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Mortgage Underwater
Owe @ $130,000 on a home worth @ $70,000. Mortgage at 8%. Have inherited an estate which will allow us to pay cash @ $225,00 for a new condo. What do we do re existing mortgage? Do we walk away and let bank foreclose? Do we do the honorable thing and absorb an @ $60,000 loss? Renting our existing home is not an option we would like pursue. With new home in possession we will not be concerned as much re credit scores.

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Deed in lieu

If you aren't concerned about your credit you may want to consider a deed in lieu. Thats is your state offeres it. I deed in lieu is when you sign your property over to the lean holder. Deeds in lieu may also supply certain benefits. For one, Fannie Mae, the government-sponsored entity specializing in purchasing mortgages from lenders, offers a number of incentives to consider one instead of a foreclosure. For homeowners, these include reducing the wait time after a deed in lieu to qualify for a new home loan. It's now down to as little as two years. Lenders also receive certain financial incentives and guarantees from Fannie to encourage deeds in lieu rather than foreclosure actions. I hope this helps!

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Moral and Legal Dilemmas

Part of what you have is a moral dilemma.  You have a mortgage on a house that is larger than the value of the house and you have the ability to pay the debt.  If you’re looking for approval for walking away when you have the ability to fulfill the obligation, you'll have to look elsewhere.

The rest is legal and you need to know the possible outcomes.  Depending on the state you are in, the lender can sue you for the balance of the loan, fees, legal costs, etc after the foreclosure (called a deficiency judgment).  Since you have the money, it is more likely the lender will sue you if they can.

At a minimum, you should attempt to settle the debt with the lender via a Short Sale or Deed in Lieu.  In these cases you would be protected from being sued (since you settled with the lender) and your credit will take a smaller hit.  There will also be tax consequences for the unpaid debt.

Of course, if you just decide to sell your house for what you can and pay off the rest of the debt with your inheritance then your credit will be just fine and you’ll have lots and lots of money for a down payment on the new condo.

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