Problems with surrendering home to banks
Published 23/02/2010 | 05:00
A 'voluntary surrender' is a formal agreement whereby the borrower hands over possession of the house to the lender to clear the outstanding mortgage rather than wait for a repossession order to be brought against them.
This is not quite the same thing as handing over the keys and walking away, which is usually termed "abandonment" and is done without consulting the lender.
However, while it may allow borrowers the opportunity to avoid the stress of a court appearance and the legal costs involved, there is strong concern about the terms of voluntary surrenders.
The main problem is that if you surrender the house and, as is likely given the widespread problem of negative equity, the lender then sells it for less that what you owe them, you will still be liable for the remaining debt on the property.
A new leaflet on mortgage arrears by legal rights organisation, the Free Legal Advice Centre, has this warning:
"When the house is voluntarily surrendered, the borrower loses control over the sale, added to which the costs of sale (solicitors, auctioneers etc) are generally greater than if the borrower were trying to sell it him/herself.
"It is also likely that the lender will get less for the house. Thus, what you gain in not incurring legal fees, you may lose in other costs."
In addition, borrowers who take this desperate step also risk being excluded from social welfare benefit and local authority housing because they have rendered themselves homeless.