PODCAST 19 – Can I return my house to the bank when that property is under a mortgage loan?

In difficult financial situations, it’s common for people to wonder if they have the option of returning their home to the bank when they have a mortgage loan. This question arises when homeowners face difficulties in meeting their monthly payments. We will explore this issue and discuss the key problems related to “returning” your house to the bank under the context of a mortgage loan.

The question and brief answer to this issue is as follows… Can I go to the bank, go to the bank teller, hand over the keys to my house and say that I no longer want to pay my mortgage and that I don’t want the house anymore? The answer is NO in a very concise way, you would be breaching a contract and legal responsibility that you acquired through the mortgage.

At what point is your house back in the hands, or possession, of the bank? 2 things must happen:

1. Default: Your home typically is repossessed by the bank that gave you the mortgage (this is known as foreclosure). When you as the homeowner default on your mortgage loan for an extended period of time. The exact time and details of the foreclosure process can vary based on laws and regulations.
2. Foreclosure: When a property goes back to full possession of the bank,  it is known as foreclosure. It is a legal process in which the bank takes steps to recover the property and sell it in order to cover the outstanding balance of the mortgage loan that the primary or original client failed to pay.

Consequences for the owner:

1. Loss of property: When the bank takes possession, the owner loses the property and the bank becomes the new owner.
2. Impact on credit history: Foreclosure can have a negative impact on a homeowner’s credit history. This can make it difficult to obtain credit in the future and affect the ability to obtain mortgage loans or other forms of financing.
3. Possible outstanding debts: Even if the house returns to “fully owned” by the bank, it is possible that there are still outstanding debts. If the sale value of the property does not cover the full balance of the mortgage loan, the owner may be responsible for paying the difference.

Important considerations:

1. Legal and financial advice: Before considering stopping paying your property, with the intention for the bank to take possession of it, it is essential to seek professional legal and financial advice. A lawyer specializing in real estate law and a financial adviser will be able to assess your specific situation and offer you appropriate guidance.
2. Other alternatives: Before making a decision like this, it is advisable to explore other viable alternatives. These may include renegotiating the terms of the loan with the bank, seeking loan modification programs, or selling the property on the market.

This process carries significant consequences and it is important to carefully consider all available options. Seeking professional advice and exploring alternatives can help you make the best decision based on your financial situation and specific needs. But technically you can’t return your house to a bank, you can only stop paying it and lose it as a consequence.

We dive deeper into this matter, listen to this podcast (español)