What happens when your house is worth less than what you owe?
Is it smart to walk away from your mortgage? Is strategic default the answer?
I don't know what most Boston real estate lawyers would tell you, to be honest. I'm sure you may have some Boston real estate attorneys that tell you it's the smart thing to do. But I've only ever heard real estate lawyers issue cautionary advice on this sort of thing.
Do people really walk away that easily from their homes?
According to a recent Morgan Stanley report, strategic default is on the rise.
And apparently, it's good for the economy.
It may seem that the strategic defaults are boosting consumer spending, by allowing distressed homeowners to keep more money in their pockets.
Well, that's only one opinion. But nevertheless, it's an interesting point of view.
The thing is that in a recourse state, such as Massachusetts, you might face the lender coming after you for what you owe them.
In some states, such as California, a mortgage is considered a "non-recourse loan." As such, the lender cannot come after you for the remainder owed on a purchase money mortgage.
But even in a non-recourse state, a secondary mortgage, such as a HELOC, might be considered a "recourse loan."
If you foreclose on a recourse loan, the lender could seek a deficiency judgment, and collect the difference between the foreclosure sale price and the loan amount.
In Massachusetts, walking away might not be as easy as it is in California. If the loans are recourse, then you may face problems in the future.
So in the end, it may not be so strategic to default.
Tread wisely! And ask a Boston real estate attorney for some advice.
- Foreclosure Law Overview (FindLaw)
- Just Walk Away? Foreclosure, Deficiency and the HELOC (FindLaw's Law & Daily Life Blog)
- Find A Boston Real Estate Attorney (FindLaw)