Your One Stop Resource for Saving Money.
Information on credit effect of surrendering a home - The Bills.com Blog
Bills.com Blog > Mortgage Questions > Surrendering a Home
Information on credit effect of surrendering a home
Sunday, Jan 13, 2008
Question: I am about to file for bankruptcy (chapter 7) I own a home with another person and right now our house is worth less than we owe. Because there is no equity the Bankruptcy Trustee will not take the house and liquidate it. I have an imminent foreclosure date pending. I don't want to keep the house and neither does the co-owner, we want out. Do I need to contact the lender and surrender the property to them? If I do this will I then be cleared of the debt owed because of the bankruptcy protection? And after surrender of the house can the mortgage company come after my co-debtor for money even though they can't touch me anymore? And will the surrender or deed in lieu show up on the co-debtor's credit report as well?
Answer: When a home is foreclosed upon, the property is generally sold at auction, and the proceeds of the sale are applied to the balance of the mortgage loan. Any balance remaining on the mortgage after this process is referred to as a deficiency balance, and could be a substantial amount depending on the current balance of the mortgage and the value of the home. The answer to your question of whether or not the mortgage lender will be able to pursue the co-debtor for payment of the deficiency balance greatly depends on the state you live in, as some states allow mortgage lenders to collect on deficiency balances, while other states do not. I highly encourage you to speak with a qualified real-estate attorney before you make any decisions regarding the voluntary surrender of your home so that you will know the potential consequences based on your State's laws.Rather than allowing the home to go into foreclosure or surrendering the property
to the lien holder, you may want to consider selling the home; selling the property should cause you fewer problems than allowing the property to go into foreclosure. If you owe more on the home than the property is worth, you may want to consider a short-sale, in which your mortgage company would accept less than the full balance of the mortgage to settle the debt. You would then sell the home and pay the mortgage company whatever you received, and the mortgage company would forgive the remaining balance. If you are interested in a short sale, the first step is to contact your mortgage lender to find out if this is an option. You can only proceed with a short sale with the consent of the mortgage holder, so it is imperative that you communicate with the lender. For more information about short sales, you can visit http://www.ehow.com/how_8132_short-sale.html. Generally speaking, a short sale is a much less painful process than allowing the property to fall into foreclosure.
If your lender will not allow you to conduct a short sale, you may also want to consider asking the lender about a 'deed in lieu of foreclosure' agreement, which involves surrendering the home to the lender to prevent foreclosure. However, before you proceed with a 'deed in lieu', you should consult with an attorney, because as mentioned previously, the mortgage lender may come
If your lender will not allow you to conduct a short sale, you may also want to consider asking the lender about a 'deed in lieu of foreclosure' agreement, which involves surrendering the home to the lender to prevent foreclosure. However, before you proceed with a 'deed in lieu', you should consult with an attorney, because as mentioned previously, the mortgage lender may come
after the co-owner for the deficiency balance, even if you are protected by your bankruptcy filing.
It is likely that any foreclosure action or 'deed in lieu' agreement will appear on both your credit reports and those of the co-owner, as you are both liable for the debt. Unfortunately, there is little you can do to prevent this negative information from being reported. A foreclosure is seen as a serious black mark on your credit report, and will likely cause significant damage to your credit rating. However, with time and effort, you and the co-owner should be able to rebuild your credit ratings. For additional information on credit and credit scoring, I encourage you to visit the Bills.com credit help page at http://www.bills.com/credit/. In addition, you should review the foreclosure section of Bills.com at http://www.bills.com/foreclosure/ for information about foreclosure and suggestions on how to prevent it.
Again, I strongly encourage you to speak with a qualified attorney before making any decisions regarding your home, as your state's laws could significantly affect how you decide to resolve this problem. I wish you the best of luck in preventing this foreclosure, or at least at mitigating its impact on you and the co-owner of the property. I hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
It is likely that any foreclosure action or 'deed in lieu' agreement will appear on both your credit reports and those of the co-owner, as you are both liable for the debt. Unfortunately, there is little you can do to prevent this negative information from being reported. A foreclosure is seen as a serious black mark on your credit report, and will likely cause significant damage to your credit rating. However, with time and effort, you and the co-owner should be able to rebuild your credit ratings. For additional information on credit and credit scoring, I encourage you to visit the Bills.com credit help page at http://www.bills.com/credit/. In addition, you should review the foreclosure section of Bills.com at http://www.bills.com/foreclosure/ for information about foreclosure and suggestions on how to prevent it.
Again, I strongly encourage you to speak with a qualified attorney before making any decisions regarding your home, as your state's laws could significantly affect how you decide to resolve this problem. I wish you the best of luck in preventing this foreclosure, or at least at mitigating its impact on you and the co-owner of the property. I hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
Also, make sure to get a free financial health check-up with Bills IQ!
User Comments
Your comments
Bill has answered thousands of money-related questions from readers on debt consolidation and settlement, home mortgage, credit reports and scores, auto and other loans, insurance, and others.
If you have a money question that has not been answered previously Ask Bill your question and be better informed.
Now get a free financial health check-up with Bills IQ!
Information provided by Bills.com is for general informational purposes only and is not be
construed as legal, financial, bankruptcy, tax or other professional advice. Should you
require more detailed information or specific professional advice tailored to your situation you
should consult an attorney, financial planner or tax advisor.
While we believe all information provided by Bills.com to be accurate as of the date of its posting, we cannot ensure its accuracy. Use of this site and any information contained on or provided through this site is provided without any representations, warranties or guarantees. Bills.com is not responsible or liable for any decisions or actions anyone may take based on the information provided. Please see Terms of Use.
While we believe all information provided by Bills.com to be accurate as of the date of its posting, we cannot ensure its accuracy. Use of this site and any information contained on or provided through this site is provided without any representations, warranties or guarantees. Bills.com is not responsible or liable for any decisions or actions anyone may take based on the information provided. Please see Terms of Use.
© 2006 - 2010Bills.com LLC. All Rights Reserved.
1. Posted by Jean Wild on Tuesday 19th February 2008 09:57
I am unable to sell my semi-detached bungalow even though I have reduced the price from £215.000 to £185.000. My husband had an affair and i took over the mortgage when I had a good job however things changed and I am left with the mortgage of £630 per months, house insurance, policies, utility bills, council tax and this adds up to £1150 per month out-going. My take home pay is £850. My house has been on the market for 4 mths and i am considering selling it to a House Buyer but they are sharks. If I was to voluntarily surrender my home to the lender and let them deal with it would it be a big default on a creditor as if so I could loose my job. I do not know what I can do as cannot afford to go on like this and I am in arrears now of £1224 with my lender. Do you think i would be better surrendering my property. If the lender sells it eventually will I get some money at all? Please advise as I am at my wits end.
2. Posted by Nithin on Wednesday 20th February 2008 15:40
You will need to speak to your lender about surrendering your home. As you have stated your amounts in pounds, I don’t know that the advice that I give will hold good there because Bills.com caters to financial issues in the United States. I do know that if your home sells for less than what you owe, the lender can still hold you responsible for the balance. As I said, I am not sure about the laws in the UK, so you should speak to your lender to clarify.
3. Posted by Lilian on Saturday 8th March 2008 10:13
If it is the case that the co-owner (name is on title) but not a co-borrower (name is not on the loan), will the lender go after this co-owner regarding the deficiency balance? Also, will this affect the credit report of this co-owner?
4. Posted by njawali on Monday 10th March 2008 09:01
If you are on the title but not on the mortgage note, then you are not legally responsible for paying anything but the taxes. Now, depending on your marital status and other factors, a judge can have grounds to say you are liable for more...but as far as the BANK is concerned, it's the other party.
5. Posted by Bill on Thursday 17th April 2008 11:09
You need to check if the second mortgage was also included in the bankruptcy ruling, which will list out all the debts that are going to be dismissed. If you can confirm that, then you can send a cease communication notice to the creditors that are calling you to stop the collection calls. If the proceeds of the foreclosure sale are first applied to your primary mortgage. Then, any funds left over will be distributed to the secondary and tertiary lien holders. If the proceeds of the sale are not enough to cover the second mortgage and if for some reason the second mortgage was not included in your bankruptcy filing, then the debt would convert to an unsecured deficiency balance and the creditor could potentially still follow up with their collection efforts.
6. Posted by Kerri Schenkel on Sunday 8th February 2009 08:25
We surrendered our house in our bankruptcy and have moved out. The water pipes had broken and are we responsible for the damage?
7. Posted by Bill on Monday 9th February 2009 09:14
If you have finalized all the paperwork, then I don not think you will be held responsible. You should clarify this with your bankruptcy attorney.
8. Posted by Kerry Bentz on Wednesday 18th March 2009 11:46
I am filing a chapter 7 bankruptcy and I am including my primary residence. I have chosen to surrender the property. When do I have to move out of the property?
9. Posted by Bill on Wednesday 18th March 2009 15:36
You will get an eviction letter, at that point it's usually about 30 days.
10. Posted by REGINA COLLINS on Saturday 18th April 2009 18:48
MY LANDLORD SURRENDER THE HOUSE THAT I LIVE IN MY LEASE IS UP APRIL 30 2009 SHE SAID SHE WOULD NOT HEAR ANYTHING FOR ABOUT 4 TO 6 MONTHS DO I STILL HAVE TO PAY HER RENT I DO NOT HAVE THE MONEY TO MOVE RIGHT NOW THERE IS SO MUCH TO DO I CAN NOT PAY HER RENT AND MOVE TO SHE SAID THE HOUSE WAS GOING IN FORECLOSER HOW LONG DO I HAVE I BEEN LOOKING FOR SOMEWHERE TO LIVE MY HUSBAND GOT LAYED OFF SO I AM THE ONLY ONE WORKING I LVE IN COLUMBUS OHIO THANK YOU REGINA COLLINS
11. Posted by Bill on Monday 20th April 2009 09:42
The rental agreement is between you and the landlord and has nothing to do with the foreclosure. If you do not pay the rent, the landlord might report the missed payments to the credit bureaus. Once the foreclosure is finalized, you stand to be evicted (if you are still residing in the home).
12. Posted by lori diaz on Wednesday 20th May 2009 21:10
our chapter 7 bankruptcy was discharged in July of 2008,(our home was included) we moved out of the home in October 2008, on may 5th the homeowner insurnce people called and said they got a call from nationwide and said they are taking over the home insurance...so state farm is refunding us 400.00 since we were paid up tell 2010 of next year, the refund reflect may 2008 to may 2010, my question is we have proof from the courts that we moved out in october 2008, shouldnt the refund reflect the time frame of when we moved out(October)of last year?should the refund be more?
13. Posted by Bill on Thursday 21st May 2009 11:51
A lot will depend on the terms and conditions between you and the insurance company, you will have to look into it to see what the refund rules are. You should have called them the month that you moved out, and asked for a refund, there is no way they would have known without you telling them.
14. Posted by Darlene on Friday 25th September 2009 06:50
I am currently trying to sell my mobile home that is in a mobile home park. I have considered surrendering it because I can not keep up the payments. My question is - Am I still responsible for the lot rent if I surrender it? I know if it sells for less than what I owe I will still need to pay the difference. Please let me know. Thank You!
15. Posted by Bill on Friday 25th September 2009 08:41
My answer assumes you own the mobile home and lease the land in the mobile home park. If so, the answer to your question depends completely upon your lease and where you are, in time, in your lease. Because I do not have your lease in front of me, I cannot say give you a simple answer. Generally speaking, if you do not have a lease with the landlord, then you have a month-to-month agreement. If you give the landlord a one-month notice you are vacating the property, then you owe nothing beyond that date. However, if (for the sake of argument) you have a one-year lease and you are in month six of the agreement and vacate the property, you are still liable for the remaining six months of the lease. However, the landlord is obligated to make a good-faith effort to re-rent the property after you leave, thereby mitigating your damages. If the landlord re-rents the property after you leave and before your lease term expires, you are responsible for the rent up to the time of re-rental and any costs the landlord sustained, such as advertising the property, signs, and so on.
16. Posted by Max Mosley on Monday 28th September 2009 18:07
I filed for Chapter 7 and surrendered my house too this February and got discharged in April. I had not paid property tax this year. Now am I responsible for the property taxes on the house upto April of this year or more? Also should I continue paying homeowner's insurance? I still reside on the property (moved most of my stuff to storage though)
17. Posted by Bill on Tuesday 29th September 2009 10:38
It is impossible for me to say whether you had the property taxes discharged in the bankruptcy. I have a guess (which is "no") but without seeing your bankruptcy discharge all I can venture is a guess. Since you do not own the property the only reason I can see paying for the homeowner's insurance is your personal belongings may be covered by the policy.
18. Posted by Helen Jeans on Wednesday 28th October 2009 15:55
We had to surrender our home of 17 years after my husband lost one of his biggest accounts. We tried to refi and get the banks help, but we had a loan that payments went up when interest went up. started at 4% up to 8. Our payments went up to $2315 a month and we could not afford it. We tried several things, selling for what was owed and everything. It appraised for more then what we owed, but we still couldn't sell it. Banker told us to walk away from it. Most devastating thing we ever did. Every thing was current and we left it in perfect condition. 2 years goes by and we start gettin letters from a collection agency for the difference that they didn't get that was owed that they didn't get. They just called one day wanting x amount of dollars? We called the bank and they couldn't find out what it was about either. Now we are getting letters from this collections agency out of memphis tennessee. House was in Ga. Im on total disability, and my husbands work is the worst its ever been sense economy. We rent from family now. What are we suppose to do. We can't borrow we ruined our credit, and I have medical problems. They are driving us crazy calling and sending letters, and even called a daughter that knew nothing about them. What can we do?
19. Posted by Bill on Wednesday 28th October 2009 16:28
Apparently, when the mortgage company foreclosed on your house this resulted in a deficiency balance. A deficiency balance is an unsecured debt, like credit card or medical debt. Read What Are My Debt Consolidation Options? for dealing with unsecured debt. You do not give up your rights just because you are in debt. Please see collections advice to learn the rights of creditors and debtors.