Items you will need
- Mortgage note
- 401(k)/403(b) statement
Surrendering a mortgage item to the bank is voluntarily allowing the bank to take the house prior to the start of foreclosure proceedings. This process is also referred to as "negotiating a deed in lieu." While no one wants to lose their home, surrendering the property willingly often makes the process less stressful. When you can no longer make your mortgage payments, you can mitigate the damage to your credit by surrendering it before the bank takes it.
Review your finances to make sure there is no way for you to keep your home. Explore hardship distributions from your retirement plan that allow distributions without penalty to prevent foreclosure to see if this is a viable option. Call your retirement plan administrator at the number listed on your 401(k) or 403(b) statement to determine whether you qualify.
Meet with your mortgage lender to review your mortgage note. Explain your situation and see if there is any way to renegotiate the terms of your mortgage. Lenders may not be willing to work with you since getting a home with equity is a better situation for the lender if the housing market is a strong seller's market. However, you won't know your options until you ask.
Ask the bank whether your property qualifies for a short sale. This is where the bank authorizes selling the property for less than it's worth and willing to waive the difference between the mortgage balance and the sale of the home. Again, the bank will look at the housing market and determine if this is its best move.
Request a deed in lieu agreement that releases you from the mortgage and surrenders your equity ownership interest in the property. The sooner you complete this during financial difficulty, the less damage there is to your credit. This makes moving and signing a rental lease easier than trying to explain a foreclosure.
Sign and submit all forms to the mortgage lender. Mark your calendar of when you need to be out of the house and make arrangements for moving.