The Basics For Surrendering A Home

In Colorado, especially over the last 3 years, homes have been surrendered in record numbers. Many people have fallen prey to Adjustable Rate Mortgages or ARMs. Many were signed without the borrower’s knowledge that they have a static period of interest rates followed by incremental adjustments.

In many case, people have discovered their monthly mortgage payment rising by $400-$600.00 or more. When this happens, many homeowners realize that they can no longer afford to keep their home, yet they struggle to maintain their home. Most have exhausted all available lines of credit. In doing so, many have suffered credit damage, the likes of which prevents them from refinancing their home. When this happens, it is often the case that the debtor has no other choice than surrender their home back to their lender.

Outside of bankruptcy court, this process is called foreclosure. Once a home goes through foreclosure, it often results in what is known as a Deficiency Judgment. A Deficiency Judgment is the amount of money owed on the total mortgages minus the amount of money received at the auction from the sale of the home plus the cost of the sale.

On average a $200,000.00 to $250,000.00 home in Denver will yield a $40,000 to $50,000.00 deficiency judgment. This judgment sits on your credit as an unsecured debt and will follow you as long as it is able to retain its collectable status. This means that this debt can be garnished from your wages until collected. This debt can be attached to future property holdings be it a car, another house or an inheritance you receive.

In order to avoid a Deficiency Judgment, may people elect to avail themselves of the surrendering option through the US Bankruptcy Courts. When a home is surrendered through the Bankruptcy Courts, there is no Deficiency Judgment. The lender must take back the property, in this case a home, as full satisfaction of the debt. There is no Deficiency Judgment, after a bankruptcy surrender, which is allowed to follow the debtor.

The timeline for surrendering a home depends greatly on what process or at what point in foreclosure the debtor decided to file their bankruptcy. In many cases, after the permission of the Bankruptcy Court is granted to take the home back through, a motion called a Relief From Stay Motion is issued, the lender then must go through County Court to derive a sale date. Once the sale date has been issued, which takes approximately 110-120 days, the property will be sold and the debtor must quit possession of the property (move out).


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