A deed in lieu foreclosure is a way to avoid foreclosure open to homeowners unable to pay their mortgage as scheduled. It could well happen that you are not able to meet your mortgage payments when due anymore and your house and the large investment you placed on it are in jeopardy.
On top of that, you fear the effect that a complete foreclosure can have on your credit score for years to come. It is thus worthwhile that you research a deed in lieu foreclosure as an alternative to having your house foreclosed.
How does a deed in lieu foreclosure work
Obtaining a deed in lieu foreclosure requires that the lender and the house owner agree to hand over the title of the deed to the bank or financial organization.
In short, your lending company becomes the lawful owner of the home in hand.
By applying this solution, homeowners in default are free from any more liabilities related to the house in question. Moreover, thanks to this deed in lieu foreclosure agreement with their lending companies, the credit rating of house owners is not affected as in the case of a full foreclosure.
Deeds in lieu foreclosure are settled out of court. Anyway, one thing to remember is that a homeowner that chooses a deed in lieu foreclosure as a way to avoid foreclosure has to sign it at the beginning of the foreclosure proceedings.
Will your lender accept a deed in lieu foreclosure?
|Not all deeds in lieu foreclosure proposals are accepted by the lending organizations. They tend to accept them more when they know that it has become impossible for the homeowner to pay off the mortgage.
It does not make sense for the lenders to pursue a deficiency judgment, which is a court order to partially recuperate the amount still owed related to the foreclosure. As a general rule, banks and lenders go through with a foreclosure when the amount of the debt still owed is smaller than the value of the property.
The primary benefit of a deed in lieu foreclosure for the lending company is obviously of a financial nature. By reaching an out of court agreement they save significantly on judicial costs and lawyer fees.
Where does the responsibility for the liens lie?
Prior to signing the deed in lieu foreclosure agreement, the lending society ensures that this contract does not mean accepting responsibility for mortgage liens on the property. Putting it differently, holding the title means that they will be an independent entity from any liens on the property such as unpaid contractors’ claims.
The aim of the lending organization is to sell the house and recover as much as possible from the losses. Should there be any liens on the property; the new owners would be then accountable for them.
In a nutshell, by going for a deed in lieu foreclosure, homeowners stop the unpleasantness of foreclosure and at the same time avoid a damaging statement of full foreclosure on their credit history.
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