Give My House Back to the Bank

I'm facing foreclosure. Can I just give my house back to the bank?

4 Answers

More than likely, probably not.  Most lenders already have too many foreclosed homes in their portfolio and will want you to do a short sale or some type of loan modificaion. 

If the bank does foreclose and they sell the property for less than what you owe than they may bring litigation against you for the difference.   If you abandon the house and it gets vandalized which cases the value to drop even more you could be liable for the difference and any damages to the property.  The issue you may have is the IRS could bring a tax claim against you because the forgiven debt is considered income. 

Don't take this the wrong way but that reminds me of the person that gets fired than says, "oh, yeah, you can't fire me, I quit!".

Now I hope you take this the right way, THERE IS HOPE and I'm not talking about the government's HOPE program, I'm talking about the fact the almost all lenders will work with you. Maybe you just need some assistance.

Loan modifications are becoming the norm among lenders, hopefully your situation is such that it can be fixed, I assure you, even if you have equity, they don't want your home, they want a monthly payment.

If you haven't spoken with someone in the loan modification field, I would highly recommend it as soon as possible as time is of the essense. You can find some of those sources in the forum on this site.

Finding out costs you nothing, doing nothing may cost you everything, if you can't find what you need in the forum, call me and I will gladly help you get to the resource you need.

Contact a HUD approved Housing Counselor.  You may find a local one by going to the HUD.GOV website: 

This should bring you right to the page where you pick your state and then get a list of all counselors in your state.  They are there to help you know what all your options are.  There may not be anything magic but at least you will know all your options.

You have five options:

Option 1.  Sell the house. 

You can sell it on your own or hire a RE agent?  Would you perform your own open-heart surgery?  Hiring an agent makes the most sense because they can bring you the most exposure.  And time is of the essence.  The determining factor would be that the property has enough equity to pay the agent fees as well as enough equity to sell at a discount, so it sells quickly.  Properties priced between 10-15% below value sell faster in todays market depending on where you live.

Option 2.  Refinance the property (you didn't mention if you were late and if so, how late).  Let's assume that you are not late yet. Talk to your Loan Officer to see what you can qualify for.  It might make sense if you can get your rate lowered, thus bringing down your overall payment.  If you  enough equity you can consolidate other debts you may have thereby bringing your overall monthly obligations down.

Option 3. Loan Modification (this may be your best option).  If you are behind or going to be behind (even if you're not behind you may still qualify) you can have a Loan Modification Specialist help you modify your loan.  On average lenders reduce interest rates to between 5.00-5.75% for 5 years.  I've seen them go as low as 2.50%.  You may even be able to have a principal reduction, anything is negotiable.

Option 4:  Short-Sale.  This is actually better than you 'giving it back' for the simple reason that once your loan gets shorted your old loan gets paid off and this gets reported to the bureaus as 'paid'.  You would need to hire a RE agent or a Short-Sale Specialist to help you with this.  The lender may come after you for the difference, this is called a deficiency judgement for the difference.  This too, is negotiable.  The lender will 1099 you for the difference.  The IRS looks at this as a credit (that you earned it) and you will have to pay taxes on the shorted amount however, with the exception that you do this between 2007-2009 you will not have to pay taxes on thie difference.  Talk to your CPA.

Option 5: Sell it to an Investor.  Investors look for huge bargains.  A typcial 'deal' for an Investor is between 65-80% of the value of the property depending on the investor.  This can turn out to be the best overall option.  If the investor brings your loan current, the loan stays in your name and the investor takes over payments (if sold on a real estate contract).  After a year or two you may even qualify to buy a home again.  You'll have a year or two of timely payments, how cool is that?

I hope this helps you.  Good luck and hang in there.  Study, become aware of these options and it is up to you to make the best deciscion for you and your family.  Good luck.