Here is a straight answer to your question and then I will make a couple suggestions. I was a real estate investor and I did walk away from 2 different houses, one was a rental and one was my personal residence so I do know exactly how the process goes.

Here is what will happen if you stop paying on your mortgage. The bank will begin sending you notices telling you that the world will come to an end if you do not pay them and get caught up on the payments. This will go on for 60 days to 6 months, depending on your local laws and state ordinances which can be easily learned by searching "Foreclosure Laws, (Your State)" on google.

After this, you will get a notice of foreclosure which will usually be about 20 to 30 days in the future. Once you get this notice or even before you get this notice, you can call your lending institution to try and get a refinance or some type of deal to get caught back up. Most lenders will be ready to talk at this point. Realize that at this point, even if you are able to keep the house which might be out of your control, your credit will be ruined for about 3 to 4 years (assuming that the foreclosure does not go through and you stay in the house). Once in forclosure, you will get another notice in 30 days to 3 months that will say the house is going to be auctioned on a certain date. You will be kicked out the day after the auction.

If you do not mind the embarrassment, you can usually continue to work out deals with your lending institution for payment arrangements, especially if you keep the money you were going to pay the mortgage company so that you have a bargaining chip (You will pay X amount in cash to catch up on a few of the payments, if they will do a refinance on the rest). Even you if you intend to walk away, you can usually stay in the house and pay no mortgage for 4 months to 1 year, depending on your state laws and your ability / willingness to call the lender and negotiate more time to come up with the money.

If you do actually walk away from the house, your credit will be ruined for a very long time. If the bank is able to sell the property for as much as you owe, the foreclosure will be on your credit for 7 years after the sale. What will actually, probably happen in your case is this: The bank would sell the house and the first mortgage would get covered, leaving you with bad credit but no money owed on the house. Then, the left over money would get distributed to your other creditors who have a claim on the equity in the home. If there wasn't enough to go around, one of the institutions you owe money to would be left with an unsecured, unpaid loan which would be basically like a credit card debt. They would try to collect from you for 6 months to 3 years and then probably sue you for the money which could result in them taking your assets and / or garnishment of wages.

So, the straight answer to your question is this. If you walk away from your house, you would get to stay in for free for several months, maybe even a year if you play your cards right. Your credit would be ruined for a decade at least and in 4 or 5 years the whole thing could come back to bite you if the bank is not able to sell it for as much as you owe.

Here are a list of options that I would adopt in your case from most conservative to crazy:

1. If you can keep paying on the house and your credit is still good, do a refinance on the entire debt and roll everything into one loan with a lower payment. Keep the house for another 24 months, take it off the market since you don't want to seem desperate to sell and then re-list it in 24 months once the market has made a little bit of a rebound. (people look at the DOM "Days on Market" to decide if they will offer full price, you don't want to have a house listed as 100+ days on the market) Also, I recommend that you remove the listing because it just adds a lot of stress to your life. Wait until selling it is a good option and until then, figure out how to stay in the house by downsizing your lifestyle, taking on extra jobs to bring in additional income or whatever else you have to do. And, stay in constant (monthly) contact with your lender to let them know what is going on and what you are trying to do to stay current so that if you have a late payment, you will know what your options are to keep on track and possibly put a couple payments at the end of your loan or something like that.

2. Research the rental market and rent out the house if it is close to or exceeds your mortgage payment. This is a great option that people often do not think of. If your mortgage payment is say, $1,800 and you can rent it out for $1,650, then you could rent a smaller house to live in for maybe $1,200 for a net monthly expense of $1,350 on housing ($1,200 rent + $150 loss on the other house). Make a one year lease agreement with your tenants (do a credit check on them and tell them you will evict them as soon as they are 31 days late), then make the lease go month to month after that, so you can put it back on the market and sell it, once the housing market recovers.

3. Assuming that all the loans are combined into one loan, you can do a short sale but, it must be "without recourse." This is very important! Most banks will agree to a short sale if you are behind but, they will still come after you for the money if they don't sell the house for as much as you owe, so make sure they agree to a short sale without recourse. Your Credit will be terrible for at least 7 years after you do this and you will not be able to get another home loan for a long time.

4. If there is no way for you to keep making the payments, you are OK with renting for the next 10 years, you don't care if your credit is ruined and you understand that you may end up with a law suite at a later date for any money not repaid to lenders, then milk the lender for every day they are worth, put your mortgage payment money in a separate savings / bank account under a business name ( you can register as a sole proprietor at your county court house.) at a different bank than the one you are with now. You will learn that banks do have access to your personal funds in some situations because of fine print in your mortgage contract and they will take your money if they find it, through electronic withdraw or court order.

Once you have stayed in the house for free as long as possible and you get the foreclosure notice, find a rental and start over with a good amount of money in the bank so that you can settle any debts remaining and prepare to live your life on cash only. This means you will have to save, always spend less than you make and keep your money in another name than your own, especially until you receive concrete, written confirmation that all those with an interest in the property are paid in full or have been settled to their satisfaction.

Feel free to ask me any other specific questions and I would be glad to help. Having done a bunch of real estate deals and then going through a foreclosure, my wife and I know how difficult this stuff can be and would be glad to answer any other questions you may have.

If I could give you three other general tips, remember that debts are always easier to settle the farther past due they go, creditors will lie to you and try to get you to make an emotional decision, and the world is not coming to end even if the bank says it is.

Good Luck!
James Shepherd

As stated by another answerer, the answer depends on the laws in your jurisdiction. To get an answer you can truly "hang your hat on" you need to talk with a professional, which may be a bankruptcy lawyer, a real estate lawyer, or a financial expert. In fact, it may be worthwhile talking with one of each, as each one will probably see things from a different perspective (sort of like the old saying - "if all you have is a hammer, pretty soon everything starts looking like a nail".)

Having said all the above, here are some points that are likely most relevant, and which you will need to include in your consideration.

1. When you took out your mortgage, you signed a contract with the lender that they would provide you with a certain amount of money, and in return you would pay them back monthly specific amounts (possibly modified as a function of the prime rate, LIBOR, etc.) until you paid off your debt. None of the clauses of that contract stated that the house had to be valued higher than your principle owed.

2. As long as you can afford to make the payments, the market value of the house has zero impact on your ability to abide by your contractual obligation.

3. Short of paying off your mortgage's payoff balance (e.g. by selling the house and finding a source for any missing amounts), getting the lender to accept the proceeds of a short-sale as payment in full (difficult to do, though theoretically possible), or declaring bankruptcy (with the devastating impact that would have on your credit score for the next 10 years) I do not believe you have a legal way out of the mortgage. Walking away from the house and stopping mortgage payments is the equivalent of not paying your car payment or your utility payment. The fact that you're willing to not have the house (or car, or electric supply) does not obviate your legal and ethical commitment to abide by contracts you signed.

4. Since you say "we want to get out of this house" rather than "we cannot stay in this house" it sounds as if despite your preferences to the contrary, staying in the house until the local real estate market rebounds to the point that sprucing up the place gets you at least what you owe may be your best bet. This may take weeks, months, or even years, but it will happen at some point.

5. You may be able to negotiate with the bank some way of getting out without owing money (e.g. short-sale as mentioned above) but the bank is not required to agree, and may have little incentive to.

6. One last thing you may be able to do if the rental market is doing well in your area is to move out, rent the place out to someone else, and use the rent proceeds to pay the mortgage. This has several other implications, all of which are significant (e.g. you will need to find renters to stay in the place and pay the rent in a timely manner for several years until you can sell the place for enough to pay off the mortgage, you will be responsible for repairs to the place when things break down, which will take time and effort, as well as money, etc.). However, this way you will be able to get out of the house, not destroy your credit, and possibly even make money in the process, over time.

Whatever you choose to do, make sure you check with the relevant professionals, as the above is intended for informational purposes only. Best of luck.

A great deal of this depends on local legal jurisdiction, but I was involved in a similar situation in the past.

Rather than bog things down with legal-ese, it was simple:

I owed the bank $X - originally less than the house was worth
market and economic conditions etc now the house is worth less than X - even after the $40K downpayment

combine that with a broken relationship / lost job for one partner / neither able to take the mortgage on alone

The answer from the bank was simple: you owe us the difference.

Combined with everything else, bankruptcy specialists were consulted and bankcruptcy declared.

so, in short my answer - unqualified, based on personal experience and with no knowledge of your exact situtation: unless money is available from someone somewhere to bail things out, then consult a lawyer.

If you can't afford one then somewhere someone local (*depends on where you are) is apt to provide guidance and assistance, like the Citizen's Advice Bureau, Ombudsman or Bankruptcy specialists.

Sorry - I hope someone has a better answer but I don't think so.

be careful: it you don't do it right it wil haunt you and mess your credit rating for a long time

The mortgage you have falls under Banking laws which are Federal and are the same everywhere. First how long ago did you sign your mortgage. If before all this market crashing some older mortgages don't have the clause that the mortgage cannot be included in a Bankruptcy. If it's not there you can walk away through a Bankruptcy but will walk with nothing and bad credit. If you have it then you have to go into the Bank and tell them you need to get out and can't sell. Now this depends on what you expect to walk away with, I don't know how much equity you have in the house, as you say you only did this a few years ago. The Bank might take the keys from you and call it square. If not your next step is to try to talk them into a short sale-this might be better done by an Attorney. Also if you look into local agencies there are Gov. payouts that will help you if you fall more then 3 months behind in the mortgage, depending where you live. Additionally if you want to force the Banks hand a little you could start falling behind on the mortgage, but put the money in an account, and then go into the Bank and tell them you just can't do this anymore. It might help the Bank make up it's mind. Lastly, if you just walk away you are responsible for all shortages the Bank sells for plus any of their carrying costs, brokerage fees, legal fees, etc.. As far as should you walk away is a personal decision. What is the real reason you want to get out of the house? If you can afford to it might make sense to stay a few years until the narket itself changes. Good luck!

I think each state has it own laws where this kinda matter conserners. Maybe you could do some new curb appeal or painting inside along with staging your home. Now days it hard ti sell houses and with so may on the market , you could try these and maybe sell it . I would also stay clear of the cedit cards and student loans, They can become a huge finacial dept that mosr most struggle to pay off

Hope this helps