How to Walk Away From a Mortgage in Michigan

As jobs become harder and harder to find in Michigan and property values continue to decrease, more and more homeowners are finding themselves upside down in their home loans, owing more than the home is worth. Even if they can no longer afford the payments, selling the property is impossible because of its low value. In these situations, many choose to walk away from their mortgage, allowing the home to fall into foreclosure while they start over financially.

Stop making your mortgage payments. Consider saving the money you would have spent on your mortgage for your future moving costs.

Prepare to move while the bank prepares for the foreclosure sale. According to the Michigan State Housing Development Authority, a home is sold between 150 and 415 days after the first missed payment.

Find a suitable rental home where the landlord will take you with a foreclosure on your record. If you can find the rental before you stop paying your mortgage or before the bank has sent that information to the credit bureaus, you will be in better shape. Some landlords are hesitant to rent to people with foreclosures on their record or low credit ratings.

Prepare to pay a deficiency judgment after the foreclosure sale. Michigan is a recourse state, which means the lender can demand that you pay the difference between what you owe on the property and what it sells for. If you do not pay this amount, you could be sued and lose remaining assets, like your car or savings account funds, although many lenders do not pursue this option because of the cost.

Contact your lender to seek permission to return the deed to your home in lieu of foreclosure.

Negotiate the terms of the agreement with your lender, then sign the deed over to your lender along with an Agreement in Lieu of Foreclosure. According to the Department of Housing and Urban Development, you have 90 days after reaching a final agreement to officially sign over the deed. The paperwork is typically handled through an escrow company.

Prepare to pay any taxes for which you are responsible. This may include a deed tax and a tax on the canceled debt. The Mortgage Debt Forgiveness Tax Relief Act removed the tax on canceled mortgage debt until 2012.

Prepare to move to a new, more affordable location.