NPR recently carried a story by Eric Weiner called “ Why Not Just Walk Away from a Home?” in which he discusses the option of simply abandoning the home and letting the lender deal with it.

As I explain in Foreclosure Self-Defense For Dummies, jumping ship when you owe more on your home than it is worth and you will never be able to afford the payments, is certainly a viable option for some. In most cases, the lender will not attempt to collect on the debt if you simply walk away from the property.

I provide instructions in the book on how to pursue this option most effectively. If, for example, you live in a jurisdiction that has a long redemption period, you can legally remain in your home without making payments until the redemption period expires. In Michigan, that’s usually about six months. During this time, you can save some money on rent, so you have a little nest egg to finance your move.

The reason walking away usually works is that in many cases, your home is the only collateral securing your loan. The mortgage you signed when you took out the loan gives the bank the right to take possession of the home in the event that you fail to make the agreed-upon payments.

In some jurisdictions and with some lenders, simply abandoning the home could be a risky move, however. If you signed a promissory note in addition to the mortgage, and if you live in a jurisdiction that allows for deficiency judgments, you are responsible for repaying any debt that remains after the bank takes possession of your property and sells it. So, for example, if you owe $250,000 and you walk out on the home, the bank may foreclose, sell the home at auction for $120,000, and then file a law suit against you to collect the remaining $130,000.

A much better way to walk away without having the bank chasing after you to collect the deficiency is to negotiate with the bank to accept a deed in lieu of foreclosure. With this arrangement, you hand over the deed to the property and the keys and usually agree not to trash the house. In exchange, the bank forgives your debt.

If you are able to negotiate with the bank to accept a deed in lieu of foreclosure, be sure you get the agreement in writing – a signed letter from the bank’s representative stating that you are free and clear of the debt. It’s a good idea to have your own attorney look everything over before you sign any agreement. You want to make absolutely sure that the bank has no legal right to try to collect on the unpaid debt.

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