When you’re facing an underwater mortgage you’re facing a situation where none of “the rules” matter that much anymore. What rules are we talking about? We’re talking about the rules that say that you must always pay your debts, no matter what. We’re talking about the rules that say it’s actually bad to look out for yourself and your family first. Just why would people think that those rules apply to people with underwater mortgages, especially when families are having trouble making the payments? First, those rules became rules for good reasons: when you are dealing in good faith and the other party is dealing in good faith, you really ought to do all you can to honor your end of the bargain.

Many Michigan homeowners burdened with underwater mortgages find that walking away from the mortgage is, in the long run, less financially damaging than continuing to make monthly payments. Mortgage foreclosures, however, pose serious damages to the homeowner’s credit history, and underwater homeowners who choose foreclosure may not be eligible to purchase another home for the next seven years. Home foreclosures are equally damaging to the mortgage lender, which faces the high legal fees, potential property damage and liabilities associated with managing a foreclosed house.

They’ve pushed mortgages like never before. They’ve allowed people to get mortgages without proof of their incomes. They’ve pushed ARMs-adjustable rate mortgages-on a gamble that families would be able to afford the larger mortgage payments when those mortgages reset in five years, and every year after, to reflect inflation. They’ve pushed mortgages like dealers push drugs. And because most people in our country don’t have a good basic financial education, we’ve been mainlining the credit drug for 20 years.

Often, the original mortgage lender requires the homeowner to pay the deficiency, but this is not always the case. Depending on the size of the deficiency, the homeowner’s original credit score and other circumstances surrounding the mortgage’s underwater status, lenders may choose to release homeowners from the remaining debt. Recent foreclosure laws and government incentives have made it more beneficial than ever for mortgage lenders to accept loan modifications as an alternative to foreclosing home with underwater mortgages. Before deciding to walk away from a bloated mortgage, homeowners should contact a company which specializes in foreclosure transactions to see if they might qualify for a short refinance.

I don’t know about you, but I’m certain that, if Kristin and I were to try the shady financial dealings that these mortgage lenders and other bankers were into, that we’d be in jail fast. We’re pretty sure you would be, too. Instead, these jerks are getting their multi-million dollar bonuses paid for out of our tax money! With all this in mind, what rules do we think you should apply to yourself and your family if you’re faced with an underwater mortgage? We’ll tell you-and this is the cardinal rule: Look out for your own best interests. Your only real responsibility is to yourself and to your family. We don’t care if you made an honest mistake in dealing with your mortgage lender or if you let yourself be handily convinced to take out more mortgage than you could afford. You don’t deserve to ruin a huge part of your life because of that mistake. And your children certainly don’t deserve to suffer because of it.

Learn more about Obama Mortgage Relief Plan Qualifications.

If you read the news at all, you’ve probably seen the term “underwater mortgage,” but do you know what that means? When a mortgage is underwater, it means that the homeowner owes more on the mortgage than the house is actually worth. That’s not supposed to happen. In fact, from roughly 1990 to 2006, no one seriously thought that underwater mortgages were ever going to be a big problem. We all believed that housing prices would just keep rising and that we could count on our building equity to give us all the other cool things we wanted. Like fancy cars, a new deck, or a guaranteed retirement.

You could give your mortgage lender a “deed in lieu.” This means you hand over the deed and the keys, and you walk away from the house. This is not a good option! Why? Because most mortgage lenders will hound you relentlessly about paying the difference between what they can sell the house for and the total amount of your mortgage. And because mortgage lenders aren’t set up to be real estate offices, they will sell your house for pennies on the dollar just to get rid of it. The next option is foreclosure. With foreclosure, you can keep living in your house mortgage-payment free until you get an eviction notice. You’ll have to manage your way through a few years of less-than-stellar credit, but Kristin and I have been through this option, and it’s worked out well for us so far. You may also have to worry about your lender coming after you for the difference between the eventual foreclosure sale price and the amount you owe on your mortgage.

And, voila! We had the recession and near-financial collapse of 2009. Guess what else happened? Suddenly there was a glut of houses on the market from all the foreclosures that happened when the people who got those bad loans couldn’t pay them. What happens when supply goes way up? Demand falls way down-and so do property values. Add 10% (or 17%, if you understand how the government isn’t showing you accurate unemployment numbers) unemployment into the mix, and what we have on our hands now is a mess where a quarter of US homeowners have underwater mortgages-and one out of ten of them owe 25% more than their houses are worth!

Clearly this is a tough situation for homeowners who need to decide whether it makes more sense to keep paying on their underwater mortgage or to strategically default, just as any business does when it’s faced with an underwater investment. It’s a hard situation for neighborhoods when houses are getting boarded up and trashed because of foreclosures-which just drags property values down more. And it’s hard for city governments as they’re losing all of that tax revenue from property taxes. But if you’re dealing with an underwater mortgage, the first people you need to look out for are yourself and your family. If you decide to walk away and strategically default on your mortgage, you could end up staying in your house rent-free for possibly up to 2 years.

This way everyone wins a little. You keep maintaining the house so the mortgage lender doesn’t have to. You may need to keep paying the taxes during that time, but that helps keep city services going. And your neighbors won’t have to take a hit on their property values while you’re waiting out your default period. You may even be able to negotiate a short sale with your lender so the house is never empty! And while you’re staying in your house payment-free, you can save up for your life after your foreclosure or short sale. In other words, you won’t be throwing good money after bad.

Learn more about Obama Mortgage Relief Plan Qualifications.

We know it sounds unbelievable, but the truth is that there is life after your underwater mortgage and there is life after foreclosure-and it’s not such a bad life after all! After the real estate bubble “popped” in 2007, we found ourselves underwater on several mortgages. We’re Realtors, after all, and we believed what the “experts” had to say about how property values would never stop rising.

Homeowners, even those who are able to pay, are far more likely to walk a way from a mortgage when the loss in their home value measures 25% or more. The risk of strategic mortgage default is even greater in states where banks cannot sue for deficiency (what you owe on the loan), however, there are still consequences to the homeowner that considers this action: You may be facing taxation on the balance of your loan by both state and federal government. In states where a deficiency judgment is allowed, you may be facing a lawsuit where the lender can not only sue for the balance of the loan but also sue for foreclosure costs.

Here’s what you need to do. Once you know you want to foreclose on your underwater mortgage, start planning before you miss a payment. Will you need a new car within the next 5 years? If you’ll be able to keep up with the payments, get that car now. The next things you can do are to apply for a mortgage modification OR hire a Realtor to list your house and negotiate a short sale on your house. You almost certainly won’t get a mortgage modification, and there’s a chance that you won’t be able to sell your house in the short sale and it will end up foreclosing anyway.

If you are planning to buy another home, it can affect the size of the down payment required on your new home, which could amount to thousands of dollars more than you may anticipate. It can also affect the interest rate that you are charged on credit cards, within contracts and a new mortgage. Of course, if you are well off financially, then none of this will matter, you can always pay cash for what you want, but before making the decision to walk away from your mortgage, it may be wise to get legal advice.

We’re not arguing that walking away from your mortgage is a sound moral decision. We don’t think morality is involved here! You have a contract that’s not in your best interests to continue. Your mortgage is sufficiently underwater and you officially have a bad investment on your hands. What do businesses do with bad investments? They walk away from them! We hope that what you’ve read here and what you’ll read elsewhere on our website will help you realize that walking away from your underwater mortgage may be a sound business decision. And morally, you’re not responsible to your mortgage lender-the lender gets your house, after all! But you are, ultimately, responsible for yourself and your family!

Learn more about Obama Mortgage Relief Plan Qualifications.