Yes, you can allow the house to go into foreclosure, essentially handing it back to the bank. Of course, they won’t want it, so you may be able to work out some arrangement with them in order to get some equity out of it. But they also may be too bureaucratic to do the right thing. I don’t think you will have any issues with Medicaid as long as you fully disclose what is happening.
Harry S. Margolis practices elder law, estate, and special needs planning in Boston and Wellesley, Massachusetts. He is the founder of ElderLawAnswers.com and answers consumer questions about estate planning issues here and at AskHarry.info.