Information on credit effect of surrendering a home

BILL'S 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 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

Comments (25)

Bills.com
August 05, 2010

Bank of America became responsible for the property and its taxes, insurance, and utilities when you surrendered it.

(0)

Keith .
August 05, 2010

I filed for chapter 7 on may 26, 2009 and surrendered my home. Over a year later the Assessor's office still shows the property ownership in my name. I've done everything the assessor told me to get Bank Of America to record the deed to their name. But, BAC cannot or will not do this. Any suggestions, or am I still responsible for MSD bills until BAC sells the home? ST. Louis,MO

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Bills.com
May 27, 2010

Was the house weatherized? Given the time of year you wrote this, it is surprising a house would need any weatherization service. Were any of your belongings taken? Have the police investigated, and if so what do they say? Is the house listed in the MLS? It does not surprise me that your contacts at the loan servicer have no knowledge of the house being entered and inspected -- that is probably handled by a different department. In my observation, banks are still overwhelmed by the recent wave of foreclosures, and still are not handling foreclosures any better than they were two years ago.

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Missy I.
May 26, 2010

On May 6 a discharge from the court was granted for my boyfriend. We both were on the house loan. He filed for a chapter 7 (house included) and I just walked away from the home with a foreclosure. We both have been moved out for a while but our belongs are still in the home. We have been moving things out a little at a time. We still have insurance on the home and are taking care of the property, like cutting the grass. We have not heard anything from the bank as to when they are taking ownership of the house. This past week someone broke into our home and hung stickers all over the place that stated the house was weatherized and an inspection was done. No contact information was left. They locked the back door with new locks, but left the front door alone. We don't know who was in house and like I said our stuff in still in there. I talked to our bank, they say they know nothing about it. Do banks just go and break into people homes during foreclosures to have an inspection done? No one seems to know who did this and I feel since we are still paying for the insurance and taking care of the property this is my home until the bank gives us final notice. Or is the final notice the judge signing the papers, since we are giving the house back? We were told by our lawyer the bank would give us a notice and it could take another couple of months. I find it very strange that no one seems to know who broke into the house and that no one knows who owns the house now. I would like to know because I could stop the insurance if the bank is in control. I just hope they let me get the rest of my things out. Is the bank suppose to give me a notice?

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Bills.com
March 29, 2010

You are asking me to shop for an inexpensive attorney who has experience in real estate law. As a general rule, I do not make such recommendations. I suggest you contact your county bar association and learn the name of the local organization that provides legal services to low- and no-income people in your area.

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Brenda L.
March 25, 2010

My husband and I cannot afford a real estate attorney. We filed for bankruptcy that was finalized in September, but now we find that the lender is forecloing in April and that they have an account in our name for past due payments. Is there anyone affordable that we could speak with? We live in Arizona.

(0)

Bills.com
October 28, 2009

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.

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Helen J.
October 28, 2009

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?

(2)

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