For many homeowners, the decision to give their house back to the bank is one that is difficult to make but may become necessary in the event of financial hardship. This decision is still an important one even in the current low-interest rates as the house may be part of an existing loan or mortgage. Either way, the bank will take ownership of the home and the homeowner loses all rights and interests in the property in the process.
Many people must make the decision to give their house back to the bank due to increasing debt or a lack of income. Even when a house is worth more than the loan, a homeowner may still be in too deep from other bills and debts to make the loan payments. This can cause a strain on the homeowner’s financial situation, making the decision to give the house back to the bank the only sensible option.
Giving your house back to the bank is called surrendering the deed in lieu of foreclosure. This is because the lender has agreed to accept the surrender of the property as a way to avoid foreclosure. The homeowner will sign over all ownership of the home to the lender in a legal transaction and the lender will then be responsible for assessing the home’s value and recovering any owed money.
Surrendering the deed in lieu of foreclosure has both pros and cons to consider. On the plus side, it prevents foreclosure from appearing on a credit report since the agreement was made without a court judgment, and the lender usually does not pursue legal action for the remaining balance left to them. Furthermore, the homeowner will not be responsible for any costs associated with foreclosure and the time it takes to potentially sell the property.
On the downside, the homeowner risks losing any equity already established in the home, and it can take some time for the remaining balance to be forgiven. Additionally, if the home is sold for more than the balance still owed, the lender will keep those funds instead of the homeowner. Moreover, since this is a legal and binding agreement, the homeowner does not have the ability to undo it like they would with a debt settlement or loan modification.
Giving your house back to the bank doesn’t always have to be a sad or shameful transition. In fact, it can also be a great opportunity to start fresh. After giving the house back, you may be able to use that money to rent a new, smaller place or to help you buy another home in the future. This could be a great way to get out of debt and start anew.
No matter if you decided to surrender the deed in lieu of foreclosure or to pursue traditional methods of debt settlement, it is important to understand the consequences of this decision and to remember that the bank will take ownership of the home. But, depending on the circumstances, giving your house back to the bank may be the right financial path for you to take.