Bills.com > Mortgage > Mortgage Questions > Advice on voluntary surrender of home to lender
Question:
MAY 09, 2012

Advice on voluntary surrender of home to lender

How much more damage could I do if I just voluntarily surrender my house back to the lender?

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Bill's Answer: Bills.com Resident Expert

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 will explain more about voluntary surrender of a home in just a moment.

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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.

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 Avoiding Foreclosure Web page.

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.

Recommendation

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. See also Deed In Lieu Of Foreclosure vs. Short Sale and Home Affordable Foreclosure Alternatives Program.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

Comments (166)


Joe G.
Mint Hill, NC  |  May 09, 2012
Since January 2012 we trying to sell our house and so far not one showing or offer. We are moving to Europe and can not afford to keep the house here and renting in Europe a place. Our salary here is low and the future salary is low-medium. We thought through different options, including to rent out our house. But what I mentioned before. We can not keep both. To give back the house would be right now the only option. While a ruined credit score would be for us the least problem right now. Any advice?
Bills.com
May 11, 2012
I see three options for you:
  • Start discussions with your home loan servicer about a a deed-in-lieu-of-foreclosure or a short sale. Both take you to the same place — selling your property — but via different routes.
  • If discussions with your servicer go nowhere, consider a strategic default. This is your nuclear option, as it were, if your discussions with the servicer fail. Before you pull the trigger and allow a strategic default, consult with a lawyer in your state who has experience litigating mortgage issues so that you have an understanding of your rights and liabilities for the deficiency balance.
  • Rent the property, and cross your fingers the rental market in your area is tight enough for you to break-even or better on your monthly cash flow.

One last thought: Study your state's anti-deficiency rules to understand what, if any, liability you may have for a deficiency balance on your home loan.

Laticia M.
Delmar, MD  |  May 08, 2012
In 2006 my ex spouse and I purchased a home together. He was on the mortgage first and me second. Around June of 2007 I left him and took a lease at another residence. My ex would not leave the house and because of the situation there I felt I had no other option but to leave. We had a verbal agreement that he would pay the mortgage and put it on the market. In lieu of paying the mortgage he decided to pay a private eye to spy on me. Withing in seven months of me leaving him, the house was in foreclosure. He did not maintain the house to where it could be sold. He actually wanted me to come to the house and clean up after him. I want to know if in a situation like that, where I am no longer in residence...my address has changed and the children were attending school in my district could I have the foreclosure removed? He intentionally did everything he could to ruin my credit. Because of a few other shenanigans he did I also have a repossession and three judgements on my credit report. I also found out that he had put credit cards in my name that I knew nothing about.
Bills.com
May 10, 2012
Regarding the credit cards your ex-spouse opened in your name, I think you have two main options:
  1. Contact the creditor and state that you should not be linked to the account, as you did not consent to be responsible.
  2. Consult with an attorney.

Regarding the foreclosure and your credit score, it is unfortunate, but as you were financially responsible for the loan, all the delinquencies for the loan and other accounts that you were listed on will appear on your credit report.

Crystal G.
Annapolis, MD  |  March 12, 2012
My husband did a deed and lieu with BB&T and it finalized back in February 2011 I think. We recently got a letter stating that we owed a huge amount for the foreclosure, we contacted the bank and they said that we had a forclosure. We told the lady no we did a deed and lieu and we had the letter but since we have moved twice being military, we can't find it. There must be a copy of this letter or something proving we did a deed and lieu. They made his credit look even worse and the interest that we apparently owe is huge, this is the first letter we received and it says we own interest for a year. I feel as though the bank is being shady, what do we do to prove that they did a deed and lieu without being able to find the letter they sent saying it went through? Please help.
Bills.com
March 12, 2012
The letter you seek is one small piece of a puzzle that shows what happened. Ask a lawyer in the town or city where the property was located to do a title search on the property. A deed in lieu will appear as a voluntary conveyance on the title, and a foreclosure will, of course, show up as a foreclosure. Ask the lawyer to make copies of the conveyance, and then write a letter to the lender explaining that the evidence shows a deed-in-lieu-of-foreclosure, and that a foreclosure never took place.

However, doing so will not get you out of the woods yet. Whether you disposed of the property with a short sale, deed-in-lieu, or foreclosure, there is still the matter of the deficiency balance. The lost letter you mentioned may have a clue as to any promise made by the lender to forgive the deficiency balance. Ask your lawyer to demand copies of any and all correspondence the bank sent you regarding an offer of a deed-in-lieu or the deficiency balance.

Readers, Crystal's letter is a reminder when you go through an important event like a home purchase or foreclosure to keep all related documents in a safe place. Relying on your opponent to keep better records than you is not a safe strategy.
Rico R.
March 06, 2012
My wife and I filed for Chapter 7 on June 11 and it was discharged in August 11. We surrendered our house when we filed. How do we know that we can not longer stay in this house? should there be a notice or something that will tell us that we need to leave? we can not afford the payments to stay here even if we wanted to. Should we wait until we are asked to leave or should we start packing now? Now to make it a little complex, our old lender transfer our loan to a different lender and it just took effect in February 12. what can we do or where can we get advice?
Bills.com
March 06, 2012
Consult with your bankruptcy lawyer to learn how much time mortgage servicers have been giving homeowners in your area. In my experience, your situation is not unique because the mortgage servicers are completely overwhelmed by foreclosures. That said, you should plan to vacate the premises on short notice.
George M.
Upland, CA  |  February 05, 2012
Hello. I have a rental property where I am extremely "upside down," and, just keep having problems with renters. My wife and I are considering DIL, though, the only "hardship" I can cite is that overtime has slowed. Fortunately, my wife and I are blessed with good jobs, but, this property has been a headache.
Bills.com
February 06, 2012
I suggest that you read the Bills.com article about deed in lieu of foreclosure vs a short sale. If you stop payment, then your loan will go into default and you most likely the lender will foreclose on the property and seek the deficiency balance through a court judgment. If you wish to do a short sale of DIL, then you will need the permission of the lender. If you are strong borrowers, the lender will most likely demand that you pay the whole loan, through the sale and a payment plan. You can attempt to negotiate the deficiency balance. Another possible solution is to hold on to the property, seek better tenants, and more security from your tenants. Run credit, employment and past rental history checks on your tenants.
Matt W.
Rolesville, NC  |  February 02, 2012
My wife and I have a house in NJ that is currently in the process of being sold through a short sale. We have met with bankruptcy lawyers and they have mentioned surrendering the house. If we were to surrender the house, we wouldn't owe any more money on it, correct? Also, if we did do the short sale and it went through, we would owe the difference of what we owed on the house and what it sold for, right?
Robin J.
St. Clair Shores, MI  |  February 01, 2012
My husband and I filed bk four years ago. We surrendered the property to the lender. The city continues to send us property tax bills and assessments. Are we liable for the taxes?
Bills.com
February 04, 2012
No. Send the city a Certified Letter explaining the facts of the surrender. Name names, and include all details regarding the contact information at the bank or credit union so that the city can follow-up with the appropriate people at the bank.
Heather M.
Canton, OH  |  January 31, 2012
Hi. My husband and I are in the process of moving out of our house. We are now 30 days behind on our mortgage. I found out that when we had our bankruptcy back in 2007 (discharged in 2008) that our house was not "reaffirmed" in the bankruptcy. My understanding is that we are no longer personally liable for our mortgage, and we can walk away from the property. There is approx. $20k in repairs that need done, then even after that, we are about $30k upside down, according to a Realtor that we talked to. My question is, when we walk away, should I: A) Let the bank take the property through foreclosure; or B) Try to negotiate a short sale? My thoughts are that both the bank and us benefit from a short sale. Them due to the costs, and us due to the timeframe. Like I indicated, I know we have no personal liability for the home loan, as it was included in our bankruptcy. Any advice is appreciated!
Bills.com
January 31, 2012
For most home owners, a short sale is superior to a foreclosure. However, if the home owner filed a successful chapter 7 where the home loan was included, then walking away is smarter financially. In a situation like yours, the only advantage a short sale has is that you can control exactly when you vacate the property. However, if you are already moving elsewhere, I see no financial or legal advantages to a short sale.

Consult with your bankruptcy lawyer to discuss the specifics of your circumstances and your options. You may have additional relevant facts you did not share that would lead you to a different conclusion than the one I shared here.
Avatar
Heather M.
Canton, OH  |  February 01, 2012
Another thought I have, is would we be better to do a deed in lieu, rather than a foreclosure? A DIL, would make the process much quicker, by getting the property into the banks hands faster, and they save the money on the foreclosure process. I am not sure if this is an option or not. Like I indicated, we are not personally liable for the financials on the property, as it was included in our bankruptcy in 2008. Thanks for your advice!
Bills.com
February 01, 2012
All other things being equal, a deed in lieu of foreclosure is a better deal for a borrower because it places the liability for the property on the lender as soon as the contract is executed. However, in life there is no such thing as "all other things being equal." A good short sale contract is better than a bad deed in lieu of foreclosure.

In your case, I would be leery of any contract I signed with the lender because it may have language that reinstates the loan or otherwise obligates you to any deficiency balance. Consult with a lawyer before you sign any contract the lender places before you, and ask him or her to review the contract before you sign it.
Nikkie J.
Adelphi, MD  |  December 13, 2011
Greetings, I just filed for bk which will be discharged in 2/12. We did a "deed in lieu of foreclosure", as we cannot afford the home anymore because my husband has lost his job. My question, how long does it take for the deed to transfer from myself back to the bank. I signed correspondence that I do not want to keep the home and do not wish to renegotiate. We have already moved to an apartment but still need to get 2 big pieces of bulk furniture, what is the time estimate for when the bank actually comes to take possession of the house? Will I need to give the bank the keys or do they even care at this point? Thank you for reading and providing any insight.
Bills.com
December 14, 2011
If you have done a deed in lieu of foreclosure with your lender, that means that after meeting their eligibility requirements and approval, you have signed and notarized all bank papers. You will then have 14 calendar days, or the amount of time specified in local law, to move out of the property. Any questions you have should be directed to the lender, including eligibility for relocation expenses.
Jaylen W.
December 09, 2011
Elegant description has been given. Good justice to the article.
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