Dear Bankruptcy Adviser,
My husband and I are considering whether to walk away from our home. We filed bankruptcy 4 years ago and did not reaffirm the mortgage loan. Do we tell the bank, and are we responsible for property taxes and homeowners insurance?
I am glad to hear you did not reaffirm the mortgage loan. Reaffirming the loan does not protect your credit from a future foreclosure. That will still be reported. It does, however, protect your credit from years of negative payment history and, most importantly, any liability for the mortgage. You are able to walk away from the property without fearing that the lender will one day pursue you legally for anything related to the property.
Mortgage payments: You do not have to make any more mortgage payments. The lender will notice soon enough and start calling you. You can inform the collection agent that you are walking away from the property and are not making any more payments. More likely than not, you will have to repeat this statement at least 5 (and at most 500) times over the next several months or years.
Property taxes: The property taxes run with the home. That means you will not need to pay current or future property taxes. The lender will need to take on that responsibility. If it fails to make property tax payments, the property could be sold in a tax sale. That is unlikely to happen, as the lender will not risk losing the house for delinquent property taxes.
Homeowners insurance: Many mortgage payments include property tax and property insurance in the monthly payment. That may not be the case for you. If you were paying the property insurance directly to an insurance company, I would advise you to continue making those payments. You can contact the lender every month to determine whether the lender has started paying a separate property insurance policy. If so, you could eventually stop paying for your own coverage. You just don’t want to have something happen on your property during the time that you are still the legal owner.
Homeowners association dues: Be sure to continue paying any homeowners association, or HOA, dues until the property is out of your name. HOAs are very likely to sue you for unpaid dues even though you are walking away from the property. Think of the dues as a monthly rental payment. The HOA needs your money to maintain the complex. Don’t leave the other HOA members covering the difference.
You can try to short sell the house, transfer the title back to the lender or sell the home if you have any equity in the property. This will protect your credit a lot more than a foreclosure. Lenders are more willing to work on short sales than in the past few years. You could even receive some money from the lender in exchange for vacating the property peacefully. The lender spends a lot of money foreclosing on a property and evicting former owners. You could receive some of that money to allow for an orderly transition.
Ask the adviser