Deed in lieu
While a foreclosure is the first thought for many homeowners when they can't keep up with payments, many don't know that a deed in lieu of foreclosure can be a better option.
What is Deed in Lieu of Foreclosure?
Deed in lieu of foreclosure is a document in which the owner transfers the title and all interests of the property to the lender to satisfy a loan that is in default and to avoid foreclosure proceedings. It relieves a lot of the stress, time consumption, and consequences of an actual foreclosure. A deed in lieu is commonly done when the property is worthless in the current market than when the mortgage was received.
Things to Know
Deed in lieu is the homeowner voluntarily handing back the deed to the lender to release the homeowner of the mortgage obligations. However, this doesn't mean the lender or bank has to accept the deed in lieu agreement. The lender can reject to accept the offer for many reasons such as liens on property, poor condition of the home, depreciated value of the home, or a foreclosure benefits the lender more when it comes to deals with government-backed loans. But there is a good change, a deed in lieu will be accepted with the property is in good condition because it will be quicker and easier for the lender to sell after. Also, it saved the lender's court fees that would otherwise go into foreclosure.
What are the repercussions?
The most obvious repercussion is that you will lose your home and have to move out. Also, a deed in lieu agreement still damages your credit score like a foreclosure. However, a foreclosure stays on your record for 7 years, but a deed in lieu stays on your record for 4 years. This makes a big difference when applying for other mortgages and loans in the future. Lastly, you might have to pay tax to the IRS for the loan forgiven under IRS law. Overall, it is a better deal than a foreclosure on your home.