Loans Answers

Help! Selling house after devaluation

Question: If I were in this situation, I would simply default on the loan. >The bank cannot atttach personal belongings, and you can protect your savings. >You probably already have credit cards, etc., and you won’t loose those. >Just walk away from the house and rent something. If you have to, declare >bankruptcy. When the bank loaned you the money, they (not you) invested >the most in the property. Why should you continue to pay the penalty? >With 25%, banks don’t care what your credit history is.

Answer: This is bad advice. First, the bank can and will attach your personal belongings for the difference between the net after sheriff’s sale and legal fees and the outstanding loan balance. Some states limit this, but not most. You will *certainly* have a judgement entered against you which will show up every time you apply for a major loan in the future. And declaring bankruptcy will get you more than 7 years of bad credit, since most loan applications ask whether you have ever declared bankruptcy. And even with 25% down, most banks do check your credit history. They may not do income verification, but they will check your credit history. The bank did not invest in the property, they invested in *you* with the property as collateral, in case you prove untrustworthy.

Don’t walk away. Approach the senior loan officer and try to negotiate more attractive terms for the mortgage if you think you might have to default. Many times they will be reasonable since they don’t want to have to go into court to collect if necessary. Continue to try to sell the property. Wait for better times. Or consider selling at auction as was described in a recent issue of Money magazine. But above all, don’t follow this advice.

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Filed under: Bad Credit Loan