Deed in Lieu of Foreclosure

A deed in lieu of foreclosure is a potential option taken by a mortgagor, or homeowner, usually as a means of avoiding foreclosure.

In this process, the mortgagor deeds the collateral property, which is typically the home, back to the lender serving as the mortgagee in exchange for the release of all obligations under the mortgage. Both sides must enter into the agreement voluntarily and in good faith. The document is signed by the homeowner, notarized by a notary public, and recorded in public records.

This is usually the last resort for property owners who have tried other options (like a loan modification or short sale) and accepted that they will lose their home.

Although the homeowner will have to move out and give up the property, in most cases they will be relieved of the burden of the loan. (See “Will I Owe Money After A Deed In Lieu Of Foreclosure” below.) This process is usually done with less public visibility than a foreclosure, so it may allow the property owner to minimize their embarrassment and keep their situation more private.

What is a deed in lieu of foreclosure?

A deed in lieu of foreclosure is a legal document that transfers ownership of a property from the borrower to the lender. This type of arrangement is typically used as an alternative to foreclosure, and it can provide certain benefits for both the borrower and the lender. It is typically a last resort after a homeowner has been denied for a short sale and/or loan modification.

For the borrower, it can help avoid the negative consequences that come with a foreclosure, such as damage to their credit score. And for the lender, it can help them avoid the time and expense of going through the foreclosure process.

How does a deed in lieu of foreclosure work?

In this process, the mortgagor deeds the collateral property, which is typically the home, back to the lender serving as the mortgagee in exchange for the release of all obligations under the mortgage. Both sides must enter into the agreement voluntarily and in good faith. The document is signed by the homeowner, notarized by a notary public, and recorded in public records.

What are the benefits of a deed in lieu of foreclosure?

A deed in lieu of foreclosure can be beneficial for both the borrower and lender. The most common perk is usually the avoidance of extensive, lengthy, and costly foreclosure proceedings.

Additionally, the borrower might be able to avoid public embarrassment or notoriety, depending on how this process is handled where they live. Because both sides come to an understanding that includes specific terms regarding when and how the property owner will vacate the premises, the borrower also avoids the possibility of having officials show up to evict them– something that could happen if they go through with a foreclosure.

The potential benefits of agreeing to a deed in lieu of foreclosure agreement are numerous. By avoiding extended foreclosure proceedings, the lender often saves money on expensive legal fees. In addition, the property owner may be able to lease the property back from the lender for a certain period of time.

However, there are certain risks that the lender needs to be aware of before entering into this type of arrangement. These risks include the possibility that the property is not worth more than the remaining balance on the mortgage and that junior creditors might hold liens on the property.

What are the drawbacks of a deed in lieu of foreclosure?

The most obvious downside is losing your property, any rental income from the real estate, and your initial investment in the home. There are also potential tax costs associated with transfering the property.

How can I get a deed in lieu of foreclosure?

If you’re considering a deed in lieu of foreclosure, it’s important to know what to expect. Here’s a rundown of the process:

  1. Call your mortgage company to explain the situation and start the process.
  2. Gather your basic financial documents: mortgage statements, bank statements, and pay stubs.
  3. Fill out the lender-required deed in lieu of foreclosure forms, and provide any financial documentation requested.

Getting a deed in lieu is a legal process, so it may be a good idea to have a real estate attorney help you. They’ll understand the provisions of the agreement and what you will and won’t be responsible for. Having someone negotiate on your behalf could save you money above and beyond whatever legal fee is necessary.

What are the risks of a deed in lieu of foreclosure?

There are several risks associated with a deed in lieu of foreclosure, including the following:

  1. The lender may not accept the deed in lieu of foreclosure, and the borrower will still be responsible for paying off the mortgage.
  2. The borrower may not be eligible for a deed in lieu of foreclosure if they have already missed mortgage payments or are in default on their loan.
  3. The borrower may have to pay taxes on any forgiven debt as part of the deed in lieu of foreclosure agreement.
  4. The borrower’s credit score will likely be negatively impacted by a deed in lieu of foreclosure.

Does a deed in lieu of foreclosure hurt your credit?

While a deed in lieu of foreclosure can be less damaging to your credit than a foreclosure, it will still have a negative impact on your score. Additionally, it may be difficult to qualify for a new mortgage or rental property after a deed in lieu of foreclosure. If you are considering this option, be sure to speak with a housing counselor or financial advisor to weigh all of your options.

Will I Owe Money After A Deed In Lieu Of Foreclosure?

A deed in lieu of foreclosure is when the homeowner signs over the deed to the home to the lender instead of going through with a foreclosure sale. This is often seen as a way to avoid damaging one’s credit score. However, the homeowner may owe any unpaid mortgage balance, plus any fees and costs associated with the foreclosure process. The lender may waive the difference between the proceeds they get from the real estate sale and the balance you owe, they’re not obligated to do so. You could end up with a judgment for the difference. (Each state has different laws that may or may not protect you. Contact us today to learn more.) The lender may also require that the homeowner sign a promissory note for any deficiency balance.

How can I get more info about a deed in lieu of foreclosure?

If you are behind on payments and facing foreclosure, make sure you are working with a real estate agent and short sale negotiator who specializes foreclosure avoidance. Many companies and agents claim to be proficient in these types of sales, but few possess the knowledge and experience. Our team has negotiated over 3,5000 short sales and we have a working relationship with Bank of America.

Contact us today at 619-777-6716 or submit your information on our contact form and we will be in touch to discuss how we can help you.