Homeowner just walking away with 20% equity

[Chuck Shadle]

Looking for some advice here.

A person I know (Becket, Swedesboro, NJ area) lost a job 1-2 years ago and was out of work a pretty long time. He finally got another job but it pays considerably less than his first.

He was able to make his payments with his first job, but in his new job, he couldn't afford them and he started to pull money out of his 401K/IRA (was that a collective groan I heard?) and has kept them up to date (May was paid).

Now his savings has played out and he still can’t make payments (can’t afford mtg pmt and after no work for so long is really messed up financially). He told me that he was just walking away from the house and I wrongly assumed that he was just underwater (way underwater). However, I called him this evening and found out more information that changes my perspective.

He has 20% equity ($27,000) in his home based on a recent appraisal.

On the upside, he’s had siding and roof replaced in the last 10 years. On the downside, his HVAC is broken and he has an in-ground oil tank which would have to be pulled if he sells (were those bigger groans from NJ readers?). He doesn’t think it’s leaking but I know one NJ person whose above ground tank leaked and they had to pay $65,000...so I assume in-ground is similar….so it's one big risk even with 20% equity.

This guy has already committed to moving out of state. He’s just walking away from the mortgage. I don’t know the legal ramifications of that, but the credit ramifications are sure to be large. His mind is dead set based on his inability to live for one more month in NJ but with an offer elsewhere. I get it - he feels hopeless, but I’m trying to figure out how he can keep this from being a train wreck.

Tomorrow, I’m calling a realtor I know of from his neck of the woods, but I thought I’d post to see what your advice is. I don’t think I can change his mindset but maybe there are options for him to get rid of the house.

Thanks in advance,

Chuck