Deed In Lieu of Foreclosure
If you wish to
stop foreclosure on your home because you
cannot keep up with the monthly payments then you may want
to consider asking the mortgage company for a deed in lieu
of foreclosure.
To see if there is a better alternative or what exactly a
deed in lieu is please see below.
How does a deed in lieu of foreclosure work?
If you're going to ask for a deed in lieu of foreclosure you are going to
have to sign a couple of legal documents:
- warranty deed, quick claim deed or a grant deed - this document
conveys legal ownership of the property to the lender
- agreement in lieu of a foreclosure - this document has the terms and
conditions of the deed in lieu
The lender will mark the homeowner's note as paid and will then provide
you with two forms:
- A waiver of the right to a deficiency judgment (with this your
lender will not be able to ask you to pay for any unpaid debts)
- A form stating the homeowner's debt has been canceled
All deed in lieu of foreclosure's must be executed through an escrow
company which will receive the homeowner's/borrower's note, marked as paid,
from the lender. Just as when you bought the house, ownership will be
transferred, only this time it will be transferred from you back to the
mortgage lender.
You will also be required by most lenders to put your home
on the market for a period of no less than 30 days. Lenders will often
do this because they lose more money by having to sell the property
themselves then to have you sell it in a
short sale.
With out exception, make sure any promises made by
the lender are in writing
What is a Deed in
Lieu a Foreclosure?
The deed in lieu of foreclosure is the process in which you give all
rights to your property over to your mortgage lender or service. In
order for the lender to get back part or even all of the original loan
amount they must sell off the property to payoff as much of the original
loan balance as possible.
Is receiving a Loan Modification better than a Deed in
Lieu?
This is a much better option over a deed in lieu, because you get
to keep your home. Although your credit is probably damaged by late
mortgage payments the damage which has been done will be far less than
if you chose a deed in lieu of foreclosure.
What is the difference between a Short Sale and a Deed in
Lieu of Foreclosure?
In both processes the lender often loses money, but with a short sale the
homeowner has found a buyer for the home at a price which is generally less
than what the homeowner owes on the note. The lender/bank will
almost certainly choose the short sale over the deed in lieu of foreclosure
so it does not have to deal with the cost involved with selling the property
itself.
What are the tax consequences to a Deed in Lieu of
Foreclosure?
With the
Mortgage
Forgiveness Debt Relief act of 2007, a taxpayer does not have to pay
federal income tax on debt forgiven for a loan secured by a qualified
principal residence.
This law is scheduled to allow these tax breaks from January 1, 2007 to
December 31, 2009.
Benefits to a Deed in Lieu of Foreclosure:
- Deed in lieu of foreclosure will often reflect better on your
credit report than a foreclosure or bankruptcy.
- With the deed in lieu you do not need to take responsibility for
selling your home (you may simply hand over the title to the lender and
walk away).
Disadvantages to the Deed in Lieu a Foreclosure:
- If you have second or third mortgages, you generally cannot get a
deed in lieu.
- If you have tax liens or
home equity lines of credit against the
property you often cannot get a deed in lieu.
- Getting a lender to actually
accept a deed in lieu can be very difficult.
Deed in Lieu of Foreclosure Facts
- The owner must agree to a written agreement of property
conditions.
- If the deed in lieu follows a special failed
forbearance
agreement or the pre-foreclosure sale program, then the deed in lieu
of foreclosure must be completed or foreclosure initiated within 90
days of the failure.
- Mortgage lenders may determine that a "current" borrower is eligible
for the deed in lieu of foreclosure auction.
- Under no circumstances should the borrower be
encouraged to default on their mortgage for the purpose of
qualifying for this option.
- Deed in lieu must be completed or foreclosure initiated within
six months of the date of default.
- Any compensation received by borrowers must be applied to junior
liens placed on the mortgage property.
- The mortgagee/lender can pay, the borrower up to $2000 in
compensation .
Deed in Lieu Eligibility Factors
- Lender will develop a written deed in lieu of foreclosure agreement,
which will contain all of the conditions under which the deed will be
accepted and must be signed by both the lender and the
borrower/homeowner.
- The homeowner/borrower must be at least 31 days delinquent at the
time the deed in lieu warranty special deed is executed.
- The property must be owner occupied. Exceptions: Job transfer,
divorce, death or Job Loss and the subject property was not purchased as
a rental investment or was used as a rental for a total of more than
12 months.