Voluntary surrender of your home can remove your mortgage liability. Lenders take the property, you vacate the home and the lender resells the home. But before signing over your deed, understand the possible consequences of walking away and giving up your property voluntarily.
Deed in Lieu
Voluntarily surrendering a home is called a deed in lieu of foreclosure. This course of action is an alternative when a homeowner faces mortgage foreclosure. Foreclosures result in losing a house due to defaulted mortgage payments. Homeowners who request a deed in lieu and voluntarily surrender the property can no longer afford the mortgage payment. It can take several months for a lender to foreclosure. Rather than waiting for the inevitable to occur, some homeowners avert a foreclosure by deliberately signing over the deed to the home.
Qualifying for a Deed in Lieu
Satisfying the requirements for a deed in lieu affects whether you're able to sign over your deed. Realize that deeds in lieu are a possibility when lenders and borrowers have exhausted other alternatives. Each lender establishes its own criteria. However, you can anticipate needing to provide your lender with updated financial information. This allows the mortgage company to assess if you're eligible for help. The company needs to read a hardship letter that provides a rundown of your struggles; and you must describe any attempts to sell the home within the past 90 days.
Deed in Lieu and Credit
Regrettably, agreeing to a deed in lieu and surrendering a property does result in some credit damage. While homeowners can avoid a loan foreclosure, they do not complete the mortgage obligation and choose to walk away. On a favorable note, borrowers who sign over the mortgage deed can generally rebuild their credit scores faster than someone who loses the home to foreclosure. And this quick recovery allows borrowers to qualify for another mortgage loan in less time, according to Fannie Mae.
Building a better score after a deed in lieu and re-qualifying for a mortgage loan involve smart credit actions. Borrowers who forward timely payments to auto lenders and credit card companies will give their credit score a boost each month, which puts them on the path to recovery. Paying down debt is another tactic to fix credit after mishaps, such as a deed in lieu. According to Real Estate Consumer News, borrowers may qualify for a new mortgage two years after a deed in lieu.
- Bank of America: Deed in Lieu
- Fannie Mae: Know Your Options - Avoid Foreclosure
- Consumer Financial Protection Bureau. "What Is a Deed-in-Lieu of Foreclosure?" Accessed July 10, 2020.
- Consumer Financial Protection Bureau. "How Does Foreclosure Work?" Accessed July 10, 2020.
- Consumer Financial Protection Bureau. "What Is A Short Sale?" Accessed July 10, 2020.
- Southwest Riverside County Association of Realtors. "Risks and Benefits of a Deed in Lieu of Foreclosure." Accessed July 10, 2020.
- Experian. "What Does Deed in Lieu of Foreclosure Mean?" Accessed July 10, 2020.
- Homeownership.org. "Deed-in-Lieu of Foreclosure." Accessed June 26, 2020.
- IRS. "Real Estate Property Foreclosure and Cancellation of Debt Audit Technique Guide," Page 6. Accessed July 10, 2020.
Valencia Higuera is a freelance writer from Chesapeake, Virginia. She has contributed content to print publications and online publications such as Sidestep.com, AOL Travel, Work.com and ABC Loan Guide. Higuera primarily works as a personal finance, travel and medical writer. She holds a Bachelor of Arts degree in English/journalism from Old Dominion University.