Deed in Lieu of Foreclosure
Deed in Lieu of Foreclosure
Deed in lieu of foreclosure can be a way for homeowners who are in default on their mortgages to avoid foreclosure by transferring the deed of their home to their mortgage lenders in exchange for a release from debt.
When the deed of the home is transferred to the mortgage lender, mortgage lenders typically release homeowners from most or all of their debt obligations associated with the outstanding balance on the mortgage loan. After this occurs, mortgage lenders are able to sell the home in an effort to regain some of or the entire unpaid mortgage amount.
Deed in lieu of foreclosure can be an effective way to avoid filing for bankruptcy when dealing with foreclosure.
Deed in Lieu of Foreclosure Benefits
Deed in lieu of foreclosure can offer a variety of benefits to both homeowners and mortgage lenders when compared with other foreclosure defense alternatives. Deed in lieu of foreclosure benefits for homeowners may include:
- Homeowners may be released from all or some of the debt obligations associated with the delinquent mortgage.
- A deed in lieu of foreclosure may be able to help homeowners avoid having their properties listed publicly as in foreclosure.
- Homeowners may be able to receive less damage to their credit scores with a deed in lieu of foreclosure when compared with a foreclosure or bankruptcy.
- Homeowners may be able to receive money from their mortgage lenders for relocation assistance.
- Deed in lieu of foreclosure may be able to help homeowners repair their credit sooner when compared with a bankruptcy or foreclosure.
Deed in lieu of foreclosure benefits for mortgage lenders may include:
- Mortgage lenders may spend less money than following through with the foreclosure process and potentially having to repossess the home.
- Mortgage lenders often receive homes in better condition since there is typically less risk for homeowners to seek revenge with a deed in lieu of foreclosure than when homes are foreclosed upon.
Deed in Lieu of Foreclosure Can Be a Smart Option When
Deed in lieu of foreclosure can be a smart choice after a number of factors have been evaluated with respect to a homeowner’s specific situation. Because there are typically numerous foreclosure defense options available for distressed homeowners, it is important to consider all potential options.
Deed in lieu of foreclosure may be a smart choice in the case that:
- A homeowner is unable to attain a loan modification or refinance.
- A homeowner is potentially dealing with a financial hardship that will last a long period of time.
- A homeowner is in default on their mortgage.
- A homeowner is currently underwater and owes more than the fair market value of their home.
- A homeowner does not want to move away from the area they currently reside in.
- A homeowner does not want to sell his or her home or has been unsuccessful at selling his or her home.
- A homeowner is unable to afford his or her home at the current mortgage amount.
Deed in Lieu of Foreclosure Qualifications
Deed in lieu of foreclosure may not be available to all owners, since mortgage lenders can choose to approve or deny a deed in lieu of foreclosure request at their discretion. Mortgage lenders typically prefer homeowners to satisfy a number of requirements in order to qualify for a deed in lieu of foreclosure.
Deed in lieu of foreclosure qualifications may include:
- The outstanding debt on the mortgage loan must be secured by the property being transferred.
- The deed in lieu of foreclosure agreement must be initiated based upon “good faith” and must not be the result of any type of coercion.
- Homeowners are not eligible for a deed in lieu of foreclosure unless they are behind on their mortgage payments.
- Homeowners may be required to attempt the sale of their home in the last 12 months prior to a deed in lieu of foreclosure depending up on their mortgage lender.
- Homeowners may not be eligible for a deed in lieu of foreclosure if additional liens or second mortgages are attributed to the house.
- Houses are typically required to be left in a clean and good condition at the conclusion of the deed in lieu of foreclosure process.
Deed in Lieu vs Short Sale
When pursuing foreclosure defense options, financially distressed homeowners often compare a Deed in Lieu vs Short Sale. Both options can represent great foreclosure alternatives, but not every homeowner may qualify. Homeowners should consider learning as much as possible about a Deed in Lieu vs Short Sale in order to have the best opportunity at finding approval and choosing the best option for their exact situation.
Applying for Deed in Lieu vs Short Sale
When choosing between a Deed in Lieu vs Short Sale it is important to consider the advantages and disadvantages of each option. Before deciding on an option to pursue however, it may beneficial for homeowners to learn about how to submit a loss mitigation application. Loss mitigation applications are typically required when applying for a deed in lieu or a short sale.
With either Deed in Lieu vs Short Sale, important elements to include in a loss mitigation application can be:
- Financial documentation detailing monthly income and expenses
- A recent W-2, pay stubs and/or other proof of income
- Most recent tax return statement
- Most recent bank statement for every account a homeowner owns
- A hardship letter
Deed in Lieu vs Short Sale Benefits
A short sale typically occurs when the homeowner sells his or her home for less than the remaining balance on the mortgage. Depending upon how much equity has already been established in the home and other factors, mortgage lenders may or may not choose to accept a short sale. Some mortgage lenders may accept a short sale in order to avoid the high costs associated with moving forward with the foreclosure process. It is important to note however, mortgage lenders may choose to pursue a deficiency judgment lawsuit against homeowners after a short sale in order to uncover the unpaid mortgage balance.
A deed in lieu typically occurs when the homeowner transfers his or her title to the home for release from mortgage debt obligations. In a similar way to short sales, mortgage lenders may or may not choose to accept a deed in lieu of foreclosure based upon how much equity is in the home and other factors. Deficiency judgments lawsuits are often less common after a deed in lieu, but it can still be a consideration for homeowners to recognize in some areas.
10 Tips for Deed in Lieu of Foreclosure Success
The 10 tips for deed in lieu of foreclosure success may greatly benefits distressed homeowners who are considering pursuing a deed in lieu as an alternative to foreclosure. When facing home foreclosure, a deed in lieu may seem like a confusing and stressful process. In reality, the entire process may be completed fairly smoothly by following an organized series of steps and processes.
Homeowners should consider reviewing the 10 tips listed below in order to have the best opportunity at getting approved and following through with a deed in lieu of foreclosure.
The first tip focuses on helping homeowners understand if they should pursue a deed in lieu or not.
Determine if you may be a good candidate for a deed in lieu of foreclosure.
Depending upon a homeowner’s current situation, he or she may be a good candidate for a deed in lieu of foreclosure, but he or she may also be a good candidate for a different foreclosure alternative. You may wish to consider a deed in lieu of foreclosure when :
- You cannot refinance or get a loan modification.
- You are facing a potentially long-term financial hardship.
- You have defaulted on your mortgage payments or are facing imminent default.
- You have an underwater mortgage.
- You cannot continue to afford your home and are ready to leave.
- You do not want to sell your home and/or are unable to sell the home.
The second tip focuses on encouraging homeowners to take thorough look at their current situation so they will be prepared to speak with a foreclosure defense attorney and/or their mortgage lender.
Evaluate your current situation.
Important factors to examine about your situation may include:
- The current market value of your property
- The total unpaid mortgage amount on your mortgage loan
- How many mortgage payments have been missed, if any
- How much time is left until a foreclosure sale date
The third tip focuses on encouraging homeowners to consult with an expert in the real estate industry prior to speaking with their mortgage lenders.
Get a free consultation from a foreclosure defense attorney in your area.
Foreclosure defense attorneys can be a great resource for homeowners to consult with prior to negotiating with mortgage lenders about a deed in lieu of foreclosure. These attorneys may review a homeowner’s current situation and determine if they are good candidates for a deed in lieu of foreclosure and may recommend other alternatives to foreclosure.
The fourth tip focuses on helping homeowners to initiate the deed in lieu process with their mortgage lenders.
Consult with your mortgage lender about a deed in lieu of foreclosure.
Mortgage lenders must approve a request for a deed in lieu of foreclosure, so homeowners must reach out to them in order to apply. It can be a smart idea to explain your situation and ask them to recommend any potential foreclosure defense options. If they say a deed in lieu of foreclosure can be a viable option, you may be able to move forward with the deed in lieu of foreclosure process.
The fifth tip focuses on encouraging homeowners to negotiate with their mortgage lenders to avoid a deficiency judgment.
Ask for a deficiency forgiveness after the deed in the lieu of foreclosure.
Mortgage lenders may come after homeowners for a deficiency judgment after a deed in lieu of foreclosure. Homeowners should consider negotiating with mortgage lenders to forgive the unpaid mortgage amount during a deed in lieu of foreclosure in order to avoid a deficiency judgment.
The sixth tip focuses on helping homeowners achieve the least damaging effects to credit scores as possible after a deed in lieu of foreclosure.
Ask your mortgage lender to report the deed in lieu to the three credit bureaus as a paid settlement or satisfied. Also ask about removing any previous negative reporting from your credit report.
While not every lender may agree to these terms, it can never hurt to ask. This may benefit homeowners tremendously by potentially receiving less damaging effects to credit ratings.
The seventh tip focuses on preparing homeowners to submit their deed in lieu application to their mortgage lenders.
Gather all of the necessary documents and information in order to submit a deed in lieu of foreclosure application.
Documents and information homeowners may need to gather in order to submit a deed in lieu of foreclosure application may include:
- The property’s address and loan number
- Most recent W-2’s or 1099
- Paycheck stubs
- Bank statements
- 2 years of tax returns
- Assets, debt and liabilities statement
- Any foreclosure notices or dates
- Hardship letter
The eight tip focuses on finalizing the deed in lieu of foreclosure process.
Submit your deed in lieu of foreclosure packet to your mortgage lender.
After following the tips outlined above, it may be time to submit your deed in lieu of foreclosure application to your mortgage lender. Be sure to include all of the necessary documents and it is usually advisable to send the application sooner than later.
The ninth tip focuses on preparing homeowners to move out of the home.
Prepare the home to leave on a specified date.
It is very important to insure the inside and outside of the house is in good condition. There should be no exterior trash and all of your belongings should be moved completely out by the move out date.
The tenth and final tip focuses on preparing homeowners for the final step of the deed in lieu of foreclosure process.
Turn over your keys to your mortgage lender.
With the homeowner’s belongings all moved out and the house in good condition, it may be time to finally turn over the keys to the mortgage lender. This may mark the final end to the deed in lieu of foreclosure process.