I heard an old time investor talking about how he always uses the banks money to purchase a home. He said "I will pay 5% to risk the banks money instead of mine." If a deal goes bad he claims he can just walk away. Is there any truth to that. Is it really that easy to walk away.
@T P. some people with really good credit can get non recourse loans. I cannot. Those type of loans are pretty rare and I bet if you default on many you won't get any more.
Yes and no.
If you don't want a property, there are options for giving it back to the bank.
1) Deed in lieu - Bank takes the property back in lieu of pursuing a foreclosure.
2) Short sale - Bank allows you to sell the property for less than the loan value.
3) Foreclosure - Stop paying and the bank will sue you to take ownership (this is much easier for the banks in trustee states vs judicial states)
4) Bankruptcy (Chapter 7) - Turn all your assets over to a trustee who then sells them all and divides the proceeds among all your debtors. Any debt is then wiped clean.
With the exception of number 4, the bank would still have the option to come after you for the remaining balance of the loan, unless otherwise negotiated. All of these will have an impact on your credit, some greater than others.
Your old time investor probably hasn't borrowed money from an institutional lender in a few decades. Things have certainly changed over the years especially within the last 10. It isn't as easy to get a loan as it used to be and 'just walking away' isn't always an option. I know someone who got sued by a lender when he walked away from the loan on one of his rentals and he had to file BK to get away from the debt.
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