Have you ever wondered if you could just purposely default on mortgage payments? When your mortgage payments become too much, or the upkeep of your home has you spiraling into debt, it can sound appealing to just give your house back to the bank and move on, free and clear. Unfortunately the process isn’t that simple and it won’t leave your credit score free and clear. If you are wondering can I sell my house to a bank, then please read on.
Default on Mortgage Payments
Default to Give Your House Back to the Bank
Giving your house back to the bank has an official name, it’s called a deed in lieu of foreclosure. This a document that transfers the title of a property from the property owner to the lender in exchange for being forgiven of any remaining mortgage debt. This step is usually sought after as a means to avoid foreclosure. This is considered an option to be considered only after you’ve tried a short sale or tried to get a loan modification or talked with an investor. Both the lender and seller must agree to the deed in lieu of foreclosure.
Pros to Deed in Lieu of Foreclosure
If your future is looking bleak with being able to make your house payments and your house just won’t sell, then going through a deed in lieu of foreclosure helps you avoid a lengthy foreclosure process and the fees involved with that. Deed in Lieu of Foreclosure is a faster process than a foreclosure and allows you to get out from your debt and move on.
Cons to Deed in Lieu of Foreclosure
Unfortunately, if you were hoping to walk away from your mortgage without ruining your credit, then this step won’t help much with that. Deeding a house back to the bank will create a negative effect on your credit rating and you will have to wait several years before you can get another mortgage. Typically you’ll have to wait four years before you can get approved for a new mortgage.
How to Create a Deed in Lieu of Foreclosure
While it would be nice to show up at the bank with your title in hand, turn it in and walk away, the process isn’t that simple. Before a bank will consider you for a deed in lieu of foreclosure you’ll actually have to show that you took all the steps possible to sell your house.
Start by putting your house on the market — if you have major problems with your house like a bad foundation or your home isn’t in the best condition, you still need to try to sell your house. Putting your house up for sale will show the lender that you really have tried all the appropriate avenues first.
If you are not behind on your mortgage statements then your bank probably isn’t going to take you seriously. If all your payments are up to date than the bank will assume that you aren’t heading towards a foreclosure so a deed in lieu of foreclosure isn’t an option for you. Payments will need to be at least 30 days behind in order for the bank to consider you.
If you’ve tried to sell your home and you are behind on payments then you’ll want to gather all the financial documents to prove to the bank that you are unable to continue making payments on your home. This will include pay stubs, tax returns and outstanding debts that you are making payments on. With this information you are now ready to write a hardship letter to the bank describing your circumstances and asking to be considered for a deed in lieu of foreclosure. To learn how to write a hardship letter you can click here.
At this point it’s up to the lender. If you’ve followed all of those steps and are serious about avoiding a foreclosure then the bank will consider you for a deed in lieu rather than pursuing the foreclosure on your home.
The bank will reach out to you with an approval or denial once they have received your letter and your financial information.
Other Factors that will Affect your Deed in Lieu of Foreclosure
If the bank could make more money off your property by going through with a short sale or foreclosure then they will reject the application for a deed in lieu of foreclosure. If your home comes back appraised for too little or if the title is not free and clear (meaning you have a lien on your title) then that is also grounds for rejecting a deed in lieu.
Should you Just go to Foreclosure Instead?
If you do not pursue a deed in lieu of foreclosure and you aren’t making payments on your mortgage then the lender has the right to seize back the property. If this happens you will be evicted from your home so the house can be sold at auction.
Unfortunately if the house doesn’t cover the mortgage debt then you could potentially be held accountable for paying the rest of the funds owed if your lender goes after a deficiency judgement through the court.
A foreclosure also appears on your credit score for a total of 7 years and will affect your ability to qualify for credit during that time.
Out of Options? Think Again.
It can feel very discouraging when your only options are to move forward with a deed in lieu of foreclosure or a foreclosure — both of which will hurt your credit score and financial future for years to come. Being in default on mortgage payments can truly be a trying time. One other option to consider is selling your house to a real estate investor. Selling your house to an investor will help you get out from a bad financial situation and protect your credit score in the process. If you’re interested in learning how Gary with Gary Buys Houses can help you get out from your mortgage debt then contact him today.