Ways to Let Go of Your Property

What happens to you, your property, and your foreclosure court case depends on three things: (1) the value of your property, (2) how much money you owe, and (3) what you decide to do, including if you decide to participate in the foreclosure case. 

If you don’t take action, a court order called a “judgment” will be entered against you, allowing your property to be sold at a foreclosure auction. If your property sells for less than the amount you owe, the mortgage company might try to collect the balance from you. 

First, find out how much your property is worth. You can get an estimate by Googling your address. Websites like Zillow, Redfin, and Trulia offer estimates of what they think your house is worth, but the actual value may be different depending on the condition of the house and the market. You can also contact a realtor to get a more accurate estimate of your home’s value. If you contact a realtor, you should ask if they will charge you a fee for an estimate, and how much that may cost.

Second, find out how much you owe. You need to find out what debts are attached to your house and how much each is. Some people only have the mortgage loan attached to the house. Other people have other debts attached to the house (such as a home equity line of credit, water lien, tax lien, condo lien, or another judgment). You may need to contact a lawyer or a realtor to help you find out the total amount of debts attached to the property. You should contact each of the companies you owe money to and ask for a current payoff statement.  

If your property is worth more than what you owe, that’s called having equity in your home.  

You can try to sell your property if your property is worth more than the total amount of debt tied to the property, as discussed above.  

If a foreclosure case has already been filed against you, you should act quickly to sell the property before the mortgage company completes the foreclosure. You should tell the mortgage company and the judge in your court case if you have equity and are trying to sell the house. The judge may be willing to give you some time to try to sell. It is a good idea to talk to a lawyer about your court case to get an idea of how much time you might have to sell your home. 

If you are considering selling your property, contact a realtor you trust. To find a realtor, you may want to start by asking family, friends, or neighbors if they have a realtor who they recommend. You can also search for realtors online, where you can read reviews from people who have worked with them. You can also go to a realtor’s website to see what houses they currently have listed on the market for sale and what houses they’ve recently sold. You can also meet with realtors to figure out if you want to trust them with selling your home. If you want to go forward with a sale, you should work with the realtor you choose to get your home on the market to sell. 

If you owe more than the property is worth, the property is sometimes said to be “underwater” or “upside down.” If you owe more than the property is worth, you still have options for trying to work something out to let go of your property (other than just doing nothing).  

Generally speaking, even if the property is underwater, it still makes sense to figure out how you want to let go of the home to avoid foreclosure. Being involved gives you more control over the process, including when you may need to leave your home.  

There are a few options for letting go of your home if it is underwater:

1. Deed in lieu
2. Short sale  
3. Consent judgment in rem  

You can find more details about each option below.

For each, you will need your mortgage company’s approval.  

If any of your mortgage debt is forgiven as part of these options, you might owe income taxes because forgiven debt is generally treated as income - but exceptions may apply. You should talk with a tax professional if you are considering one of these options.

Legal Aid does not give people tax advice, but there are resources available to help. 

You should read the “deed in lieu” agreement carefully and make sure you understand what it says before you sign it. You should look for an agreement to release you from any remaining liability on the mortgage debt.  

With a deed in lieu:

• You avoid foreclosure.  
• You transfer ownership of the property to the mortgage company.
• In exchange, the mortgage company often agrees to release you from the mortgage. This typically means that the mortgage company would forgive the money you owe them for the mortgage, including any amounts that are more than the value of the property. But you must make sure the deed in lieu agreement states this clearly. 

A deed in lieu might be a good choice if:

• You want to avoid a judgment in the foreclosure court case; and  
• You don’t mind going through the application process for the mortgage company to approve you.  

Your mortgage company usually won’t approve a deed in lieu if you have more than one mortgage or any other liens (such as condo liens) on the property. 

Contact your mortgage company (or their lawyer if there’s a foreclosure case against you). Ask them what you need to do to apply for a deed in lieu. You can also ask for the mortgage company to pay you some relocation money if you agree to move out by a certain date.

A mortgage company might not approve a deed in lieu if you owe a lot more than the property is worth, the home is in bad condition, or there are other liens on the property.