DEFINITION of 'Voluntary Foreclosure'

A voluntary foreclosure is a foreclosure proceeding that is initiated by the borrower, rather than the lender, in an attempt to avoid further payments. A foreclosure is the procedure that permits a lender, in the event of a loan default, to have the mortgaged property sold in order to cover some or all of the remaining debt.

BREAKING DOWN 'Voluntary Foreclosure'

A voluntary foreclosure occurs when a borrower knows that there will be no way to make future payments on a mortgage, and informs the lender of such to initiate the foreclosure process. While still harmful to credit ratings, a voluntary foreclosure can be cost effective for some borrowers who, rather than barely making payments each month (and knowing in the near future that even this will become impossible) conclude that they will be unable to continue with payments. Reasons for voluntary foreclosure include the sudden and unexpected loss of a job; or the realization that one is living beyond one's means, and the desire to become more financially stable (by living within one's means).

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