What Happens When You “Walk Away” From Your Condo?

The big question today: “What happens when you walk away from your condo?”

Before you do, consider these things:

Until you are able to get your name off of the property and turn it over to someone else or the bank, you remain responsible for it. Therefore, in many cases it may best to strive for a short sale or deed in lieu of foreclosure rather than just walking away believing you will be able to shake off the mortgage debt. You may think that a foreclosure on your credit report is the worst of your worries. Think again!


1. Until the property transfers hands you remain responsible for the mortgage and the condo association assessments, and they just keep accruing, wherever you are. Condo associations usually have the right to sell your property at a nonjudicial foreclosure sale if you do not pay your assessments. The association can also seek judicial foreclosure and ask the court for the best remedy (right to sell the property or collect the outstanding debt from you personally). Yes, condo associations have the right to sue an owner personally to collect delinquent assessments and collection costs in addition to pursuing foreclosure until one or the other remedy pays off. And the collection costs may even exceed the assessments that were due when you “walked”, by thousands of dollars.

And, there have been a number of articles recently appearing on the internet suggesting that frustrated lenders may start choosing to pursue owners who have decent credit reports but who have stopped paying mortgages to seek recovery of the money debt rather than the property that is worth less than what can be recovered.

2. You lose all control over the property, yet remain liable for all debts related to the property. If you walk away you retain responsibility for accidents, water leaks, taxes and other ongoing expenses. If the insurance is dropped and there is an accident such as a bursting pipe, and no one is present to report or attend to the problem, the damages can be quite extensive.

3. When control of the property is lost, it may seriously deteriorate and lose value.

4. There are also the tax ramifications. They may not be as serious for an investor owner as the loss from the property often offsets the amount of debt that is “forgiven” (difference between what is owed and the market value or sale price at the time the property is sold by foreclosure). For a resident owner, there is no loss to offset the debt that is “forgiven” so it commonly presents a real nasty surprise when an owner receives a 1099 for the amount which is reported to the IRS.

This last “hit”, debt recourse, applies to foreclosure as well as a short sale situation.

The question commonly arises as to what recourse, if any, a lender has, if an owner “walks away”. If a lender takes property back by nonjudicial foreclosure in California, the bank cannot also come after the owner for the remaining mortgage debt that was not paid. However, in a short sale it is possible that the lender could seek recourse for its loss – unless the owner gets written assurance from the lender as part and parcel of the short sale transaction that the lender will not seek recourse.

So these are things to think about. If you need more information on foreclosure or bankruptcy involving a common interest development property (which includes condos), there are very specific Primers available in the webstore at www.californiacondoguru.com that fully explain these processes and the ramifications of them.

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2 Responses to What Happens When You “Walk Away” From Your Condo?
  1. Robin
    March 16, 2010 | 10:59 pm

    I just won a small, but important Judgment against my HOA. It was for a total of $630. (actual damages were $1100). On the 29th day after Judgment was entered, the HOA’s attorney filed for an Appeal. I would like to go in with both guns loaded to the hearing. Does ANYONE know of ANY caselaw wherein the HOA was held responsible for damage/burglary to a vehicle when they touted excellent security for the complex. We have 1026 units with FIVE security guards and only TWO on the graveyard shift. The Small Claims Judge agreed that I did everything possible to prevent the theft from happening, and the security was lax. PLEASE HELP!!! Thanks

    • Beth Grimm
      March 24, 2010 | 8:20 pm

      I do not know of any case law regarding the exact subject matter but there are liability cases involving things that happen in the HOA involving criminals. You would do well to seek some legal help in identifying and arguing how the law works in your favor, because at the appeal level, the cases will likely be discussed by the association counsel. You will be at a disadvantage without good legal insight.

      At any rate, let me know what happens at the trial de novo.