About Voluntary Foreclosure

Walking away and jingle mail are common terms used to describe the process of voluntary foreclosure. A person faced with losing his home because of job loss, illness or any other reason can explore many alternatives to actual foreclosure, one of which is voluntary foreclosure. On its face, this can seem like a quick and painless option for those stuck in a desperate situation. Know what voluntary foreclosure is, its effects on the homeowner and lender and alternative methods of preventing foreclosure.


A voluntary foreclosure is one option available to homeowners who have fallen far behind on mortgage payments and realize that they can no longer afford to make the payments on their home. In addition, it is difficult to sell for a price that will cover the mortgage balance. Several factors contribute to choosing this option, including:

Overall decline in real estate values.

Sub-prime mortgage issues, such as skyrocketing interest rates on adjustable rate mortgages (ARM).

Sudden debilitating injury, illness, or death of the main wage earner(s).

Job loss.

The voluntary foreclosure is referred to as "walking away" because, generally, that is what actually takes place. The owner simply abandons the property and stops paying the mortgage, thus leaving the house in the ownership of their lender.


Positive Effects: For the homeowner, the only real benefit of voluntary disclosure is that they will get out of a no-win situation without sinking any more money into a mortgage that is going to default anyway. The lender benefits by not having to move forward with costly foreclosure proceedings.

Negative Effects: There is no difference between willingly walking away from a mortgage, or defaulting, when it comes to your credit. In either situation, the damage to your credit rating is significant, and it will be difficult to obtain financing for the purchase of future homes without paying very steep interest rates.

Furthermore, voluntary foreclosure may not entirely relieve your debt, unless you entered in to a non-recourse type of mortgage. Those with recourse mortgages will still be held responsible for any difference between the proceeds from the sale of the property and the amount owed on their mortgage.


Voluntary foreclosure is by no means a cake walk. It may seem very simple to just walk away and abandon the home, as many unethical foreclosure assistance companies would like you to believe. To think that a voluntary foreclosure is the solution to all your financial problems, however, is a dangerous misconception. In reality, voluntary foreclosure is probably the worst route to take. Not only do you lose your home, and a place to stay, you are effectively flushing what little credit you have down the financial toilet.

While desperate times do call for desperate measures, you also need to be wary of "foreclosure specialists," and those who are selling their services for "walkaway" plans. Of course, not all companies are bad, but myriad fly-by-night con artists will be more than willing to assist you right out of your home. Before you commit to any service, or spend one cent, you need to do some research, not only about your situation but also about any company you plan to deal with.


Before taking part in voluntary foreclosure, you need to consider several factors, including:

Alternative housing arrangements. With the damage that will be done to your credit, even renting can become a challenge.

The effects of voluntary foreclosure versus the effects of a loan workout on your credit report.

The benefits of the alternatives to voluntary foreclosure.

The effects that such a drastic step can have on your emotional and physical well-being.

The effects that this step can have on your relationship with your spouse, children and others.

Ultimately, you need to decide whether you are willing to fight for your home, or willing to just give up and roll with the devastating punches.


Falling into financial straits is an embarrassing and difficult part of life for some; however, voluntary foreclosure is not the only option available to those who find themselves in a bind. The best way to resolve any financial crisis is to communicate with everyone from family to creditors, including the mortgage lender. Ignoring a bad situation or failing to take steps to improve it can be far more damaging.

Lenders would prefer to work with the homeowner than to cut into their profits with costly foreclosures, and an inventory of abandoned properties.

While it is not always possible to hold onto your home, there are ways that you can alleviate some of the damage to your credit and still keep your head above water. Here are some alternatives that can help you avoid foreclosure, without mailing your keys to the bank:

Loan workout solutions, such as forbearance and repayment plans.

Short sales. The lender agrees to accept less than the balance of the mortgage as payment in full if the home can be sold before getting to the point of foreclosure.

Deed-in-lieu-of-foreclosure. A more complicated option that involves relinquishing the deed to the lender, in exchange for not facing foreclosure, and in most instances, being relieved of the debt.

Any of these options will leave you in far better shape than if you just give up and walk away.