26 Oct What is abandonment?
Before we begin this post, we should emphasize that abandonment should be a last resort as there are solutions out there offering reduced impact on the borrower’s credit rating. Having said this, let’s look at what abandonment really means in the world of mortgages. When you are facing power of sale, it can be tempting to just give up and walk away from the home. Abandonment, also referred to as abandoned property, happens when the owner of a property shows that they have no intention of returning to the property and have given up their legal claim to the property. This process should not be confused with default on your mortgage, as it is different. (Check our blog on mortgage default).
Before abandoning your mortgage, you should consider the possible consequences of letting your home go into power of sale. Sometimes abandoning a house might seem like the best option, but having a power of sale on your home often does more harm than good. Besides losing your home and possibly having no place to live, allowing your home to go into power of sale will dramatically affect your credit rating and make it more difficult for you to qualify for a new mortgage in the future. This can remain on your credit report for up to seven years. After going through this process, you may need a larger down payment next time you borrow money to buy a home. Your interest rate is also likely to be higher.
It is also important to know that even if the property is abandoned, the name on the land title will still be that of the borrower meaning that the borrower is still on the hook for things such as utilities and property taxes. At the same time, it should be known that the bank still retains the right to change the locks on the house. This is done in order to protect the collateral of the loan.
Again, there are other options to consider when having difficulty making payments. At The Costa Group, we are here to discuss options you may have if you find yourself in a difficult situation.