One of the unfortunate new realities of the Great Recession is foreclosure. Virtually thousands of Americans have lost their homes thanks to our nation's current economic troubles. Sadly, many neighborhoods are now lined with empty homes.

In addition to these skyrocketing foreclosure rates, many of those who have been fortunate enough to hold onto their homes are now facing the equally menacing proposition of "underwater mortgages."

An underwater mortgage is a phenomenon whereby the actual value of the home is far less than the amount owed on their mortgage.

Curiously enough, many of these underwater homeowners are now electing to abandon their mortgages and their home, a practice referred to as a "voluntary foreclosure" or "strategic default."

In extremely challenging economic times, a voluntary foreclosure or strategic default may seem like a logical or even necessary move. However, it is imperative that homeowners considering this drastic step take the time to examine the potential ramifications of simply packing up and moving on.

• It may be difficult to obtain a mortgage after a strategic default/voluntary foreclosure. (Fannie Mae recently declared that homeowners who voluntarily foreclose on their homes will be unable to secure a Fannie Mae-backed mortgage for exactly seven years after the fact.)

• It may be impossible to escape responsibility for paying state tax on the unpaid mortgage.

• It is a possibility that the mortgage company will seek a deficiency judgment or hire a debt collection agency

Fortunately, homeowners do have viable alternatives.

Under Chapter 13 bankruptcy, a homeowner can create a repayment plan to pay off their mortgage arrears without paying interest. Chapter 13 also enables homeowners to discharge second or third mortgages.

The following post was for informational purposes only and is not to be construed as legal advice.

Consider speaking with an experienced legal professional to learn more about your options before undertaking a voluntary foreclosure/strategic default.

Related Resources:
  
• Risks of Walking Away from Mortgage Debt (Bankrate.com)