Foreclose or give back to bank after bankruptcy?

[sf2010]

I finalized my bankruptcy in 2/2010. I gave up 2 properties and will have the first one foreclosed upon in 2 weeks. Is it better, credit wise, to give the properties back to the bank before they are foreclosed upon? How would that work?

[Lel]

A deed-in-lieu of foreclosure (giving the properties back to the bank) will have the same effect on your credit score as a foreclosure.  DILs take time to negotiate, and with two weeks to go before foreclosure, there's probably not enough time.

You may want to investigate this further, though, and you need to review the recourse laws in your state.  If you live in a recourse state, then the lenders could sue you for any deficiency that results from the foreclosure.  For example, if you owe $200,000 and the house sells at foreclosure for $150,000, in a recourse state you could be on the hook for the $50,000 shortfall.  Even if your state has strong non-recourse protections, these may only apply to primary residences.  Different types of loans (e.g. cash-our refinances or non-purchase money loans have fewer protections against deficiency judgments as well.

You should talk to a good real estate attorney ASAP regarding your situation.  It's very complicated.

[sf2010]

Thanks for the info. Since my debts were forgiven in the bankruptcy how could the recourse possibly affect me? My understanding is that the entire balances were forgiven.

[Lel]

When I read your initial post, it wasn't clear to me that the properties were included in your bankruptcy.  Since they were, then I'd assume that you do not have to worry about future judgments.

So it seems like letting the properties go into foreclosure would be the easiest thing to do.