Will I go to jail over not paying my mortgage?
A borrower will not go to jail if they default on their mortgage loan, but they could face criminal charges in a couple of extreme situations described below.
In some states, foreclosure involves judicial proceedings. In other words, the lender must hire an attorney who initiates a foreclosure lawsuit against the borrower. The lawsuit does not involve any criminal charges against the borrower. It is merely a civil proceeding that involves the lender’s attempt to collect a debt or be given ownership of the property in exchange for the unpaid debt obligation.
If a borrower fails to maintain their property prior to being foreclosed, the local municipality could issue a citation and/or a fine. Common citations include failure to keep grass cut, leaving pets behind, having an unfenced or tepid swimming pool, or leaving a house unsecured. Some municipalities will even condemn a property. If the borrower fails to address the issues and pay the fines, some municipalities have the ability to take the borrower to court. In rare cases, failure to show up for court could result in an arrest warrant being issued.
If a borrower deliberately trashes a house, it is possible for the lender to sue them after the sale for destruction of property and perhaps even press criminal charges. While rare, it is done in cases where the borrower creates major damage to the house. We have seen cases of angry borrowers clogging toilets and sinks with concrete mix or stopping the drains with other things like tennis balls. They then turn the water on and leave it on. In other cases, borrowers have ripped out all the fixtures and appliances.
In some blighted cities, lenders have taken the unusual step of not foreclosing since they determine that the property’s value is so low that it is better to not take it back. This is known as a bank walkaway, where the bank charges off the loan and stops the foreclosure action. Therefore, the borrower remains as the owner. The city can then issue citations against the owner for failure to maintain their property. In some cases we have seen, the owner walked away from the property only to find out years later that they still owned the property. The city may even have the right to demolish the property and bill the owner for the cost. In rare cases, failure to respond to the city’s citations or court hearings could result in an arrest warrant being issued.