What is a Deed-in-Lieu?

A deed-in-lieu of foreclosure is a signed document that forfeits the homeowner’s interest in the property back to the lender. The lender accepts the deed to property instead of continuing the foreclosure process and incurring more expenses. The homeowner must then vacate the property. The lender(s) then sells the property. This sale is usually at an amount less than owed on the mortgage loan. The lender(s) reserves the right to obtain a personal judgment against the Homeowner for the difference which is known as a deficiency judgment.

A deed-in-lieu is also known as a voluntary foreclosure. In many cases a deed-in-lieu is not much different than a foreclosure as it shows up on the homeowner’s credit report for up to 7 years. This is very damaging to a person’s credit report as the lender typically has 5 years to pursue a deficiency judgment. Deficiency judgments also earn interest until paid. In Florida, that rate is currently 11%.

A deed in lieu will work only if a homeowner has a 1stMortgage, or 2 mortgages with the same lender. If the homeowner has personal liens, or other liens such as tax liens this method will not work. Due to the drop in property values most lenders do not want to take properties back.

You may be eligible for a Deed-in-Lieu if:

  • You are ineligible to refinance or modify your mortgage
  • You are facing a long-term hardship
  • You are behind on your mortgage payments
  • You owe more on your home than it’s worth
  • You don’t want to sell your home or haven’t been able to sell your home
  • You can no longer afford your home and you are ready to leave

What are the possible benefits and drawbacks to a Deed in Lieu?

Benefits

  • You can eliminate or reduce your current mortgage
  • May be eligible to receive a Fannie Mae mortgage within 2 years
  • Able to voluntarily give back an unwanted property

Drawbacks

  • Though this is an agreement with your lender it is still seen as voluntary foreclosure
  • Foreclosure (though voluntary) is and will be listed on your personal credit report
  • You must vacate the property (usually within 30 days)
  • The lender reserves the right to seek a deficiency judgment for the difference of what they sell the property for compared to what your mortgage amount
  • You may not be able to purchase another home for a minimum of 5 years

Due to the drawbacks, BuyMyHouseNow123.com does not recommend a Deed In Lieu

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