Mortgage Default - what can "they" do?

I live in Michigan and I have three houses. I live in one of them and rent out the other two. Both of the rentals were purchased with the intent to "flip" until the Real Estate market took a huge dive and foreclosure rates in metro Detroit skyrocketed. So now, I owe much more on both houses than they are worth and neither of them rents out for what I pay. Based on what is available on the market, I don't think that I could sell either property for more than 1/2 of what is owed. I have called both lender's and inquired my options and neither seem willing to work with me (fixed rate, extending the terms, interest only for a short period, etc.). To make matters worse, I had some legal problems last year that cost me most of my savings and I am now paying out more every month than I make.

So, my question is this: what can the bank(s) do to me if I default on the mortgage note? Both of the mortgages have PMI. Also, what can the IRS do to me?

I have been told that if I am considering something as drastic as this, that I should contact a lawyer FIRST and have him/her contact the lender for me. This would/could eliminate a lot of the costs that the bank incurs for a foreclosure and possibly make things easier on me (like they don't sue me!).

Thanks for any response.

They can take the homes and try to sue for the balance due after they sell the homes.

But it sounds as if you may not have that many assets for them to collect...

Originally Posted by Unregistered They can take the homes and try to sue for the balance due after they sell the homes.

Is this true even if the loan is insured with PMI? I thought the reason for having PMI in the first place was to give the bank a guarentee?!?