attempt to foreclose your house, whether you're there or not, usually after about three months have passed without a mortgage payment.

Foreclosure is usually handled in one of two ways:

  • Judicial sale - foreclosure process that goes through the court system
  • Power of sale (or non-judicial sale) - foreclosure process outside of the court system that's carried out by the lender

Every state allows judicial sales. About half the states allow non-judicial sales. In either case, the money from the foreclosure sale is used to pay the mortgage balance.

Many lenders won't come after homeowners for money they still owe after the sale - when the sale proceeds don't cover the full amount owed on the mortgage. They may believe it's too expensive to pursue them. However, this isn't always the case.

Being Chased by Your Lender

More and more, lenders are chasing after walkaway homeowners. You're probably safe if you simply don't have the money to pay your bills. Your lender may consider chasing you a waste of time and money.

Lenders Looking for Mortgage and Tax Payments

However, you could be in danger if you committed a strategic default. This means you had the money to make the mortgage payments but chose not to. You may have made this decision if your home was worth far less than your mortgage. Your lender can examine credit reports to see if you're behind on all your bills or just the mortgage.

Remember also that you're responsible for paying your property taxes even if you walk away from your house. Your lender may pay the tax bill so your house isn't foreclosed for tax reasons. However, the lender can go after you to recoup the tax payments.

Ways for Lenders to Collect

There are a few common ways a lender may try to collect money from you. One way is to hire a collection agency. They'll constantly contact you to try to get you to pay your mortgage balance. Your lender may go a step further and take you to court to get a deficiency judgment. This court order allows your lender to collect on the mortgage balance.

The lender can attempt to collect on the judgment against you by garnishing your wages. This means your employer will take a certain amount of money out of your paychecks to pay the judgment. This will continue until your balance is paid off.

Your lender can also collect your tax refund to help pay your debt.

Recourse and Non-Recourse May Mean the Difference

Whether your lender will chase you may depend on what state you live in. Most states are recourse states. This means that your lender can attempt to get the money you owe from your other assets. This may include your car or bank accounts.

A few states are non-recourse states. This means lenders can't use other assets to pay your mortgage balance. California and North Carolina are examples of non-recourse states.

Try to Find a Solution

You should always attempt to work with your lender before walking away. Most lenders are open to negotiating mortgage terms if you can't pay. You may be able to get a reduction in your interest rate or your loan amount. Walking away from your home may give your lender little choice but to come calling.

Questions for Your Attorney

  • Should I walk away from my home if I can't make the mortgage payments anymore? What if the value of my home dropped by 20 percent?
  • How long does a foreclosure stay on my credit history?
  • Should I file for bankruptcy at the same time I walk away from my mortgage? Will that protect me from court judgments?