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Advice on voluntary surrender of home to lender - The Bills.com Blog
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Advice on voluntary surrender of home to lender
Question: I have a dismissed bankruptcy scheduled to fall off my credit in 2010. My house was included in the original bankruptcy as well as an automobile. Once the bankruptcy was dismissed I reached an agreement with the mortgage company to keep the house. However, I had incurred substantial fee's which I had to pay before they would reinstate the loan bringing my home loan basically backto where I started. The house isn't in the greatest neighborhood and I can't qualify for another mortgage, but i really want to move. My credit is horrible right now (under 500) and doesn't seem to be able to get any lower. How much more damage could I do if I just voluntarily surrender the house back? I know I'd owe the difference but at least I wouldn't still have the debt of the house weighing my credit down. It seems like surrendering the house would actually improve my score because my debt would be reduced. Any advice?
Answer: The voluntary surrender of a home in the manner you describe is often referred to as a ?deed in lieu of foreclosure? in the mortgage industry. In this procedure, a borrower negotiates with the lender to turn over the deed to the lender in order to avoid formal foreclosure proceedings in the court system. I generally recommend negotiating a deed in lieu agreement when a homeowner can no longer afford his mortgage payments, has explored all other options to save his home, and when foreclosure is imminent. From your question, it sounds like you are able to make your monthly mortgage payments, but that you would like to rid yourself of the home so you can move. Before you consider surrendering the property to your mortgage lender, you should do everything in your power to sell the home. If you can find a buyer, you should be able to rid yourself of the home without
the credit damage caused by a foreclosure or a deed in lieu. For further information about foreclosure, you should review the foreclosure information from the US Department of Housing and Urban Development, available at www.hudclips.org .
Unfortunately, in the current housing market, many homeowners find themselves owing more on their mortgages than their homes are worth, a situation which the mortgage industry refers to as being ?upside down? on a mortgage. Even if you cannot find a buyer willing to pay enough for the home to pay off what you currently owe, you still may be able to sell the property for less than the mortgage balance, though you will need to negotiate an agreement with your lender to accept less than the balance of the note to pay off the mortgage. Selling a home for less than the balance owed on the mortgage is often called a ?short sale;? such transfers must be approved by the lender prior to the sale. Lenders that agree to short sales will frequently forgive any balance remaining on the note after the sale proceeds are applied, though they usually require borrowers to provide documentation of financial hardship, such as job loss or unexpected illness, before they will approve a short sale.
Surrendering your home to your mortgage lender through a deed in lieu of foreclosure agreement will likely have a strongly
negative impact on your credit rating and your ability to obtain a new mortgage. While I understand that your credit score is already quite low, it is possible that a voluntary surrender may drive your score even lower. In addition, this derogatory mark on your credit will likely appear on your credit reports for seven years, meaning that this ?foreclosure? could damage you credit rating for much longer than your dismissed bankruptcy. I encourage you to explore all options available to you to avoid voluntary surrender or foreclosure of your home, as losing your home will likely hurt you financially and negatively impact your credit rating for many years. These credit problems could prevent you from qualifying for a mortgage for a new home, cause you problems leasing an apartment, and force you to pay significantly higher interest rates for any credit you are able to obtain, which could cost you thousands of dollars in interest charges.
To learn more about the foreclosure process, and possible ways to prevent foreclosure, I encourage you to visit the Bills.com Foreclosure page at http://www.bills.com/foreclosure/.
I wish you the best of luck in resolving your financial difficulties and 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!
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1. Posted by Roy Neal on Wednesday 30th January 2008 05:16
My wife and I have recently moved into a new home. The mortgage was secured in her name. We moved from a home in another town that I own. I am "upside down" on the mortgage. Consequently, real estate companies won't list the property for sale. I've tried 2 differnt times to sell the house on my own with no luck. I finally found someone to rent the home, for $500 less than my monthly payment. My wife has been diagnosed with a serious illness. The burden of loosing $500 a month has now become a major financial issue. I think I could convince the person renting the home into a buy situation if I could lower the price a bit (maybe $10,000). Do you think I would be a candidate for a "short sale"?
2. Posted by Nathan on Wednesday 30th January 2008 08:32
You will need to speak with your lender on this. Discuss your situation with them and provide detailed documentation about your current financial hardship to see what you are able to work out, but keep in mind that there is still a chance they might not agree. All the best.