What Happens When You Walk Away From Your Mortgage

A mortgage is a loan taken out to purchase a property. It’s a significant financial commitment that can last for decades. Unfortunately, life events such as job loss, illness, or divorce can make it challenging to keep up with mortgage payments. In some cases, borrowers may find themselves unable to continue paying their mortgage, leading them to consider walking away from the loan. This article explores what happens when you walk away from your mortgage.

What is a Mortgage?

Foreclosure papers pile up after a borrower walks away from their mortgage.
Foreclosure papers pile up after a borrower walks away from their mortgage.

A mortgage is a loan that uses the property as collateral. It’s a legal agreement between the borrower and the lender where the borrower agrees to repay the loan with interest over a set period. Mortgages are usually long-term loans that can last anywhere from 15 to 30 years. The lender will assess the borrower’s creditworthiness and ability to repay the loan before approving the mortgage.

When you take out a mortgage, you become a homeowner, but you also become a debtor. As a debtor, you have certain responsibilities, such as making timely mortgage payments, maintaining the property, and paying property taxes. If you fail to meet these responsibilities, the lender can take legal action against you.

In most cases, the lender will require you to make a down payment on the property, typically ranging from 3% to 20% of the purchase price. The down payment helps reduce the lender’s risk since it shows that the borrower has some equity in the property. The lender will then finance the rest of the purchase price, and the borrower will repay the loan over time, usually with interest.

What Happens When You Walk Away From Your Mortgage?

Walking away from a mortgage can have a significant impact on a person's credit score.
Walking away from a mortgage can have a significant impact on a person’s credit score.

Walking away from your mortgage is also known as defaulting on your loan. It’s a serious decision that can have significant consequences. When you default on your mortgage, the lender will take legal action to recover the money you owe. Here are some of the consequences of defaulting on your mortgage:

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Consequences of Defaulting on a Mortgage


One of the most significant consequences of defaulting on your mortgage is foreclosure. Foreclosure is the legal process by which the lender repossesses your property and sells it to recover the money you owe. Foreclosure can have long-lasting consequences, such as:

  • Losing your home: If your lender forecloses on your property, you will lose your home, and you’ll have to find somewhere else to live.
  • Damaged credit score: Foreclosure can damage your credit score, making it harder to get credit in the future.
  • Deficiency judgment: If the sale of the property doesn’t cover the full amount you owe, the lender may seek a deficiency judgment against you, which means you’ll have to pay the difference.
  • Emotional stress: Losing your home can be emotionally stressful, and it can take a toll on your mental health.

Impact on Credit Score

Defaulting on your mortgage can have a significant impact on your credit score. Your credit score is a measure of your creditworthiness, and it plays a crucial role in your financial life. When you default on your mortgage, your credit score will take a hit, and it can stay on your credit report for up to seven years.

A lower credit score can make it harder to get credit in the future, such as credit cards, personal loans, or other types of loans. It can also affect your ability to rent an apartment or get a job, as some employers and landlords check credit reports before making hiring or rental decisions.

Alternatives to Walking Away From Your Mortgage

If you’re struggling to make your mortgage payments, there are alternatives to walking away from your mortgage. Here are three options you can consider:

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Loan Modification

A loan modification is a change to the terms of your mortgage, such as lowering your interest rate, extending the loan term, or reducing your monthly payment. You’ll need to work with your lender to apply for a loan modification, and they’ll assess your financial situation to determine if you qualify.


Refinancing involves taking out a new loan to pay off your existing mortgage. Refinancing can help lower your interest rate or reduce your monthly payment, depending on your financial situation. You’ll need to have good credit and enough equity in your home to qualify for refinancing.

Short Sale

A short sale is when you sell your property for less than the amount you owe on your mortgage. The lender agrees to accept the sale proceeds as full payment for the loan, and you’re released from any further obligation. A short sale can help you avoid foreclosure and the long-term consequences that come with it.

Legal Implications of Walking Away from Your Mortgage

Walking away from your mortgage has legal implications that can follow you for years. Here are some of the legal consequences you could face:

Deficiency Judgments

When a lender forecloses on a property, they may not recover the full amount owed on the mortgage. The difference between the amount owed and the amount the lender recovers is called the deficiency. In some states, lenders can seek a deficiency judgment against the borrower to collect the remaining balance. A deficiency judgment will damage your credit score and could result in wage garnishment or a lien on your other assets.

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Tax Consequences

If your lender forgives the debt on your mortgage, you may be subject to income tax on the forgiven amount. The IRS treats forgiven debt as income, and you will need to report it on your tax return. This can result in a significant tax bill that you may not be prepared to pay.

Legal Recourse from Lenders

Lenders have legal options to pursue borrowers who default on their mortgages. They can initiate foreclosure proceedings, seek a deficiency judgment, or file a lawsuit against the borrower. These legal actions can result in significant financial and emotional stress for the borrower.


Walking away from your mortgage can have severe consequences, including damage to your credit score, legal action from lenders, and tax consequences. It’s essential to understand the risks involved before making a decision. Seeking professional advice from a financial advisor or attorney can help you make an informed decision about your mortgage. Remember, your home is likely your most significant asset, and it’s crucial to protect it. At Wiki Mic, we recommend exploring all possible options and seeking professional advice before walking away from your mortgage.

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