“Walking away from the house” has become a common enough phrase that it is regularly bandied about amongst the public. This is a result of the recession in recent years that resulted in so many losing their homes, finding themselves upside down in their homes or considering moving out and stopping mortgage payments because it seems like a more sound financial decision than continuing to pay towards their exorbitant loan amount. The phrase “walking away from the house” indicates a move that has actually become one of the common options for homeowners who find themselves in financial trouble. Today’s question is whether or not the situation is altered when the homeowners considering this option have a bankruptcy in recent years.
In cases where the homeowners did not reaffirm their mortgage loan during the bankruptcy, they will be able to walk away from the property without fear that the lender will pursue them legally for payment on debt related to the property. Reaffirming a mortgage loan during bankruptcy does not provide protection for the homeowner’s credit in the event of a future foreclosure (which would be invited when the homeowners “walk away from the house”). It is still reported to the credit report. The reaffirmation of the mortgage will protect credit from years of negative payment history and liability or the mortgage.
The Mortgage Payment: In this situation, homeowners would simply stop making their mortgage payments. The lender will, obviously, notice. They will then contact you by phone. When this occurs, you should advise the collection representative that you are walking away from the property and won’t be making any more payments. This exact conversation will probably have to occur a significant number of times over the course of the following months.=
The Property Taxes: In this situation, you will not need to pay current or future property taxes. The property taxes run with the house so if you walk away from the property (essentially returning the property to the lender who holds the note) the lender takes on responsibility for the property taxes. Failure to make property tax payments could result in the property being sold in a tax sale. Lender will typically not risk losing the house for unpaid property taxes so it is rare that this will happen.
The Homeowners Insurance: Many mortgage payments have property tax and property insurance included in the monthly payment amount. This might not be true in your case. If you were paying property insurance directly to an outside insurance agency, you should continue to make those payments. Contact the lender monthly to determine if they have started paying a separate property insurance policy. If they have, you can stop paying for your own coverage. If not, you will want to keep it in place as protection against something happening on the property during the time that you are still listed as the legal owner.
The Homeowner Association Dues: You should keep paying your Homeowner Association (HOA) fees or dues until the property is no longer in your name. HOAs are likely to sue for unpaid dues even if you are walking away from a property. The HOA dues are similar to a monthly rental payment; they need the money in order to function and maintain the community. Skipping out on your HOA dues leaves other HOA members covering the difference and will often result in the HOA seeking payment through legal channels.
If you have other questions about how bankruptcy affects foreclosure or basic bankruptcy law, please get in touch with the experienced southern California bankruptcy attorneys at Westgate Law.