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Jose Hernandez, SFR's Blog

By Jose Hernandez | Broker in Chicago, IL

Don't Just Walk Away, Banks will come after you!

Walking away from your underwater home, even temporarily, can have serious consequences. Just ask Willard and Holly Brown, who lost $116,000 by walking away from their house in Clarkston, Wash.

The Browns, who owned a home with a filed homestead exemption -- which protects a home from creditors in certain circumstances -- fell into some financial troubles with their company WW Cedar, based in Idaho.

Unable to pay back a $200,000 small business loan from Wells Fargo secured by their home, they figured they were underwater between that debt and their mortgage with Alaska USA mortgage Company, so they walked away. Although they claimed they left temporarily, the court ruled otherwise based on a contested series of events.

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A homestead exemption is great for getting a deduction on your property taxes, but it also can protect you from creditors to some extent, and help determine the location of your primary residency.

But the key is, you have to apply for the exemption stating the home is your primary
home and you can't waive your rights to the exemption if you expect the law to work for you. In May or June 2008, the Browns terminated their utility services, including requesting a
"permanent shut off" of the water at the Clarkston house. They then began renting a place in Florida. With a one-year lease signed, they obtained Florida drivers licenses and changed their vehicle registrations with the department of motor vehicles. By September 2008, they had also stopped paying their mortgage with Alaska USA.

A trustee for the mortgage company performed a nonjudicial foreclosure on the property in January 2009. At auction, the home sold for $116,377.85 more than was owed on the mortgage, which means the excess goes to the Browns. At least it would under a homestead exemption.

But the Browns have the exemption, right? Well, that's where it gets sticky. They say they were on an extended holiday in Florida and Wells Fargo, said no, they abandoned the home and seized $116,377 to help repay the business loan.

The court of appeals upheld the lower courts opinion, when, according to state law, an owner is presumed to have abandoned a homestead when the owner vacates the property for six months or longer. However, if owners know they will be away for a while, they may execute and file a declaration of nonabandonment with the county recording officer in the county where the property is situated. The Browns failed to do this.

Check the homestead exemption laws in your state before you walk away or forget to file an exemption. In Washington state, the Browns would've have been protected up to $125,000 if they had simply filed a declaration of nonabandonment.
source: AOL

Short sale may be the best option

In most cases where the borrower cooperates with the lender through a short-sale or Deed-in -leau the banks are willing to forgive the deficiency or may ask the borrower to contribute a small portion to the sale. This is obviously a better option then walking away and thinking the bank will forget about you. From what I've seen out there they're coming after homeowners who walked away and they are coming with full force.  In the event you need to short sale contact us for a free consultation and explore the best approach.

Jose Hernandez
Coldwell Banker Residential
676 N. Michigan Ave. Suite 3010

Disclosure: This is not legal advise, please consult with an attorney for legal advise.

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