You might be tempted to pack your suitcases, call the moving van and just walk away from your home if you know there's no possible way you can keep up with the mortgage payments. This won't terminate all your financial responsibilities to the property, however. In fact, it's possible that your lender might not bother to foreclose and you could end up with a zombie home on your hands, along with a host of ongoing financial responsibilities and a lot more debt.
The Foreclosure Process
Foreclosure isn't a speedy process. Although it can vary by state law, your lender has to take certain steps first, even if you abandon the property. If you stop making mortgage payments, a month or two probably will pass while your lender reaches out to you to find out when it can expect payment. Next you'll receive an official notice that you're in default. The notice usually gives you another month to pay up before the lender begins foreclosure proceedings -- which typically take longer if you live in a judicial foreclosure state where the lender must go through the court system to take your property.
In some states, you can take advantage of a redemption period, sometimes as long as a year, after your property is foreclosed. You can try to sell the property during this time, refinance it, or otherwise figure out a way to pay off the mortgage. In most states, you're not legally obligated to leave the premises until this redemption period has expired and the foreclosure is complete.
You Still Have Financial Responsibilities
Title to the property remains in your name until the foreclosure process is done. This means you're still responsible for property taxes and homeowners association fees. You'll probably want to keep up with insurance premiums as well, because if anyone should get hurt on the property, you're legally liable even though you're no longer living there. The potential for injury becomes greater if you're not maintaining the house, such as by clearing ice off the sidewalks and cutting back overhanging tree limbs.
Abandoning your house means you also run the risk of vandalism or squatters moving in and tearing the place apart, particularly if you don't remain nearby to keep an eye on the property. If the house loses significant value due to neglect, you probably can forget any hope that it will eventually sell for enough to cover the mortgage balance you owe. You can be sued for this deficiency balance in many states – the difference between what you owe on the mortgage and the ultimate sales price. The property might fetch more money if you stay put and maintain it, so any deficiency balance would be less.
The period of time between your last mortgage payment and a completed foreclosure can be even longer if your lender doesn't initiate foreclosure proceedings right away. Mortgage lenders only can deal with the cost of so many foreclosures at once, and after they have your property back, they become responsible for these ongoing expenses until the property is sold. If the property is disrepair because you've walked away from it, this decreases the likelihood that the lender is going to rust to take possession, because there's a question as to whether selling it would even be worth investing in the costs of foreclosure. The property then becomes a zombie house, abandoned by everyone – and you'll still be responsible for ongoing costs.
If you feel you must abandon your property, keep in frequent contact with the lender for updates on the foreclosure process so you know when you're no longer legally liable for costs associated with the property. Another option is to offer to give the property back with a deed in lieu of foreclosure, sparing the lender the cost and trouble of the foreclosure process and getting the house out of your name sooner rather than later. Otherwise, you might want to stay in place until the last minute, essentially living rent-free without a mortgage payment and protecting the property until it's officially turned back over to the lender.