Voluntary Repossession is the process of stopping your mortgage payments, moving out of your property and voluntarily handing the keys back to your mortgage company. If you are in a position where you are no longer able to pay your mortgage and you are unable to sell because the property is in negative equity then this process offers you a solution.
When should you consider Voluntary Repossession?
If you are unable to pay your mortgage your lender is obliged to give you a reasonable time to sell your home. However if your property is in negative equity selling may be impossible. In this situation even if you do find a buyer who is prepared to make an offer your mortgage lender or secured loan company may well block the sale.
If you are no longer paying your mortgage payments then you will be under constant pressure from your mortgage company but you are simply locked in a seemingly impossible situation.
This is the point when you should consider voluntary repossession. Simply walking away from your property and leaving the headache of selling it to your mortgage lender.
Of course the emotional difficulty associated with making this decision can never be underestimated. If you have lived in the property for a long time you may have a huge amount of emotional attachment to it.
However from a purely financial viewpoint a property that is in negative equity where you cannot afford to pay the mortgage is not an asset. It is a financial millstone around your neck. Voluntary repossession allows you to escape from this.
How do you start the Voluntary Repossession process?
If you have decided to allow your property to be repossessed then the process you need to follow is actually relatively simple. Because it is voluntary repossession the key is that you manage the process on your own terms.
Before you think about leaving your property the first thing you will need to do is find alternative accommodation. This might be a private rented property or you may chose to move in with friends or family. Once you have found suitable alternative accommodation you then move out of your property as soon as you are ready.
BMD Tip: If you are looking for private rented accommodation you will normally need to save for a deposit. The way to do this is to stop making any further payments to your mortgage or secured loan companies. Instead you save this money towards the deposit you will require.
Once you have moved from your property you should contact your mortgage lender and explain that you are no longer in a position to pay your mortgage and you would like to hand back the keys to the property. From this point you cancel your mortgage payment if you have not already done so and inform the mortgage lender of this.
You may be asked to sign a voluntary surrender form by your mortgage lender. This is normal and allows them to speed up the repossession process. The voluntary surrender form will confirm that you will remain liable for any mortgage shortfall after the mortgage lender sells the property.
Once the mortgage lender has repossessed your property they will attempt to sell it. Normally the property will be sold at below the current market value. If this happens you (and any joint mortgage holder) will then remain personally liable for the mortgage shortfall and any unpaid secured debts. Further advice about this is given below.
Should you sign a Deed of Acknowledgement?
Once your property has been repossessed your mortgage company may ask you to sign a Deed of Acknowledgement. If you sign such a document it may mean that the mortgage company can still hold you personally liable for the mortgage shortfall even after you have declared yourself bankrupt or started an Individual Voluntary Arrangement (IVA).
This situation is very unusual and you are under no obligation to sign a deed of acknowledgement. Normally if your mortgage company asks you to sign anything it will be a voluntary surrender form which you can sign without concern. However if you are unsure then do not sign any document you receive from your mortgage lender without first getting professional advice.
If you are still concerned then the best thing is simply not to sign any paperwork the mortgage company sends you. You are not obliged to do so and if you do not sign it will not stop the property from being repossessed. You can rest assured that given you are no longer paying your mortgage, the mortgage lender will eventually repossess your property whether you sign a voluntary surrender form or not.
What if there is a Mortgage Shortfall after Voluntary Repossession
After you go through voluntary repossession your mortgage lender will start the process of selling your home. If there is no buyer readily available it will normally be sold at a property auction.
Because the property is in negative equity the eventual sale price will be below the amount that you owe on your mortgage and any other loans secured against it. This means there will be a mortgage shortfall. This is the amount of money outstanding on a mortgage or secured loan which is not paid from the proceeds of the sale of a property.
BMD Tip: You and any other person who was jointly named on the mortgage or secured loans will remain personally liable to repay for any shortfall debt. This may total many thousands of pounds. This debt can often be settled for considerably less if you are able to offer the bank a cash sum in full settlement. If you are not in a position to settle the debt one of the best ways to deal with it is to go Bankrupt.
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