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Ask The Experts: Should I Just Walk Away From My Home?

Thursday, 8 Jan 2009 | 5:01 PM ET

I bought a house with 20% down and during the housing upturn I took out an equity line of credit. As you know about the housing market today, I actually owed much more than it's worth. Even the 1st loan is in a negative territory and on top of this I also owed my 2nd loan (equity line of credit). It comes to the point now that it's difficult if not impossible for me to keep up with the payment and I am thinking about walking away from it.

I'm worry about not just my credit but also what can these two lenders do to me if in the future I can afford to buy another house? Can they really go after me for as long as they wish, especially the 2nd loan? Would they ever forgive me for walking away because I can no longer afford? Please let me know as much detail as you can; I really appreciate all your help. --Vince

I'd like to suggest an alternative plan, Vince. First I'd like you to contact CCCS of Metro Atlanta. It doesn't matter where you live, just call them. They do more "foreclosure avoidance" counseling than any organization in the country. They may be able to help you to rework your loan so that you can keep making payments and save your credit. If they can't help you then you can't just walk away. You have to make an effort to short-sell the house. You'll need to contact your first lien holder (the company you owe the larger balance) and tell them exactly what you just told us; having trouble with payments, want to do the right thing, thinking of a short sale. This gets them involved in the process and they'll tell you what they'll take so your agent can market the property. Unfortunately the second lien holder (the company you owe the smaller amount) will likely get nothing out of short sale.

Depending on how much you owe them and how much money you make you may be able to work with them on converting your HELOC into an unsecured loan that you will continue to pay over the next decade or two. You're paying on a loan that gets you nothing at the end of the day so keep that in mind. Of course, bankruptcy is an alternative that you have to at least explore because you may be able to wipe out that debt and prevent them from taking any legal action against you.

John Ulzheimer is a nationally recognized credit expert, president of Consumer Education for Credit.com and contributor to On The Money. Learn more about him at CreditExpertWitness.com.