What Happens When You Can’t Afford the Mortgage and Move Out?

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“What happens when you can’t afford mortgage payments and have to move out of the home?”

[NOTE: Articles and answers on DearEsq., while written and published by lawyers, do not constitute legal advice, and no attorney-client relationship is formed by your reading of this information. You should always consult with an attorney for any legal situations.]

That’s a pretty broad question. The answer is, it depends on how far behind you are and what you do when you move out.

When you get a mortgage, you sign two documents. One is a promissory note, which is your personal promise to repay the money you borrowed. The other is a “security device,” which in most states is called a “Deed of Trust” or a “Mortgage.” This is the document that is recorded with the county, and it secures the promissory note.

What that means is, if you don’t pay your monthly mortgage payments, the lender can eventually foreclose. Foreclosure is a legal process by which the property is sold in order to satisfy the debt.

In general, you want to avoid foreclosure if you can, because a) you usually have to pay not only your loan with interest, but also their costs of foreclosure, and b) it’s a nasty black mark on your credit.

Foreclosure is a fairly long process, however. Depending on the market in your area, you may be able to simply sell the house before they can foreclose. That way, the lender gets paid off, and you get to keep any equity that is left over.

If you don’t have any equity to speak of, another option is called a Deed in Lieu of Foreclosure. In essense, you sign over the property to the lender instead of making them go through the motions of foreclosing. This is something you need to negotiate with the lender in advance (you can’t just send them a deed and walk away), but if it’s appropriate for your situation, you may get better terms than you would have under a foreclosure.

Another way of buying time may be to refinance. If you can get a new loan with a lower payment, perhaps you can buy enough time to sell the house.

If you just walk away without making any arrangements with the lender, they will foreclose against the property and may come after you personally if they can’t sell it for as much as they are owed.

There is a lot more to be said, but it depends on the particulars of your financial situation. You may need to talk to your lender, to a mortgage broker, to a real estate lawyer, or even to a bankruptcy lawyer, depending on your circumstances. In any case, the sooner you start talking the better, because if you’re not paying your mortgage, time is not on your side.

Recommended Reading (click on the picture for details):
Behind with the Mortgage and Living Off Plastic: Charge Up Your Life, Not Your Credit Card

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Author: House Attorney

A house attorney has answered this question.

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