When To Walk Away

Foreclosure is something you should work very hard to avoid, but sometimes your circumstances may become so desperate that walking away from your financial obligation may be your only option. Before you take such a drastic step and seriously damage your credit rating, it's important to look for less damaging ways to resolve your financial problems. In all cases, you should work closely with your lender.Because of the surge in home loan defaults that began in the late 2000s, lenders generally are more prepared to work with troubled borrowers than they were in the past. You may qualify for a forbearance that temporarilyreduces your monthly mortgage payment until you can put your financial house in order. In some cases, lenders will permanently modify loans, granting morefavorable terms to borrowers.Lenders bear a share of the blame for the housing market downturn. During the housing boom, they allowed many people with shaky finances to take out risky adjustable-rate loans. They wrongly assumed that the borrowers would be able to refinance the loans before their monthly mortgage payments rose beyond their ability to pay.  In recent years, many homeowners with negative equity have found that they cannot sell their homes and raise enough money to pay off their loans. Because they see no hope of recovering financially, these borrowers have been turning in their keys to lenders in unprecedented numbers.According to the RealtyTrac research firm, a record 2.8 million residential properties in the U.S. received a foreclosure notice in 2009, up 21 percent from 2008 and 120 percent from 2007. In response to the surge in foreclosures, a variety of companies were created to help troubled homeowners navigate their way through the default process. Their services may include providing a timeline that tells borrowers how long they can remain in their homes after they have stopped making mortgage payments.In the past, choosing to go through foreclosure was considered socially irresponsible. Most households didn’t stop paying their mortgages unless they had been impacted by serious hardships, such as chronic illness or a death in the family. Today, there is a greater tendency to view foreclosure as a business decision.Seeking AdviceBefore you decide to walk away from your housing debt, weigh all of your options. Don't abandon your financial obligations unless your situation truly is untenable. Consider whether you can cut back on other expenses to come up with your monthly mortgage payment. However, if paying your mortgage is forcing you to skip meals or empty out your retirement fund, it may be time to cut your losses. Many families have delayed foreclosure and struggled for months, only to end up in default after draining their financial resources.Non-profit loan counselors approved by the U.S. Department of Housing and Urban Development often can help distressed borrowers negotiate better lending terms with their mortgage companies.