What are the Repercussions of Walking Away from a Pre-Foreclosure Home?

The answer depends on your respective situation – sometimes, walking away is preferable. Other times, it isn't and can just make matters worse.

If a home is in pre-foreclosure, then the owner of the home likely owes more money on the mortgage than the house is worth. This is called being underwater, and that is the number one reason why people choose to simply walk away from their homes and move on, leaving them to the banks. Of course, foreclosure has not yet been initiated, so there are options available to the homeowner.

One situation in which a homeowner might want to walk away is if the home is underwater and the homeowner can no longer pay for the mortgage. Instead of becoming delinquent, he or she simply decides to cut their losses and move on without paying the rest of the loan.

Of course, there are repercussions for doing so. A lender has the power to file what is called a motion for deficiency judgment, which basically asks a court to rule that you owe them a considerable amount of money per your contractual obligations when you signed the mortgage paperwork. If a court rules against you, you could be liable for the amount owed on the loan – which could be a massive sum of money.

Your credit score will more than likely take a hit as well, and it could take some time for it to recover.

Then again, some states do not allow deficiency judgments. Plus, a credit score hit caused by a foreclosure can last as long as seven years on your records, so it may be preferable to walk away. In the end, however, each person's situation is different. Just know that there are consequences for walking away, and they may be more than what you expected.