Credit wise it usually makes more sense to sell your property. You did not indicate if your underwater or not. IF your under water you can try to do a short sale to save your credit. But I would look for a local expert to give you options and advise. What ever decision you make, you want to make sure it is the right decision.
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You, of course, can do what ever you feel is best for you and your family first and foremost. However, there are potential obstacles that may arise in the future. Your modification may have terms within the document that provide your lender with additional options or ability to pursue you post foreclosure. The main thing is to consult your Attorney and find out if the Modification documents you signed give them the ability to have any recourse action against you.
Also, if you can afford your modification, I would stay in the house. Its your home and you can afford the payment now hopefully with the adjustments. If you can't afford it, hire a Realtor to sell it via Short Sale if you owe too much.
A foreclosure is really a bad option for your credit short and longer term. We dont know what underwriting standards may be in 3 years and this may affect your ability to buy any large ticket items. In my opinion should not be pursued if other options are available to you.
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Contatct your bank for more info on what they require for a short sale an dthen hire an agent who is well expereinced in short sales.
Please see my blog for mor etips and info on getting a short sale approved
Are you asking how one could sell one's property as-is or walk away from it even though one has already received a loan modification? If so, then some people get loan modifications to help make their properties easier to sell. Others do it, because their circumstances have changed (ie due to a job loss; job-related, forced relocation; excessive, unplanned medical expenses; a death in the family [requiring them to relocate perhaps to take care of an ailing relative]; divorce; etc). Others do it strategically (in the case of strategic defaults), because it makes more business sense to do so to them.
If you got a loan modification approved already, and you still want to walk away....
Have you tried to do a short sale first? Although it takes several months to process, during that time, you can continue to live in the property while working out the sale. You have to prove hardship which can be a combination of many factors/reasons (loss of job, decrease in income, increased expenses, job relocation, family situations like divorce/separation/death, drop in market value, etc).
At least the effect on your credit won't be as devastating as a foreclosure or bankruptcy.
If you want to leave your place, you can do that while the house is being offered as a short sale. At least try that. There are agents who will be willing to work with you.
Another question for you: you identify yourself as both a buyer and a seller....are you buying a home now, and then walk away fron the one you have? If you're considering Buy and Bail, do note that is considered and treated as mortgage fraud.
Care to elaborate what you're thinking of doing?