What From is Used to Give a Home Back to a Bank?

Full question:

I am trying to determine which type of deed form I need. We filed Chapter 13 last year and the bank acknowledged the surrender of the home. We have been told they will not remove us until such time as the home is deeded back or the bankruptcy discharged at which time they will proceed foreclosure. The bankruptcy atty. assures us we will not be liable at that time. However in the interim, we are liable for HOA dues. They, too, want to see a legal document showing the surrender to the bank, etc. We live in TX but the home is in SC and is in good shape but the value has diminished to more than $20K less than the mortgage balance due to the builder pullout of the subdivision, property values and taxes. We've been told by a RE agent that it will never sell and we cannot even lease it for enought to cover the mortgage - hence the bankruptcy as we were at that point $700 in the negative each month. The move to TX was due to a spousal job transfer - since that time, I have had to quit my job for medical reasons so we absolutely could not keep that home. Chptr 13 was our only option according the the atty. What form do we need to execute to file with the bank, county and HOA association to facilitate the surrender?

• Category: Real Property
• Subcategory: Deeds
• Date: 04/07/2025
• State: South Carolina

Answer:

Without seeing all the documents involved, we are unable to determine what the agreement with the bank was. We are prohibited from giving legal advice, as this service provides information of a general legal nature. Generally, if they agreed to take the house back instead of filing a foreclosure case, a deed in lieu is used. Please review the following information to determine applicability. Depending on the situation, a lender may consider one of the following:

Loan Workout: A loan workout modifies the original loan agreement. Some of these changes may include forbearance (e.g. forgiving a portion of the debt or late charges); deferment; renegotiating interest rate, monthly payment amount, principal amount, maturity date; or the enforcement an acceleration clause in the loan.

Deed in Lieu of Foreclosure: After the borrower is in default, the borrower voluntarily delivers title to the lender for consideration and the lender accepts the conveyance of the property in full satisfaction of the mortgage debt. You can raise your FICO score with deed in lieu by asking the lender to report your situation as PAID - SETTLED instead of foreclosure. Using this method, the lender saves the costs of foreclosure and the borrower avoids having a notice of default on his/her records.

A deed in lieu of foreclosure is a method sometimes used by a lienholder on property to avoid a lengthy and expensive foreclosure process, With a deed in lieu of foreclosure (DIL), a foreclosing lienholder agrees to have the ownership interest transferred to the bank/lienholder as payment in full. The debtor basically deeds the property to the bank instead of them paying for foreclosure procedings. Therefore, if a debtor fails to make mortgage payments and the bank is about to foreclose on the property, the deed in lieu of foreclosure is an option that chooses to give the bank ownership of the property rather than having the bank use the legal process of foreclosure.

A DIL can be used in limited circumstances. The debtor must have exhausted all efforts to sell the home professionally marketed at it's as-is, fair market value. The debtor also can't have another mortgage in default and must not have the ability to make the monthy payment or make up the difference between the sale price and what is owed.

When a lender agrees to accept a deed in lieu of foreclosure, there is no guarantee that it will forgive any outstanding balance owed under the promissory note. However, it is common for the borrower to ask for that debt forgiveness. If the lender agrees, it is wise to document it in writing.

Short Sale: A short sale is a transaction in which a lender allows the real property securing the loan to be sold for less than the remaining mortgage amount due and accepts the proceeds as full payment of the loan. A lender may accept a short sale when the borrower is in severe financial straits and market conditions make a short sale the best choice to mitigate the lender's damages. Like a deed in lieu of foreclosure this saves the lender the costs of foreclosure and the borrower avoids having a foreclosure on his or her credit report.

Short Payoff: With a short payoff, the lender accepts less than the remaining mortgage amount as full payment of the loan. The property need not be sold.