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Can a borrower initiate a foreclosure?

Portland, OR |

If someone has a property that is very upside-down in value and can't sell it, is there a way to walk away from it by just taking the loan paperwork and keys to the bank?

Is this better (for credit record) than not paying the mortgage for 6-7 months and then having the foreclosure process begin?

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Attorney answers 3

Best Answer

Mr. Bodzin is right -- the idea you have is a deed in lieu of foreclosure, and whether that makes sense for you and your lender depends on a lot of circumstances. Banks generally, and especially in this economic foreclosure crisis climate, would prefer performing loans. A deed-in-lieu might save them time and money in the foreclosure process, but they're likely more interested in getting paid. While you're paying them, negotiating your way out of your mortgage is tricky.

There's a comparable hit to your credit rating whether you are foreclosed upon or sign over a deed in lieu. And the ability to get a home loan again may especially be harmed, particularly if the bank thinks that you are "strategically defaulting" (i.e. avoiding the debt because you don't like the deal you signed up for, not because you cannot afford the payments). And forgiven debt is treated as taxable income. You'll want to talk to a lawyer, HUD counselor, and or tax advisor to discuss options before (and after) defaulting.

Licensed in Oregon. Advice provided is general information only and is based solely upon the facts provided. It is not intended as legal advice applicable to any specific situation. No attorney/client relationship is created unless and until we have met and entered into a written representation agreement. Contact me at 541-250-0542 to discuss your matter further.


This process is known as surrendering a deed in lieu of foreclosure. It was discussed in a thread about a similar situation (if not the same one) earlier today in this thread:

You should discuss this with a lawyer to determine the right course of action. There's no way to know for sure just based on the limited information available on the internet. See this guide:

Nothing posted on this site is intended to create an attorney-client relationship. Each case is unique. You are advised to have counsel at all stages of any legal proceeding, and to speak with your own lawyer in private to get advice about your specific situation. <br> <br> Jay Bodzin, Northwest Law Office, 2075 SW First Avenue, Suite 2J, Portland, OR 97201 | Telephone: 503-227-0965 | Facsimile: 503-345-0926 | Email: | Online:


From what I understand about your situation, the answer is "no," you cannot walk into the bank and deliver the keys like you suggest. It is considerably more complicated, but basically, you could negotiate a form of reconveying the property in exchange for forgiveness of the debt. Most lenders won't do this in my experience, but you could ask. Also, have you looked into any of the programs which may allow modification of your loan? Assuming your household still is employed this is a possibility you may want to consider. You don't indicate who your lender is, which can make a difference in how cooperative they might be, but commercial lenders should have a loan modification department you can talk to.
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