What is a voluntary repossession?

Quite simply – voluntary repossession is the process of stopping your mortgage payments, moving out of your property and voluntarily giving the keys back to your mortgage lender in consideration for what you owe. This may sound easy but it’s not quite as simple as that and the side effects could impact your credit score and you may still owe money to your lender after your property is sold.

Once you sign over (‘Voluntary Surrender Form’ or also known as a ‘Deed of Acknowledgement’) the ownership of your home reverts to your lender, they will sell the property to recoup what you owe on the mortgage. The proceeds will then go towards paying off your debts.

However, if there is a shortfall on what you owe (where the price the property is sold for doesn’t cover the outstanding balance/costs associated with selling the property) you will still be liable for paying off the rest of your debts.

How voluntary repossession works?

If you’re struggling to pay your mortgage, or are in mortgage arrears (or negative equity), whereby the property debt is more than the market value of the house (please also read the section ‘Negative Equity’) the most important action to take is to speak to your Mortgagor who will be able to advise you about alternative routes for you to consider. The good news is that you still have rights and you still have options.

Voluntary repossession may feel like a great choice but this really is a very last resort, and only then do this if you fully understand the implications of making this decision. Always ensure that you get expert advice about your situation. This advice should help to educate you on your rights and your lender’s responsibilities.

Although voluntary repossession is one choice you could take when you are no longer able to afford your monthly mortgage, it could also possibly be the worst remedy. Walking away from your home may be easy to do at the time, but in reality the procedure can be a long drawn out experience. Your problems do not disappear when you choose to have your property repossessed.

Ideally you should sell your house yourself (the mortgagor should, by request, allow you sufficient time to sell) rather than commit to the expensive and emotionally taxing and stressful process of a repossession. An average property sale will take 3 to 6 months to sell.

Once you sign over (‘Voluntary Surrender Form’ or also known as a ‘Deed of Acknowledgement’) the ownership of your home reverts to your lender, they will sell the property to recoup what you owe on the mortgage. The proceeds will then go towards paying off your debts.

However, if there is a shortfall on what you owe (where the price the property is sold for doesn’t cover the outstanding balance/costs associated with selling the property) you will still be liable for paying off the rest of your debts.

Is voluntary repossession for me?

If you chose to pursue voluntary repossession, you should first speak with your mortgage lender. They will tell you what the next stages will be. The only difference in the process of voluntary or forced repossession is that the lender does not need to apply to the court for a ‘repossession order.’ The repossession steps start when you have handed the keys back and that does not change.

As soon as you have handed over your house keys, you cannot stay in your property anymore, but it is still your property. Although you will no longer live in your property, you are still liable for paying all of the associated running costs, as if you were still living there, and these costs will accumulate. In addition to this, you will also have to pay your mortgage lender’s costs for selling the property and any related sundries.

How bad is voluntary repossession?

In short the answer is bad, voluntary repossession should be avoided at all if possible. It is important to understand and realise that any type of repossession does not mean that the mortgage lender will take your property instead of what is outstanding on the mortgage debt. Quite often you will still owe money and end up paying this for many years.

How does a voluntary repossession affect your credit rating?

The repercussions of a voluntary repossession (and a forced repossession) will dent on your credit score severely, making it difficult to apply for a loan for at least six years. This will make it hard for you to apply for any future credit. Be mindful as credit checks are carried out when you apply for bank account applications, monthly phone contracts and credit cards.

What happens beyond voluntary repossession?

Properties where the home owner has been evicted or the keys have been given back to the lender may lose value. If they cannot be sold through an estate agent then frequently they are sold at auction instead, where prices are lower and most buyers expect to get a bargain.

Again, be aware that any shortfall in proceeds from the sale would still need to be met by you, you will owe the lender for any outstanding money due.

You will also have to move into alternative accommodation when you hand back the keys, this is likely to be a rented house. The voluntary repossession in itself can be counterproductive as you may find renting requires a credit check and you may not pass that credit check. Always ensure you know where you are going to live before surrendering your home. Local councils and emergency homeless charities can help but will usually require proof you are homeless.

If you contact the local authority for accommodation as a homeless person, you should not give back the keys without first obtaining consent from them. If the local authority will not agree to you giving back the keys and being classed as homeless, you should wait until a ‘possession order’ has been issued by the court before leaving the property as proof of being homeless.

If I have any debt after voluntary repossession – What happens now?

Once your property is sold any outstanding debt, that was not repaid from the property sale becomes an ‘unsecured debt’, and you are still liable to pay it back. Ideally you should get in touch with your previous mortgage lender and ask “did the sale clear all of the debt?” not knowing the outcome can be stressful. Only then will you know what debts you have and can then approach the lender to start to make any repayments if you are able to do so.

Assisted Voluntary Sales (AVS)

‘Assisted Voluntary Sale’ (AVS) is an option some mortgage lenders offer to assist vendors in financial problems to escape from homeownership. The scope of support available from the mortgage lender might include these:

i) refunding the solicitor or estate agent’s costs
ii) providing a deposit and/or rent in advance for a private rental
iii) giving the vendor time to sell (average time is between 3 to 12 months)
iv) allowing a reduced monthly mortgage payments whilst the property is on the market

A lender may require certain criteria to be met before they would consider an AVS, for example, there is no 2nd charge (money owed to a third party) on the house, no negative equity and all solutions have been investigated.

Negative Equity (selling at a loss)

Negative Equity is where the property debt is more than the market value of the property itself. If your property has negative equity then you would have to top up the difference with funds to sell it on and this is where most homeowners become trapped. If you don’t have savings or other funds to do this, it might mean you’re unable to sell your property or move home. Your mortgage lender will insist that the full amount owed on your mortgage is repaid when you do eventually sell.

Repossession and bankruptcy

If you owe a lot of people money, including your lender, and cannot come to a realistic arrangement to pay off your debts, bankruptcy maybe your only option. If you go bankrupt, any assets you have (including your property) can be used to pay off your debts during a period of two or three years. After this period of time, most remaining debts you have will be written off, and you will possibly be released from bankruptcy. However, bankruptcy will have a big impact on your ability to get future credit (and possibly applying for a fresh mortgage), so it is important to get advice before doing this.

Do you need further information?

We hope you have found this Quick Property Sale article helpful, if you need any further assistance please get in touch with us.