For many people, voluntary repossession becomes the last (desperate) alternative prior to bankruptcy. Are they one and the same? No, they’re not. When you volunteer repossession to your mortgage lender, you’re still liable for the shortfall between what the property will be sold for and what you owe.
Bankruptcy, a severe option for many, largely wipes out the debtors need to repay debt to creditors. This shouldn’t be viewed as the easy option as going bankrupt does have its negative consequences. However when there’s nothing more to lose (after all … you can’t get lower than ‘nothing’) it can become the more attractive alternative to remaining in debt for years to come.
Voluntary Repossession Of A House
The voluntary repossession of a house involves (pretty much) the handing over of the keys and ownership of your home. However that doesn’t mean that you can then walk away, worry free. You’re still expected to pay the mortgage until it’s sold. Repossessed houses usually find their way onto property auctions, as a means of a rapid turn-around.
This often results in your home being sold for considerably less than its (current) market value. That then leaves you with a larger shortfall to pay out than if you’d successfully sold your home through private means. You will also need to check out your mortgage indemnity guarantee (if you have one) as insurance companies are within their rights to seek redress (i.e. being repaid by you what they cover via the indemnity) once the dust has settled.
The mortgage company can also claim back costs associated with the resale of your home. All auction houses charge a fee, there may have been costs generated from securing or repairing the property, the list goes on. There’s also capital gains tax to consider. Has your home increased in value since you bought it? Do you live in it? Both will need due consideration, otherwise you can just add more money onto the overall debt.
In essence voluntary repossession doesn’t look too good on paper. However, despite the above, it may well be the better alternative than dragging yourself deeper and deeper into debt. For many, volunteering the possession of their home relieves some of the worry associated with defaulting on their mortgage.
Generally, individuals don’t default lightly and it’s largely as a result of a change in financial circumstances. If you’re currently at a crossroads with your home and financial situation, seek help and advice. For general financial aid, contact the CAB. They’re all capable of delivering sound guidance relating to money management and debt related issues.
With regard to the potential house repossession, contact Shelter. Singularly they’re the most robust source of information with regard to housing legislation and problems related to communication between lenders/borrowers. They deliver an effective service to those that need it, and they will do their level best to provide you with the most current, relative advice regarding your needs.