Folks who bought their homes when housing prices were peaking are in a rough spot: many have minimal equity in their homes and owe far more than the house is actually worth. More than a few people in this situation are seriously considering just walking away. Rather than trying to keep up with payments on an over-priced home during a credit crunch, these home owners are considering intentionally allowing the bank to foreclose on their homes.

The Risks

An intentional foreclosure is not a ‘get out of jail free’ card, no matter how it appear on the surface or how some companies are selling it. The most obvious problem with a foreclosure is the major ding it will put in your credit score. It will be harder to get credit of any kind after a foreclosure, including a new mortgage. But the potential problems are far larger: there is no guarantee that your lender won’t sue you for other assets you may still have. Fewer lenders are doing that these days because of the sheer number of foreclosures, the expense of such a suit and the fact that most people in upside-down mortgages have minimal assets beyond their homes.

The Benefits

For many people with upside-down mortgages, it’s a matter of time before their mortgage goes beyond the point they can handle. Even if a homeowner seems to be doing alright now, there’s no guarantee that the situation won’t change. For homeowners that are pretty sure that their mortgage will go south sooner or later, it’s hard to argue against getting out of the mortgage before they’ve dumped too much money into it. And if you’re in a position to turn around and take out a new mortgage — you have enough savings for a sizable down payment — you could actually repair your credit in virtually no time.

The Foreclosure Process

Before you consider intentionally foreclosing, it’s worth your while to try to reach a loan remediation agreement with your lender. It’s essentially a renegotiation of what you owe and can help you avoid foreclosing. But with tens of thousands of other borrowers trying to do the same thing, there’s little guarantee that your lender will actually be interested in a loan remediation agreement.

If you decide to go through with your foreclosure, a number of companies have popped up that will help you through the steps. Many of these companies seem on par with debt settlement companies — they seem more than willing to take advantage of people in a bad situation. Do your homework before working with an intentional foreclosure company.

A Question of Ethics

A foreclosure is guaranteed to tarnish your credit report, but that’s not the reason a lot of people are objecting to intentional foreclosures. Instead, there is a question of ethics. Because a mortgage is a contract to make payments, an intentional foreclosure is much the same thing as intentionally breaking a contract — an act considered unethical, if not actually cheating.