Having a foreclosure judgment against you can do more than ruin your credit. A foreclosure judgment will result in a foreclosure sale of your property which could result in you being liable for the difference between the amount you owe and the sales price at a foreclosure sale. Additionally, if the property is your homestead the protection of the Mortgage Debt Relief Act (MDRA) will expire December 31, 2012. If the property is sold after the end of this year, you could be taxed upon the difference between the amount you owe and the sale price. It does not matter whether the sale is due to a foreclosure or short sale. A sale of non-homestead property this or next year could be a taxable event as the MDRA does not apply.
An attorney experienced in foreclosure defense can provide valuable insight into the ways to avoid the negative consequences of foreclosure.
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As the attorneys before me already mentioned, in addition to losing the property, the lender can thereafter sue you for the deficiency, which is the difference between the judgment amount and what the house was sold for in the auction (if it was sold, otherwise, the market value). The judgment amount will not only consist of the mortgage amount, but also other fees such as the bank's attorney fees, costs of bringing the foreclosure action as well as other fees. So after all those extra fees and costs are added, the judgment amount can be considerably higher then what you owed on the mortgage. Even if the lender does not personally sue you for the deficiency now, they can do so at a later time or they can sell the debt to a collection agency who can then try to collect the debt.
If you no longer want to keep the house that you live in because it is underwater and you can no longer avoid the mortgage payments, there are other options that may be available to you besides just waiting for the bank to foreclose. You can try to do a short sale or if that is not succesful, a deed in lieu of foreclosure (where you agree with the lender to give the property back to them). Another option may be to file for bankruptcy where you could potentially discharge your mortgage obligation. Once it is discharged, the lender can still take the house back, but they cannot sue you personally for the deficiency.
Time is of the essence, so I would recommend you contact an attorney to find out what option is best suited for you. Good luck!
Please note that the response above is not meant to constitute legal advice and it does not establish an attorney-client relationship. You should contact an experienced attorney to assist you.