I live in GA and currently owe $235K on a house worth $120K. The original mortgage was an 80/20 with a 30 year traditional on the 80 and a ...

Question

I live in GA and currently owe $235K on a house worth $120K. The original mortgage was an 80/20 with a 30 year traditional on the 80% and a Heloc on the 20%, I have a 6% rate on the first (PHH Mortgage/Fannie Mae) and a 3% rate on the HELOC (USAA bank). I have very little debt and my wife and I have an income close to $300K annually with a reasonable amount of assets outside of the house. Given that it is unlikely we will ever see the house value recover to anything close to its original value and we can't refinance or renegotiate terms, we are considering walking away from the home. We don't live in the house now and rent it our for a loss. We currently rent another residence that we are very happy with. We are not concerned about our credit scores as we generally don't need access to credit, we are fine renting for as long as necessary, and view this strictly as a financial decision without any morality implications. Can we walk away and and strategically reduce or eliminate the risk of PHH pursuing a deficency judgement in GA? Does anyone know a good attorney in GA that we could retain to manage us through the process if we decide to go that direction?

Answer

Georgia is a recourse state. After explaining your financial situation, you are probably not a good candidate for bankruptcy. The bank will foreclose on the property, sell it, and then come after you for the difference. (Also called a deficiency action)

A good option for you is renting the home, and use the rent payments to pay that mortgage. I understand that you are already doing it. How much of a loss are we talking about every month?

If you would like to discuss this further feel free to contact me. 404-522-0341.

Good luck.

Answer

There is a very high probability that the second mortgage lender will sue you and not even bother with foreclosure. When they do that and win, you and your wife can expect garnishments on your paychecks and bank accounts.

Given your income, you are a good target for a deficiency on the first mortgage and the same problem.

Unless your rental loss is enormous, it may be smarter to eat the loss, use it as a write off on taxes, and not walk away.