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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Deed in Lieu of Foreclosure
When you buy a home or refinance your mortgage, you show full responsibility to pay the debt in full.
Sometimes life takes a turn in an unexpected way due to which a borrower is unable to make the payment.
This might result in a foreclosure of the home. In this post, we will learn what is a deed in lieu of foreclosure in detail is.
What is a Deed in Lieu of Foreclosure?
A deed in lieu of foreclosure is a transaction where the borrower conveys a title to the mortgaged premises to the lender in exchange for the satisfaction of the mortgage.
There is also a release of the obligation to pay the underlying indebtedness. A deed in lieu of foreclosure is an attractive option for a homeowner who does not want to retain the property, is not able to negotiate a short sale, and wants to avoid the damage of foreclosure may do to the homeowner’s credit score.
In a deed, in lieu of foreclosure, the borrower voluntarily transfers ownership of the property to the servicer and is in full satisfaction of the amount due, provided that the title is free and clear of mortgages, liens, and income branches, though this can be sometimes negotiated.
Like a short sale, a deed in lieu of foreclosure can decrease the cost and emotional trauma of foreclosure and provide the homeowner with possible cash which could assist in relocating.
What is Deed in Lieu of Foreclosure Requirement?
Generally, the servicer will require that the borrower make a good effort to sell the property to a third party before accepting a deed in lieu of foreclosure.
The servicer has to give the borrower permission to conduct a deed in lieu where the borrower should have a written document stating that the loan is fully satisfied when the transfer of property occurs.
A deed in lieu of a foreclosure agreement is an agreement where you give your mortgage lender the deed to your home. Homeowners agree to the deed in lieu agreement to avoid foreclosure.
Difference between Deed in Lieu of Foreclosure Vs Foreclosure
A deed in lieu of foreclosure is different from an actual foreclosure. A deed in lieu of foreclosure means that you and your lender reach a mutual understanding that you cannot make your mortgage payments.
The lender agrees to avoid putting you into foreclosure. When you hand the property over amicably, in exchange the lender releases you from your obligation under the mortgage.
TO keep the property in good shape your lender might also offer some sort of incentive.
Though the deed of lieu will show up on your credit report, its impact is not as severe as a foreclosure.
Remember that foreclosure is a long and expensive process for both you and the lender. It is suggested to check all other options before you agree to give up the deed to your home.
In many cases, it is best for both you and your lender to restructure your mortgage instead of pursuing a foreclosure.
Advantages of Deed in Lieu of Foreclosure
A deed in lieu of foreclosure has advantages for both the borrower and the lender. For both parties, the most attractive benefit is usually the avoidance of long, time-consuming, and costly foreclosure proceedings.
In addition, the borrower can often avoid some public notice depending on how this process is handled in their area.
Since both sides reach an understanding that includes specific terms to when and how the property owner will vacate the property, the borrower also avoids the possibility of having officials turn up at the door to evict them which can occur with a foreclosure.
In some cases, the property owner may even reach an agreement with the lender that allows them to lease the property back from the lender for a certain period of time.
The lender often saves money by avoiding the expenses in a situation involving extended foreclosure proceedings.
Conclusion
In evaluating the potential benefits of agreeing to this agreement the lender needs to assess certain risks that may accompany this type of transaction.
These potential risks include among other things the possibility that the property is not worth more than the remaining balance on the mortgage, and that the junior creditors might hold liens on the property.
Before considering a deed in lieu of foreclosure you should think about one or two other options that have less impact on your credit and future mortgage prospects such as a loan modification or a short sale.
