Voluntary Surrendering Vs. Foreclosure
- A voluntary foreclosure is a process in which you offer the title to your property back to the bank. This is also sometimes referred to as a deed in lieu of foreclosure. Once you give the deed to the property back to the bank, you then move out of the home and find a new place to live. The lender is then free to sell the property to recover its investment.
- By comparison, foreclosure is a process in which you are forced out of your house. With a foreclosure, you stop making your mortgage payments and then receive a notice of default and intent to foreclose from the lender. After a certain amount of time, the lender will foreclose on the property and you will be forced to move out. With this strategy, you typically live in the property for several months longer than you would with the voluntary foreclosure.
- Many people opt for the deed in lieu of foreclosure instead of foreclosure because of the lower credit impact. By doing a deed in lieu of foreclosure, you get the process over with much faster and you can start rebuilding your credit. You can avoid having months of missed payments and a foreclosure on your record. This still hurts your credit, but you can do less damage with the voluntary method.
- By doing a voluntary foreclosure, you can often avoid the possibility of a deficiency judgment. In some states that allow recourse mortgages, you can be held responsible for a mortgage balance even after the lender takes back your house. If the house does not sell for the amount that you owe, the lender can file a lawsuit against you to get the deficiency. With a deed in lieu of foreclosure, the lender will often cancel the rest of your loan balance.
