In some states, the bank can seek a personal judgment called a " deficiency judgment " against the borrower to recover the deficiency. With a strategic default, you might be liable for a deficiency judgment after the foreclosure, depending on your state's laws. Some states, like California , for example, have anti-deficiency laws. If a state has anti-deficiency laws, a foreclosing bank can't seek a deficiency judgment under specific circumstances.
Most homeowners in California won't face a deficiency judgment after a foreclosure. Other states, like Florida , for example, do allow deficiency judgments. If you walk away from your home, you might have trouble getting a new mortgage loan. Fannie Mae , for instance, has stated that strategic defaulters won't be eligible for a Fannie Mae-backed mortgage for seven years from the date of the foreclosure.
Fannie Mae also stated that it will take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. A foreclosure won't ruin your credit forever, but it will have a considerable impact on your score, as well as your ability to obtain another mortgage for a while.
Also, a foreclosure could impact your ability to get other forms of credit, like a car loan, and affect the interest rate you receive as well. If you plan on renting a house or apartment after a strategic default, bear in mind that it's standard for landlords to review your credit report when deciding whether to rent to you. The rental market is competitive, and a landlord might be able to select a renter with better credit over you. While foreclosure has lost much of its social stigma, many employers routinely run credit checks on potential employees.
Because a foreclosure will appear on your credit report, it could cause issues for your job prospects. Of course, whether having a foreclosure on your credit report will affect your options depends on the employer and, to some extent, the reason for the foreclosure. For example, if you're applying to work at a telecommunications company, a foreclosure might not hurt your employment chances—especially if you can show extenuating circumstances, like you had serious medical issues that led to the default.
But if you're applying for a job in the financial services or banking industry, a bad credit report could very well affect your ability to get the job. The potential employer might think that if you couldn't manage your own money, you won't be able to handle someone else's competently. Arguably, some moral implications are associated with walking away from an underwater home. Strategic defaulters tend to justify walking away from a severely underwater property as something permitted by the mortgage contract itself, which specifies the consequence of a breach.
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Remember, do not stop paying your bills, and do not wait until you cannot make payments before you act. Learn how to talk to your lender about trouble making payments. The Making Home Affordable MHA program provides help, including free counselors for advice and assistance with keeping you in your home or getting out safely. Visit the MHA website to learn what options you have and what you need to prepare. You can also find a foreclosure avoidance counselor in your area. Your state's housing agency might have a foreclosure avoidance program as well.
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