This is part 3 in our week long series on short sales. Today’s entry focuses less on short sales and more on an option that some turn to as an alternative.

Yesterday: Tax Implications | Today: Don’t Walk Away | Tomorrow: Short Sale Candidates

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There’s a lot of talk about homeowners simply mailing in their keys and walking away from everything. There are many companies promoting walk away plans and sugarcoating them as if the effect on you will be minimal. In so many ways, walking away is just the wrong move to make.

• Your credit is significantly damaged. Lenders will look back about seven years at your credit history. Walking away will stay with you for a long period of time and dramatically affect your ability to own another home anytime soon.
• It will be quite some time before you can buy a home again. Mortgage giant Fannie Mae has publicly stated that they will not lend to anyone that walks away for five years and even then will require a 10% down payment and 680 FICO score. They will accept certain documented hardships that can lower the waiting period to three years.
• You have a responsibility to pursue an agreement. Your mortgage is a contract that you are supposed to honor. You should make every attempt to secure a loan modification or short sale agreement before giving up.
• Simply put, there are better options. Have you pursued loan modification? Have you considered a short sale? Why not? They are better on your credit and represent a responsible and ethical resolution.

Don’t be fooled by companies that promote walking away. So many of these businesses are making it sound like the perfect solution and trying to convince you the effect will be minimal. We encourage you to read the following two articles from the San Francisco Chronicle and NPR respectively. They have some valuable information about why you shouldn’t walk away and shed some light on companies that promote such an action.

Fannie warns homeowners who walk away
Why Not Just Walk Away from a Home?