what is voluntary foreclosure 
a voluntary foreclosure is a foreclosure proceeding that is initiated by a borrower who is unable to continue making loan payments on a property in an attempt to avoid further payments and prevent involuntary foreclosure and eviction borrowers may choose this option if their mortgage is significantly underwater this is different from an involuntary foreclosure which is initiated by the lending institution in order to take possession of a property to recover the lender s losses and is typically the last option for borrowers unable to make payments on their loans borrowers can seek a voluntary foreclosure from a bank or other lending institution for both residential and commercial properties there are several similar terms that can be used for voluntary foreclosures including strategic default walking away jingle mail and friendly foreclosure understanding voluntary foreclosuresvoluntary foreclosure is extremely harmful to a borrower s credit ratings and can make it difficult to rent or buy a home and get loans approved for years afterward but it is not as financially damaging as an involuntary foreclosure it can thus be a cost effective option for some borrowers who rather than struggling to make payments each month conclude that they are unable to continue making payments many debtors plan for a voluntary foreclosure by opening new credit cards and taking out new car loans and mortgages before their credit rating drops lenders will often agree to a borrower s request for voluntary foreclosure because it can make the process of retaking property and collecting debts much faster and more cost effective than an involuntary foreclosure reasons for voluntary foreclosure include a sudden and unexpected job loss the realization that one is living beyond one s means and changes in the housing market along with variable interest rates if a borrower has an adjustable rate mortgage or arm for instance a deed in lieu of foreclosure is one of the most commonly used types of voluntary foreclosure the rules laws and penalties for voluntary foreclosures vary widely by lending institution and state pros and cons of voluntary foreclosuresif you are considering initiating a voluntary foreclosure it s important to carefully consider the advantages and disadvantages of taking such a step you need to balance it against the effect on your credit the loss of your home how much financial relief it offers you and any alternatives you may still have if you are unable to get a loan modification or do a short sale for example a deed in lieu of foreclosure may have less impact on your credit reports than an involuntary foreclosure one advantage especially if your home is significantly underwater is that you can cut your losses when you stop making payments however some states allow lenders to go after borrowers for a deficiency the difference between the amount you still owe on the loan and the foreclosure sale price via a deficiency judgment make sure you know the laws of your state on this score your credit score will take a major hit if you foreclose the repercussions it s likely to be harder to get new credit say for a car loan or a new credit card and the interest rates you ll be offered will be higher you ll need to find another place to live and landlords may refuse to rent to you or charge a higher monthly amount and if you are looking to buy you may not be able to get a mortgage for a few years fannie mae for instance applies a four year wait period before granting a new mortgage after a deed in lieu of foreclosure 1it s a faster less complicated release from debt than an involuntary foreclosure and an opportunity to cut your losses a deed in lieu of foreclosure may have less impact on your credit scores than an involuntary foreclosure there s less social stigma attached than with an involuntary foreclosure you still may be subject to a deficiency judgment your credit score will take a hit and getting new credit a car loan a credit card may be harder and come with higher interest rates although there s less stigma employers may still deem you ineligible for certain jobs voluntary foreclosures and the housing crisis of 2007 2009prior to the american housing bubble and subprime mortgage crisis of the late 2000s voluntary foreclosure was a rarely used option for borrowers struggling to afford their property loan payments however it has become much more widely used in the years since in 2007 and 2008 housing prices plunged often posting double digit declines in value at the start of 2010 the percentage of mortgages that were underwater the amount owed on the mortgage was more than the value of the home increased dramatically in california nevada and florida more than 20 of mortgages were underwater 2