Foreclosure

• Title represents the legal right to own, transfer and possess property. When a lender extends a mortgage loan, it reserves the right to take title to the property purchased with the loan proceeds. Foreclosure is the proceeding through which the lender exercises its right to take title to the debtor's property. Until the lender forecloses, the debtor remains the property's legal owner.
  
  

Surrender

• If you have surrendered your home in bankruptcy, you may or may not realize that the surrender is about putting the lender on notice that you do not intend to keep the home and will not oppose a foreclosure. Surrendering your property in bankruptcy does not mean you must immediately make vacate the property. That is not required until the lender puts you on notice of foreclosure. Debtors who file Chapter 7 bankruptcy must provide the court with a signed document called the "Chapter 7 Debtor's Individual Statement of Intention." In this document, the debtor must disclose what he plans to do with the property used as collateral for secured debt. Debtors who wish to walk away from their mortgage loans will disclose an intent to surrender the home.
  
  

Benefit

• For those who surrender their property in bankruptcy and choose to wait for notice of foreclosure before moving, your lender's choice not to foreclose on your home may prove beneficial. You do, after all, get to live in a house for free. This means that you may begin to save money that otherwise would have gone toward paying for housing elsewhere. These savings could very well be the foundation for your next home's down payment or a healthy emergency fund. Also, when an owner abandons the home, it often becomes obvious because sometimes no one is there to tend to the home's appearance. Accordingly, your neighbors may also benefit from your sticking around a while longer.
  
  

Downside

• As long as the house is titled in your name, you're still technically responsible for the homeowner's association fees, taxes and insurance. These expenses may partly explain why it's cheaper for the lender to keep the title in your name rather than take on those obligations for the duration of the time it may take to sell the house in a slow housing market.
  
  

Options

• If your lender agrees, you may be able to do a deed in lieu of foreclosure. This involves deeding the property over to the lender and bypassing the entire foreclosure process. Another option is to find someone willing to buy the house. This would allow you to leave and allow your lender to save money. Again, you must get approval from the lender.