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Advice on voluntary surrender of home to lender

Daniel Cohen
UpdatedNov 26, 2007

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

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 back to 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 voluntarily surrender the house back? It seems like surrendering the house would actually improve my score because my debt would be reduced. Any advice?

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.


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 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.




JJanet, Jan, 2021

I have a question, so if I bought a home through a person not a bank and want to surrender what steps should I take. I caught COVID got out with oxygen and no longer able to work after 27 years at the same job. However, I am told by the seller to pay taxes for the year of 2021 with no income. He says if I do not he will report to credit, but I did not go through a bank just him and I. He is the "bank" and seller, I think its called owner financing. I am almost 60 I do not plan to buy a house, I will stay with my kids now. I need advice please.

JJosh, Aug, 2021

Hello Janet. 

Thank you for reaching out. Please, do not take my answer to be legal advice as I am not an attorney. Only attorneys can offer legal advice. 

First, I would confirm if your owner-financing deal was facilitated through a promissory note. If so, I would read the terms of the arrangement, especially the consequences of default. Especially if the owner (seller) still has the property title. They may have the right if it's said in the Promissory note. 

I would recommend an arrangement with the seller to pay the taxes. We have affiliates that can assist you with credit card debt if you have any. They might be able to reduce your monthly cost which should allow you to support the taxes. 

If you have further questions please reach out to us. 

Regards, Josh 

ddwayne Von Schmidt, Jul, 2014

Just like many others on this site, I took the cash for keys options too. But here is a little history first: I was under a forbearance payment plan and on the last month my home was foreclosed on. (I still had one more month and I made all my payments.) My contacts with Citibank, of course, went dark. I took the CFK. Six or 7 months later I received a rescission letter. After trying to come to an agreements with them, I would not accept their offer. I would still owe them more by taking it back. I now have attorneys working on my case. We did the meditation and I have given a deposition.

Here is my question: We have been going back and forth for 2 years now, and the main concern is the cash for keys document I signed. Have there been any other cases where the ruling was in favor of the home owner? Or, does the CFK void any claims against Citibank?

ttammy, Apr, 2014
Is it the same if we live in a manufactured home located in a mobile home park? We owe $42,000 and if we could sell it would be less than $20,000. We've tried everything, just afraid of wage garnishment etc. I have MS and am in a wheelchair and cannot work, but my husband does.
BBill, Apr, 2014
Consult with a lawyer in your state to learn if you have liability for the deficiency balance. You indicated you reside in Michigan. Follow the hyperlinks just mentioned to learn more about your rights and liabilities as a Michigan resident.
VVal, Apr, 2014
I bought a time share in Florida in Aug. 2012 but have not been able to make the payment for over a year now due to losing my job. The resort has sent me a deed in lieu of foreclosure that I would have to pay for to sign and mail back to them. How would this impact me if I do sign it and/or if I just let them foreclose on the time share?
BBill, Apr, 2014
Some DIL contracts are fair, and others are one-sided in favor of the lender. Therefore, it would not be helpful for someone who has not read your deed-in-lieu-of-foreclosure contract to comment, and recommend you sign, or not sign it. Take your proposed contract to a lawyer in your state of residence who has mortgage experience. He or she will read the contract, and give you a recommendation.
DDana, Feb, 2014
What happens when you have your house newly built, it is barely 8 months old and you have had nothing but problems from the beginning with the house and builder? LONG story short, we are on a well and we have had mud and dirt as water since the beginning. We have never had clear water. He is not taking responsibility in the fact that he has to fix it. We have a one year warrenty on the house and our agreement with him states at his expense, he has to fix the well or septic if not working properly. If we don't want to go through a lawyer, is "surrendering our house" even an option because it is strictly inhabitable? We have talked to everyone we can besides a lawyer. But walking away just seems so much easier. We haven't lived in our home for over 2 months, we have an 18 month old, and no one seems to want to help us. But reading about this just pushes me away because of how it affects your credit. Any thoughts?
BBill, Feb, 2014
Go see a lawyer who has construction defect experience immediately. From what you wrote, it sounds like you know that is the logical next step. A lawyer can review the facts, the language of the warranty, and advise a course of action. A letter from a lawyer is also likely to garner a response from the builder.