DEED IN LIEU OF FORECLOSURE

Sellers, You Do Have Options.
For all the talk about working things out with your lender when you’re in a financially distressed situation and afraid that you might lose your home to foreclosure, there is a time when the realization sets in that you just can’t dig your way out of debt.

Some Options are Better Than Others.
Some – like going through the entire foreclosure process – will leave a black mark on your credit report for probably 10 years.  Others – like simply walking away from the property – aren’t necessarily wise ways of dealing with the situation either.

Sometimes, you just run out of options!  Short of filing for bankruptcy (which only delays the inevitable, and does not STOP foreclosure in its tracks), sometimes your lender just isn’t willing to negotiate a loan workout (modification), or accept a short sale (agreeing to take less money on the sale of your property than the balance due on their underlying mortgage).

Then again, the lender MIGHT be willing to accept a Deed-in-Lieu of Foreclosure.  Depending on how severe your financial hardship is, and other factors, the Deed-in-Lieu approach would allow you to sign over legal ownership to your home for the lender’s agreement not to foreclose.  You are in effect giving up all claims and rights to the property in exchange for the ability to walk away from it, without having to make another mortgage payment – and, possibly, without a mark on your credit report.

At the very most, maybe a light gray mark instead of a black mark, if any mark at all depending on whether the lender reports your mortgage as “paid in full” or not.   Some lenders will report a Deed-in-Lieu as a foreclosure to the credit bureau.  Be aware of this, since the point of this transaction is to avoid this designation on your credit report.   Plus, once agreeing to the Deed-in-Lieu, the lender will likely have to waive its rights to any deficiency judgment, which saves you from having to pay off any deficiency amount awarded the lender by a court.  However, should you find yourself in this situation where there may be a deficiency judgment involved, the best thing to do is to consult with a reputable real estate attorney about possible options.  You should contact a real estate attorney anyway if you are considering a Deed-in-Lieu because it involves you giving up some legal rights.

Bottom Line About Deed-in-Lieu.
A Deed-in-Lieu is a potential way out of foreclosure for distressed homeowners who are hard pressed to find their way back to financial solvency.  It may not always be the best way, but it can be much better than going all the way through the foreclosure process or filing for bankruptcy!