The recession has produced an unprecedented upswing in the number of homeowners who are simply walking away from their underwater mortgages, rather than continuing to struggle with payments for properties that have lost thousands of dollars in value.
However, a consumer finance organization is reminding people that along with inflicting serious damage to their credit score, they may also court legal trouble by deciding to walk away from a mortgage.
The Consumer Credit Counseling Service of Greater Atlanta recently warned that current market conditions have made mortgage lenders more inclined to file lawsuits to recoup losses on mortgages that people walk away from.
"A borrower facing a foreclosure should assume that a post-foreclosure lawsuit is possible," said Frank Alexander, a professor at the Emory University School of Law. "In addition, no homeowner should ever participate in a short sale without receiving a signed agreement clarifying that all outstanding debt has been forgiven. The same is true for all deed-in-lieu of foreclosure resolutions."
Those who do walk away from their mortgages may severely affect their credit score for up to seven years. Although some people have been willing to pay this price in light of the many thousands of dollars in lost home equity they have experienced due to the collapse of the housing bubble.