Also, even if the bank never tries to collect the debt, it still shows up on the credit report as a balance due, making a new loan very difficult to obtain.
Some banks, however, have been accepting deeds in lieu of foreclosure and short sales and forgiving the balance.
Plus, if you are dealing with someone who was a good customer and then the drop in prices destroys his once substantial equity, and the tightening of credit leaves him unable to replace his aged automobile, or put shoes on the kids' feet, and now his mortgage is worth more than the house, an element of fear creeps in.
“I can’t speak for Virginia, but in most states it is a piece of cake to obtain a judgment for the balance due.
Also, even if the bank never tries to collect the debt, it still shows up on the credit report as a balance due, making a new loan very difficult to obtain.
Some banks, however, have been accepting deeds in lieu of foreclosure and short sales and forgiving the balance.”
Correct. And, if the bank doesn’t want to hound you for the deficiency balance, they simply sell the legal obligation to a collection agency. Even with a “deed in lieu” procedure, your credit is still wacked.
The current crisis will change everything. Lenders are going to be very gun-shy for a while about granting you a loan again. Just walking away is a bad option.
Much better to negotiate seriously with the bank to get them to forgive part of the loan and rewrite the sucker in terms the borrower can handle.