Underwater Mortgage. Stay or walk away from your home?

bankruptcy faq

Having an underwater mortgage is heartbreaking.  To most people, their home is the most important investment of their lifetime They don’t know if they are foolishly thowing their money away paying an underwater mortgage. If you can afford your home, should you walk away? What if you are facing foreclosure, but you want to stay?

How to decide if you should walk away from an underwater mortgage? 

underwater mortgageYou will have to look for a new place to live. Before you leave, ask yourself these questions. Does your home fit your needs? If so, does your house payment cost about the same as rent for a similar home? You have to live somewhere. Where will you go? You will be a renter if you walk away. If a similar home would rent for about what you pay now, you probably should stay put. Also, you have tax advantages from paying a mortgage. Tax breaks might make your mortgage cost less than renting. Even on an underwater mortgage.

Are you happy with the home? Happy with the neighborhood? If so, you have more reasons to stay.

What does your credit look like? Walking from the underwater mortgage will trash your credit for years to come. Is your credit is already wrecked?  You don’t like the house?  You don’t like the neighbors?  The neighbors have barking dogs?  And your roof leaks? Then you don’t have much reason to stay.

underwater mortgageWill you be liable for a deficiancy on the mortgage loan? The laws in some states protect a homeowner from deficiancy liability. For example, California offers strong protections for homeowners in most situations. Other states, not so much. Get expert legal advice. Talk to a local bankruptcy attorney. Junior mortgages might leave you liable for a “second mortgage deficiancy.” You may still be liable on them.  Even if you can safely walk out on your 1st mortgage. Get legal advice from a bankruptcy lawyer. Bankruptcy lawyers really understand this stuff.

Your underwater mortgage might turn right side up. Property goes up. And it goes down. Home prices appear to have stabilized in most places. In many places, prices have made significant gains. Who knows what your home is going to be worth in 10 years. But I know this much. Your home will double in price before it ever goes to zero. Think about that.

Do you want to stay put?  But you are facing foreclosure?

Chapter 13 bankruptcy may give you a miraculous 2nd chance.  Chapter 13 bankruptcy may stop foreclosure and keep your home. Talk to an experienced bankruptcy lawyer. If you delay, you are risking valuable legal rights from the passage of time.

 Recommended Reading from Nolo.

underwater mortgage


Keep Your House or Walk Away With Money in Your Pocket


By Stephen Elias, Attorney. Updated by Leon Bayer, Los Angeles Bankruptcy Attorney.

September 2013, 4th Edition.

This book gives you the practical information you need:

  • the ins and outs of foreclosure procedures, with state-by-state information.
  • how to decide whether or not you should try to keep your house.
  • using bankruptcy to buy time or save your home.
  • how to avoid “foreclosure rescue” scams.


Also see Nolo’s Bankruptcy, Debt & Foreclosure Blog


About Nolo’s Blog

Deciding whether bankruptcy is right for you? Facing foreclosure? Struggling with debt? This blog breaks down bankruptcy law into plain English. It keeps you up-to-date on the ever-changing field of foreclosures.  Alerts consumers struggling with debt about the latest scams. Provides answers to questions from real people.

Kathleen Michon is the legal editor for Nolo’s bankruptcy, debt, and credit repair books. She also writes, edits, and manages content for Nolo’s website. Prior to joining Nolo’s editorial staff, Kathleen was the Directing Attorney of Public Counsel’s Consumer Rights Project. Kathleen received a B.A. from Yale University and a law degree from Northwestern University School of Law.

Leon Bayer is a Los Angeles bankruptcy attorney and coauthor of Nolo’s The New Bankruptcy: Will It Work For You? Leon, a founding partner in the Los Angeles, California law firm of Bayer, Wishman & Leotta and a Certified Specialist in Bankruptcy Law, brings over 30 years of bankruptcy experience to the blog. Leon contributes the “Ask Leon” series, in which he answers real questions from real people.