Can Mortgage Borrowers Be Punished for Walking Away?
In a recent interview with the San Francisco Chronicle, Freddie Mac consumer outreach manager Robin Stout Migala claimed that there are many reasons why homeowners shouldn’t walk away from homes, including federal income tax liability and the chance that lenders may pursue walkaway borrowers.

Although Robin’s statements may be true in certain circumstances, it is equally likely that borrowers may not face the above-mentioned consequences.

As Mike ‘Mish’ Shedlock pointed out in a blog post Monday, some states (like California) are non-recourse states, which basically means that borrowers owe lenders nothing more than the house should they default. There are also non-recourse loans in recourse states with the same provision. As for tax liabilities, there are provisions in the Mortgage Forgiveness Debt Relief Act that allow tax free debt forgiveness.

The bottom line is that there will be consequences for those who do walk away–like a drop in credit scores–but the end result may not be as bad for borrowers as Migala implies.

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