Many people may have asked the question “What is a deed in lieu of foreclosure?” Is it the same as having a short sale? Does it simply mean walking away from a property you want to get rid of? Would it impact your credit rating as bad as a foreclosure would? A deed in lieu of foreclosure may be seen by some as the last resort to stop the bank from foreclosing a property. In a foreclosure, you may be forced by the bank to hand over your keys and empty out your home so that they may sell the house to a buyer to recover the balance amount you owe them. In a deed in lieu of foreclosure you are actually volunteering to hand over your keys and empty out your home before the bank could even instruct you to do so.

Once the question “What is a deed in lieu of foreclosure” has been answered, you may want to know whether it would be easier to opt for a deed in lieu or to simply let the bank foreclose your home. Neither is easier than the other. Both a foreclosure and a deed in lieu would mean that you may be giving control of your home to the bank and both would affect your credit rating. However, a foreclosure would cause more damage to your credit than a deed in lieu. You may also have to bear in mind that your mortgagers may need to be convinced to accept your deed in lieu as sometimes they may not agree to it because they may still suffer losses and they would have to sell the house themselves. Many experts may advice you to discuss your financial troubles with your mortgager prior to approaching them with the idea of a deed in lieu.

A deed in lieu of foreclosure may be designed to prevent any foreclosure process from starting especially if your home is worth less than the amount you still owe on it. In general, mortgagers may prefer a deed in lieu over foreclosure because a deed in lieu process normally takes place outside the judicial system without having to file any petition in court. That alone may save both you and your mortgager a lot of time and money because legal procedures generally would incur a high cost as they involve the court and attorneys. A court procedure usually takes months while a deed in lieu may assure your mortgager that they may assume title to your home immediately. This may be why timing is essential if you wish to opt for a deed in lieu because if your mortgager has already started a foreclosing process and has set a sale date you may not be able to do a deed in lieu anymore.

It is advisable for you to have your deed-in-lieu prepared if you have ample time for avoiding foreclosure. Generally you may be required to put your home on the market for at least 3 months to acquire fair market value. Many experts may advice you to engage the assistance of a reputable real estate attorney to handle the matter so that you may not end up with the short end of the stick. At least your attorney would not be ignorant of the whole process because if you were to handle it yourself you would probably not follow the process correctly which could result into a mishap or a missing document. In some cases mortgagers may even pressure home owners to conduct a short sale because mortgagers generally may not want to take back any home. They would prefer if you would sell it yourself because then they may be able to stick you with the difference. You may also be liable for any deficiency or tax.

All in all, if you have opted for a deed in lieu of foreclosure you may be freeing yourself from having to have foreclosure blemishing your credit rating. At the same time your mortgager may also benefit from it in terms of costs and time because they may resell your home immediately and get a paying occupant to recover some of their original loan.

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Category: Finances
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