In the current state of the economy, taking a mortgage against your home can be a risky business. When you find yourself unable to pay your mortgage lender any longer, there are not many options for you. One of the options is voluntary repossession.
WHAT IS VOLUNTARY REPOSSESSION?
Voluntary repossession is the process of voluntarily giving up your home to the lender and handing over the keys. You can tell your lender about your intention to do so if you are unable to pay your mortgage any longer, rather than waiting for the bailiff to come and remove you from the home on the lender’s timing.
Although it is voluntary and done on your own timing, it has the same outcome as a standard repossession. The largest advantage to you is avoiding a court hearing and some fees which you may be liable to pay in a standard circumstance.
EFFECTS ON YOUR DEBT
Just as is the case in a standard repossession, the value of your home will be used to pay the remainder of your debt to the lender when you engage in a voluntary repossession. Instead of trying to sell the house for yourself, you can choose to hand over the keys and let the lender deal with the selling. If there is an excess after the home is sold, the extra money will be given to you. If there is a deficit, you will still own your lender the remainder of the mortgage value. Depending on your lending agreement, you may have to pay for some of the necessary repairs, auction costs, or agent costs needed to have the house sold, even though you are not the one placing it on the market.
HOW DO YOU START THE PROCESS?
When you decide to go through with this process, you will only need to inform your lender that this is your intention. Make sure to mention that you will no longer be paying your mortgage payments until you are out of your home, so that you will be able to save enough money to afford a move into another residence.
Your lender may have some forms for you to fill in before you hand over your keys. One of these is known as a deed of acknowledgement. It is a form which may give your lender the power to hold you accountable for all or part of your mortgage even if you end up declaring bankruptcy. There is no legal requirement for you to sign this form, even if your lender is trying to push you to sign it. You may turn over your keys even without signing this particular form.
To hand over your keys you must deliver them in a certifiable way. You can deliver in person to your lender, use certified delivery mail, or any other way which is able to be confirmed as a legitimate delivery from you or another joint borrower connected to the property. Do this only after you have vacated the home and moved your belongings out. An official will be required to come and see the property to make sure all gas, water, and electric are off and the change the locks.
WHAT IS VOLUNTARY REPOSSESSION? YOUR CREDIT SCORE
Voluntary repossession does not change the fact that you are defaulting on your loan. You will not be able to save your credit score by engaging in this process, because it is still a repossession. For this reason, you should only consider repossession as the very last resort. Repossession of your home will have a large impact on your credit prospects in the future, making it more difficult for you to get any sort of loan or mortgage later on.
WHAT TO PAY ATTENTION TO
Before you choose this path, make sure to check out a few things first. Here are some of the important things to look at:
What is the value of your home? If your home value is not enough to cover the remainder of your mortgage, you will be required to make up the difference in payments. Voluntary repossession is not a good option when your property is not going to equal up to the amount owed to your lender.
– Ability to sell the home yourself
If you can, try to sell the home for yourself instead of engaging in repossession. This could eliminate the need for repossession entirely and save your credit if you are able to avoid defaulting.
– New living arrangements
Do you have a place to live after you leave your current home? Since you are able to hand your keys in on your timing rather than the lender’s, you should take the opportunity to make arrangements for a new place to stay. Whether that means staying with family, signing on for a rental property, or purchasing a less expensive home is up to you.
– Lender requirements for voluntary repossession
As mentioned before, some lenders will require you to sign certain forms before they accept your keys. The main form which you may be asked to sign is called a voluntary surrender form. Essentially, it allows your lender to make the process of repossession quicker and easier. It will also confirm your liability for any shortfall after you home is sold.
– Fees involved with voluntary repossession
Try to check ahead of time to see what fees you may be charged from your lender for the selling of your home. Ask about agent fees, repair fees, and other fees associated with home sales as well as all fees which may be charged to you if the home is sold at an auction or with a cash house buyer instead.
Voluntary repossession is not so dissimilar from a standard repossession, with the main advantages being you get to choose the timing and avoiding certain fees you would otherwise owe to a court. This repossession method does not help your credit, nor does it exclude you from any liability on your mortgage. Overall, it should be considered only as a very last resort if all other methods of repayment or refinancing have failed.