First Step to Voluntary Foreclosure
If you can no longer afford to make your house payment, voluntary foreclosure is a way for you to legally default on your mortgage loan. It is important to note that even though you are giving up your home voluntarily, it can still report as a foreclosure on your credit report. Most lenders will require you to go through a work out or loan modification program before they will allow you to take the steps to voluntarily give up your home.
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Loan Modification
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Once you become behind on your mortgage payments, you have to contact the lender. At this time, the lender may offer you a number of different loan modification options in an attempt to make your mortgage payments more affordable. These options include temporary payment forbearance, a reduction of your interest rate or a payment deferral. Loan modifications, also referred to as work out plans, have a trial period in which you must make all your payments on time. If you fail to do so, the lender will likely begin the pre-foreclosure process.
Pre-Foreclosure
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When the pre-foreclosure process begins, the lender will send you a notice of default with an acceleration clause. The default letter will demand the entire balance of your due payments, usually within 30 days to bring the loan current. The acceleration clause is a notification that if you do not bring your account current within the given period, the lender will accelerate the loan. This means the lender will demand the entire outstanding balance of your loan. If you speak to your lender about voluntarily foreclosing on your home, most lenders will then require you to complete the short sale process.
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Short Sale
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A short sale allows you give up your home voluntarily without having to go through the foreclosure process. During the short sale process, the lender will ask you to put your home up for sale and use the proceeds of the sale toward the outstanding balance of your mortgage loan. By agreeing to a short sale, the lender is agreeing to take less than what you may owe on the home and forgive the remaining loan amount. Some lenders often refer to a short sale as a pre-foreclosure sale.
Deed-In-Lieu
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If your home doesn't sell during the short sale process, the final step to voluntarily foreclosing on your home is doing a deed-in-lieu. When you complete deed-in-lieu of foreclosure, you and any other person on the mortgage deed sign the deed over to the lender. In exchange, the lender releases you from your mortgage debt obligation. After you finish this process, the lender takes possession of your home just as it would after a foreclosure.
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