Federal, state and local organizations have established a number of mortgage refinance or modification programs, but millions of Americans who are stuck in a certain income bracket may not apply, leaving them paying more on their homes than the property is actually worth. As a result, some have said, "Enough is enough," and turned their backs on their homes.
While this may alleviate their initial financial woes, they might face repercussions that can worsen their overall condition, including credit score damage or the loss of assets. According to Bankrate.com, banks may choose to issue a judgment against them to secure the unpaid debt. In this occurrence, strategic defaulters may be forced to forfeit their savings, vehicles and investments to satisfy the mortgage debt.
Bankrate also noted that consumers who walk away from their mortgage obligations may face additional tax burdens as well. Most Americans who lose their homes to foreclosure are protected from paying federal taxes, but the state may require homeowners to pay their tax debt.
Even if a consumer is able to walk about without being sued, the negative information will still go on their credit file, making lenders question whether they should issue new loans to borrowers. Foreclosures that result because a homeowner is not financially able to pay off their debt will still negatively impact a consumer's credit score, but intentionally walking away from a home may also dissuade lenders from extending credit in the future. In a recent statement by government-backed Fannie Mae and Freddie Mac, the mortgage guarantors said they will not issue loans for at least a seven-year period to homeowners who strategically defaulted on their previous homes.
Most lenders generally associate foreclosures with higher risk, making it more difficult for those who have defaulted on their mortgages to secure financing.
Homeowners who do not qualify for modifications but carry strong credit scores and a positive history of repayment should consider negotiating their mortgage rates with their lender to receive some sort of relief. Creating a budget and eliminating unnecessary spending may also help consumers save money on large mortgage bills, allowing them to reduce their risk of foreclosure.