Definition of Abandonment
Abandonment also refers to abandoned property.
Not to be confused with defaulting on a mortgage, abandonment occurs when the owner of a property demonstrates that they have no intention of returning to the property and have given up their legal claim to the property.
On the other hand, one can technically default on a mortgage when they miss their payments for X months (as determined by the lender) which will result in a foreclosure proceeding. In the case of default, the lender and borrower can work together to rectify the situation. In some cases, the lender may accept a smaller payment(s) until the borrower’s circumstances improve. At this point the borrower (depending on the arrangements) may then make a larger payment to compensate the lender for temporarily altering the terms.
Abandonment should be a last resort as there are solutions out there offering reduced impact on the borrower’s credit rating.
Even if the property has been abandoned, the name on the land title will still be that of the borrower meaning that the borrower is still on the hook for utilities, property taxes, etc. Remember that houses may go unused by their owners for a variety of reasons (ie. taking off for long vacations, renting out the property instead of living in it, etc.).
Simply transferring the deed to the lender can facilitate the foreclosure process while saving all parties the expenses relating to legal costs to have the property transferred. When the borrower goes out of their way to mitigate damages, it is viewed as responsible behavior, because lenders will realize that sometimes life can be rough and the borrowers themselves are only human. This will not equate to debt forgiveness if the lender cannot claw back their loan amount, but it will make them more willing to work with the borrower to come to a solution to the problem.
In the case of abandonment, it should be known that the bank still retains the right to change the locks on the house. This is simply to protect the collateral of the loan, but it should be noted that this does not qualify as a transfer of legal ownership in many jurisdictions.
When abandonment does occur, an accountant and tax lawyer should be consulted about the potential consequences of abandoning the property.
If you are interested in learning more about Abandonment or Abandoned Property, please feel free to contact us today!