Can I give my home back to the bank?

Question

I had a friend say instead of foreclosing on my home I could give it back to the bank and walk away. He could not remember what it was called. Has anyone heard of this and what is it called?

Answer 1

Stole the following info from a bulletin board:

If you let the house go into foreclosure, a notice of the foreclosure can remain on your credit bureau file for 7 years. Before you let this happen, contact your mortgage company and ask them if they would consider a Pre-Foreclosure Sale or a Deed-in-Lieu of Foreclosure. Let me give you a brief explanation of what these actions are.

Pre-Foreclosure Sale - This involves the sale of a property in which the lender accepts proceeds which are less than the amount owed on a defaulted mortgage and agrees to issue a satisfaction of mortgage.

Deed-in-Lieu of Foreclosure - The borrower (that's you) transfers deed to their property to the lender in lieu of foreclosure. This enables you to avoid adverse consequences associated with foreclosure.

Answer 2

I was initially skeptical but your friend is right. It's called "deed in lieu of foreclosure".
And I'm betting that the bank has to agree to accept such an arrangement because it puts them on the hook for selling the place to recover the equity.

I suspect that your credit rating would be better served if you could at least sell the place for what it takes to pay off the mortgage. Your net worth takes a pounding either way; but might as well salvage what you can.

Answer 3

Your friend is referring to a 'deed in lieu". You willingly give full title to the property to the bank instead of forcing them to initiate a costly foreclosure action. The lender may or may not accept the offer, depending on your financial situation. If you have the financial means to continue paying the mortgage, they probably won't accept the offer of a DIL.

If foreclosure is their only option, they will use it. However, in either situation, expect your credit report to suffer a very serious ding. DIL's are also reported to credit bureaus as a failure to honor a debt, and are a serious reduction in credit score. A DIL will only prevent the rather public recording of a foreclosure, and save you embarrassment, if that's a concern.