A deed in lieu of foreclosure is a written document that relinquishes the ownership title to real property from a homeowner/borrower to the lienholder (mortgagee) of record. When a homeowner has decided to terminate ownership to property, they will also avoid the foreclosure process and eliminate the mortgage debt and payments.
The whole process of securing a deed in lieu of foreclosure whether it is judicial or non-judicial will take place outside of the judicial system and is settled out of court.
A deed in lieu of foreclosure should be considered when:
- You are behind on mortgage payments
- You owe more on the house than it is worth
- You are unqualified for a refinance or loan modification
- You are facing a long-time hardship
- You cannot sell your home because of market conditions
- You do not want to go through the hassles of selling your property
- You do not want to stay in your home
The Benefits to a Deed in Lieu of Foreclosure are:
- You are released from mortgage payments and long-term mortgage debt
- Your credit will not be severely damaged as a foreclosure blemish.
- It is a less time consuming process than foreclosure
- You will be able to recuperate from financial hardship sooner.
The Disadvantages to a Deed in Lieu of Foreclosure are:
- If your home has 2nd or 3rd junior liens, tax liens, home equity loans, you may be unable to secure a deed in lieu because the lender has determined that foreclosure would be less costly.
- Most lenders, especially those that are bombarded with foreclosures, may not accept your deed in lieu offer. Unfortunately, lenders are not in the business of taking back real estate, they want cash.
- Beware of deficiency judgments. Some judicial states may permit lenders to utilize deficiency judgments under certain conditions.
If your home is owned by Fannie Mae, you may be able to lease your home back from them. Fannie Mae’s Deed-for-Lease Program will allow you to lease your home back for up to 12 months under qualifying conditions.