What to do if I stop making payments on my house but the lender has not foreclosed?

I tried for years to get a loan modification with my lender. They continually asked me for the same documents over and over, and then denied the application, saying I did not send in all the needed paperwork. I did send all the paperwork they asked for, over and over and over again. I always got the same result. I have not gotten any foreclosure notices on it yet but I would expect to, since I have not made a payment in 5 years. I now have given up on that property and I have bought and am moving into another property. The neighbors across from the old place want to tear down my old house and just use the property. I have called the bank but they don’t seem to care that someone is interested in buying it. Can anyone give me some guidance as to what my course of action should be?

Asked on June 5, 2017 under Real Estate Law, Massachusetts


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

Your state allows "deficiency judgments." That means that if the lender does foreclose on the home and the home is worth less (or brings in less, at the foreclosure sale) than the remaining principal balance of the loan, they can then sue you for the unpaid amount.(This is called seeking a "deficiency judgment.") They also have the right to not foreclose if they choose and simply sue you for all the money (this would make sense if the house were so badly underwater or so unsellable for some reason that taking the house doesn't help them). The lender is not limted to going after the home, but can go after you personally. The fact that they can do this doesn't mean, of course, that they will--but you have to factor the possibility into your thinking. 
Your options are:
1) If this lender will not modify (which is their right; they don't have to help you), you could try to refinance with another lender. If you can get much lower interest rates, this may let you pay off the existing debt and then carry the current house until you can dispose of it finally.
2) Find someone  to buy the house. If they buy it for less than the current balance on the mortgage, you can ask the lender to accept that as payment in full (a "short sale")--if they do, that will eliminate the debt. Even if the lender will not, it may be worth it to sell the house short and kick in the remaining balance of the loan out of pocket, just to get out from under the mortgage.
3) Rent the house out: even if you don't make money, if you can rent it for enough to pay the mortgage and other carrying costs, you will not lose money by holding the home--and in the meantime, you can take the mortgage interest and certain other costs as tax deductions, and the property will also hopefully be appreciating in value.

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