Can a Borrower Request Foreclosure?

Borrowers typically don't request a foreclosure, but can accomplish the same goal through other requests made to their lenders. Most times, the borrower's objective is to stop paying the mortgage and to transfer ownership of a home that is either too expensive or no longer wanted. Some people simply walk away from their homes in what is known as a voluntary foreclosure or strategic default. However, those maneuvers can cause costly financial ramifications and are not recommended by lenders.

Strategic Defaults

A homeowner considers strategic default after deciding a home is no longer worth keeping, This occurs for a number of reasons, including a sharp decline in property values. A home that was purchased at an inflated price can lose a third or even half its value during a housing bust or severe recession. A person who overpaid for her home and made minimal down payments can find herself severely "upside down" on the mortgage, meaning she owes considerably more on the loan than the home is worth. Rather than keep the declining asset, she may choose to voluntarily walk away from the home and the mortgage. The lender forecloses on the home and may file a lawsuit to collect any balance remaining on the mortgage after the home is sold at foreclosure. The possibility of a lawsuit is a key reason why you seek legal advice before voluntarily defaulting on a mortgage.

Short Sales

Short sales also allows a homeowner to walk away -- but with the permission of the lender. A short sale allows a home to be sold for less than the balance on the mortgage, with the lender usually absorbing the loss. Lenders sometimes view short sales as preferable to foreclosure because the short sale agreement and subsequent sale resolves the entire issue. The lender avoids the trouble of a foreclosure and auction, and possibly realizes as much money through the short sale as an auction would bring.

Deed in Lieu

A deed in lieu of foreclosure allows you to turn over all rights to your home to the lender in exchange for being released from the mortgage. Of all the options available, the deed in lieu may be the most preferable for someone thinking of requesting a foreclosure. The biggest advantage is that there is no chance of a lawsuit after the property is transferred, and no buyer is needed for the property, as is the case in a short sale. However, the U.S. Department of Housing and Urban Development reports that a deed in lieu is unlikely to be approved if the lender determines that you have the ability to continue paying the mortgage.

Counseling

Counselors certified by the U.S Department of Housing and Urban Development can discuss other alternatives to foreclosure. Possibilities include loan modification, which allows all terms of the loan to be changed to make the monthly payments more affordable. HUD-approved counselors, such as those affiliated with Consumer Credit Counseling Service, are available in communities across the country.