When to Walk Away from a Mortgage
As a managing partner at the
Mackey Law Firm PC and a respected
lawyer in Scottsdale, Tim Mackey recommends that some people walk away from their homesbut only after they have exhausted all of their other options.
Given the current state of the economy and the global real estate market, there are certain conditions under which many lawyers are encouraging their clients to walk away from their mortgages. Because lenders often won't negotiate and loan modification terms are often not acceptable, an increasing number of homeowners struggling to pay their exorbitant loan bills each month are instead choosing to walk away from their mortgages and let their homes enter foreclosure.
In my opinion, however, you should only walk away from the mortgage if the lender would not provide you with acceptable terms and releases through a pre-foreclosure sale or loan modification.
Finding the Best Solution
When homeowners come to my law firm for advice on what to do about mounting debts, I always encourage them to work with their lenders to find solutions to their problems. Lenders have the ability to discharge borrowers of certain amounts of their debt, to release them of debts through pre-foreclosure sales, or to modify their loans with more favorable interest rates and terms. Unfortunately, not all lenders are willing to do this for their clients.
One of the key elements that will influence my advice to a client has to do with what the client wants to do with his or her property. Despite financial difficulties, some people wish to retain their homes no matter what. Therefore, an ideal solution for someone in this scenario would likely be very different from someone who has no problem leaving his current residence in order to get out of debt.
Negotiating with Banks
If the client has no interest in keeping the home, then a short sale is usually the next logical step. Before someone can go through with a short sale, though, he must get approval from his lendersomething that can sometimes be difficult when certain lenders are unwilling to discharge a portion of the mortgage debt. Negotiating with banks on the terms of a short sale agreement can especially be difficult for anyone who hasn't ever done so before, because they don't know the appropriate keywords to use when dealing with lenders and servicers.
That is why I think it is so important to hire an attorney when negotiating short sale deals with a bank. At
Mackey Law Firm PC, we frequently negotiate with the banks, and we can advise on the appropriate efficiency release language that should be contained within the short sale approval letter. The bulk of the clients I work with have hired my firm to handle their short sales after they triedand failedto handle short sales on their own.
Working with Both Lawyers and Realtors
Additionally, I recommend against asking real estate agents for advice, since negotiations between realtors and banks are typically very unsuccessful. There is a significant amount of work that goes into getting the bank to approve a short sale, and not everyone realizes that. Despite the fact that I have worked on countless short sales during my years in practice, it still takes me an average of 80 to 100 hours of time to complete each short sale case, and individuals who don't have experience in the area of real estate law could expect to spend even more time than that working on their sales.
In Scottsdale, homeowners who forego hiring lawyers and instead rely on real estate agents to help negotiate with lenders will also find themselves at a severe disadvantage, since real estate agents are more knowledgeable about marketing properties than they are about negotiating on them. In fact, I think that any client considering a short sale should, ideally, be working with both a lawyer and a realtor. The real estate agent would market the property, and the lawyer would put together a package for the lender that could contain both the offer and all the client's financial information.
Then, the attorney could ask the lender to both accept the offer and relieve the client of any future liability from the deficiency between the sale price and the amount of the note or mortgage. When a lender accepts a short sale offer, it will always be more favorable for a homeowner than to simply walk away from a mortgage, which is the main reason why I like to encourage clients to explore all their options before making any major financial decisions.
This article is for informational purposes only. You should not rely on this article as a legal opinion on any specific facts or circumstances, and you should not act upon this information without seeking professional counsel. Publication of this article and your receipt of this article does not create an attorney-client relationship.
When to Walk Away from a Mortgage
By: Tim Mackey
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