Earlier people used to do everything to save their house from being foreclosed by the banks. But with the recent collapse of the housing market, a lot has changed. Many people who had bought homes without paying any deposit of their own ended up having no equity in their house and their financial situation just keeps getting worse. In many such situations, people are left with no option, but to foreclose their house.
If you too are a victim of the housing market collapse, then it is likely that you might also be considering walking away from your mortgage, that is, opting for a voluntary foreclosure. Before you take this decision, you must consider several things. Most importantly, you should know that a voluntary foreclosure would harm your credit score in the same way as an involuntary foreclosure. This will make it difficult for you to get credit in the future.
The timing of a voluntary foreclosure is also very important. The right time to initiate voluntary foreclosure is when you are almost certain that you will not be able to repay the debt under any circumstances. It is no use sinking money in mortgage repayments when you are sure that your house will be foreclosed anyway in future. If you opt for voluntary foreclosure, then you save your money from going down the drain and can use it to build your savings or paying for your alternate housing arrangement.
However, do not make the decision to foreclose your property in a hurry. You should look at all options before taking the plunge. For example, you can try negotiating with your bank for modification of your loan terms. Another option is short sale in which the sale proceeds of the house would be regarded as discharge of the loan. You can also relinquish your deed to the lender in exchange of discharge of the debt.
Also, remember that voluntary foreclosure is not the end of it all. If the sale proceeds are not enough to repay the entire mortgage debt, then you will still be liable for the difference. The amount will be collected like any other debt, and you may even have to file bankruptcy if nothing works.
Some states allow deficiency judgments in which the court can order the sale proceeds to be regarded as discharge of the debt and the debtor is not be further liable. If your mortgage is a non-recourse one, then you will not be liable after foreclosure. Checking this will help you ascertain if foreclosing will or will not cover your full liability.
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