In Foreclosure, I Can Walk Away Free and Clear — Oh, Really?

Think you won't owe a penny when the bank forecloses on your house? Think again. Even though Illinois is a recourse state, the chance of you receiving a deficiency judgment, indicating you still owe money to the lender, is lessened if you only have one mortgage on your home. 

If the lender accelerates the foreclosure and you sign off -- you're tired of being in limbo and want to turn the property back to the bank -- then the first lender is required to wave the deficiency, according to Elliott Hartstein, Buffalo Grove real estate attorney. www.elliotthartsteinlaw.com. Hartstein adds that while the second lender has the right to seek a deficiency, they often don't. "They lose their rights to the property."

Tax ramifications, however, are a horse of a different color. "You can walk away from the big house payment, but not from potential tax implications," says John W. Roth, senior tax analyst at CCH in Riverwoods. www.bankrate.com  

In the end, it's important to confer with a real estate attorney and an accountant to discuss your unique situation before you make any costly decisions.