Although the economy and Florida’s real estate market show glimpses of recovery, distressed properties remain abundant. The Federal Government had hoped to curtail this real estate epidemic through numerous mortgage modification programs, however, their projected goals of modifying eight million mortgages have fallen short. The Federal Government has now turned to a new short sale program as an alternative to the mortgage foreclosure crisis (Home Affordable Foreclosure Alternatives Program.) While mortgage modifications remain the first avenue for relief, countless Floridians continue to face the startling reality that they cannot make their mortgage payments, even with mortgage modifications. Property owners facing this situation are left with limited choices, do they try to work with their lender, or do they simply walk away. While it may seem easier to walk away, this unfortunately could result in negative repercussions in the future. Short sales, deed-in-lieu of foreclosures, and bankruptcy are all alternatives that will often leave an individual in a better position than if they just walk away.
To fully understand this concept, one must realize that walking away from their property will ultimately lead to foreclosure, wherein the owner will likely face heightened consequences affecting his or her credit rating, and personal liability. An individual’s credit rating will be negatively affected based on the number of missed payments, and, on average, will decrease an individual’s credit rating by 200-300 points, however, will vary with each lender and individual. While an individual’s credit rating is likely to decrease no matter which route is chosen, the duration of this negative credit event will be much longer should a foreclosure occur (Fannie Mae/Freddie Mac Guidelines.)
More disconcerting than the effect on an individual’s credit, is the potential for personal liability in the form of a deficiency judgment. A deficiency judgment is a judgment lien against an individual, which will attach to other real estate owned by the individual and will be collected from all non exempt assets of the individual. In the event of foreclosure, a deficiency judgment will likely be filed in conjunction with the initial suit and become valid upon the foreclosure sale. While there is the potential for a lender to retain the right to pursue a deficiency in the other alternatives, the foreclosure process will often expose an individual to a larger deficiency amount due to the accrual of interest, taxes, insurance, maintenance, court costs, other dues, and functional depreciation of the property. Walking away from a property will likely increase the deficiency judgment amount an individual will face in the future.