Expert: Kathleen Eads - 4/20/2005

Question
A friend of mine has a mortgage on a home that is in bad enough condition that it should be condemned.  He wants to just walk away from it but is wondering what his liabilities are?  Is there any other way to walk away with out taking out bankruptcy?

Answer
K,

Depending on how much is left on the mortgage will determine the extent to which your friend could be liable.  Let me explain.  If the mortgage still has $20,000 left to be paid, and your friend walks away, the bank normally will foreclose.  Once a foreclosure transpires, the bank will then try to liquidate the property at auction, basically covering as much of their loss as they can.  Whatever proceeds come from auction will be applied toward the outstanding loan, leaving your friend responsible for any residual balance remaining.  Make sense?

If the house is in that bad of shape, your friend MAY want to contact the insurance company to determine if the house is a loss.  Was the house damaged by fire or storm etc?  Insurance companies may sometimes deem damage from other causes will often deem the property "upside down."  In other words, it would take more to fix it than it's worth.  

I'm also curious as to the extent of the damage and how old the mortgage is.  Normally, if a property is in that bad of shape, no mortgage company in their right mind would finance such property.  How did the house become damaged?  Is the damage so extensive the property should actually be comdemned?  Is there equity in the home that would allow for home improvement loans that would fix the damage?

I need a little more information before I can say either walking away or bankruptcy should even be considered.

Kathleen Crabtree