When facing a possible foreclosure in Georgia, what should you do when you owe more money on your house than its worth? I get this question a lot. Just this past week, I met with a couple in my Rome GA office who asked this question. In their case, the house was their only debt problem and they had only one mortgage. In this specific case, I advised them to walk away from the house and not to file bankruptcy.
Walking away from a house can be the right choice in some cases. Oklahoma Bankruptcy Attorney Dan Nunley has written a great blog on this topic. Dan argues that businesses cut their losses all the time and families should not be any different. I agree with Dan. If a high mortgage payment is dragging you down, it may be time to get rid of it. In Georgia, if you have only one mortgage on your house, you most likely will be able to walk away without having to pay any deficiency. Under Georgia law, a mortgage company has 30 days from the date of foreclosure to file a confirmation of foreclosure to collect on any deficiency. If they don’t file it, they can’t collect. In twelve years of practicing consumer bankruptcy in Georgia, I have only seen one case where a first mortgage holder filed a confirmation of foreclosure. In that case, it was not a house. Instead, it was a mobile home park. If you have a second mortgage on your house, they can sue for a deficiency without having to file a confirmation of foreclosure.
Another option is to try to short sale your house. As a general rule, I don’t like short sales for reasons I listed in a previous blog post. In some short sales, the mortgage company will agree to the sale only if the seller signs a note for some of the deficiency. I would never advise a client to sign any note to close a short sale. However, if the mortgage company is willing to take a lower price and let you go, it might be a good option.
A third option is to file Chapter 13. In some Chapter 13 bankruptcy cases in Georgia, we can wipe out second mortgages. Also, in many Chapter 13 cases, we can wipe out credit card and medical bills. When these debts are gone, its much easier to make those future mortgage payments.
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3. How much does it cost to file?