Bad Situation Archives – Refinance – Mortgage Refinancing Rates And Information

Deed In Lieu of Foreclosure, The Last Resort Loan Modification

February 19th, 2010 No comments

If you do not qualify for a loan modification, and foreclosure seems unavoidable, there are steps you can take to make the most of a bad situation. One of these options is arranging with your lender for a Deed in Lieu of Foreclosure.

What does this mean?

It means you hand over the deed, or ownership, of your house to the lender in exchange of clearing your debt. The homeowner loses his home but is left without a debt while the lender takes immediate control of the house.

What advantages does this option have?

In certain circumstances a Deed in Lieu of Foreclosure can have significant advantages for both the lender and the buyer.

1) The lender can take immediate control over the property. A much more efficient method than foreclosure proceedings that can take years to finish.

2) The borrower foregoes his home but is left without any debt.

3) Lenders can save themselves a lot of money in court expenses, time and other complications if they avoid a typical repossession procedure.

4) Borrowers that avoid a foreclosure will remove the stain on their record and in some cases avoid bankruptcy.

What are the requirements for a Deed in Lieu of Foreclosure to be carried out?

1) The market value of the home must be less than the current balance of the mortgage.

2) There must be no third party credits secured by the home, like a second mortgage or a secured car loan.

Although it might seem counterintuitive for a homeowner to let his home, probably his largest investment, go without anything to show for it, it can be a much better alternative than a long and painful foreclosure. Borrowers don’t have to see their credit score hurt and can start again elsewhere, while lenders can cut their losses and try to make the most of a bad loan without having to continue spending money and resources.

In what circumstances should a homeowner think about handing a Deed in Lieu of Foreclosure?

Obviously, homeowners that are going through financial difficulties and cannot afford their monthly mortgage payments. However if they still have some sort of income then they may well qualify for a home modification or some other option. This path is more suited for homeowners that either cannot afford any kind of loan modification or feel that their home is too underwater, worth less than the mortgage balance, to be worth saving.

How is it done?

Both parties must agree to sign an Agreement in Lieu of Foreclosure. This document transfers ownership to the lender. In some cases the homeowner might pay a certain amount of money to reduce the loan and make sure her credit score is not affected. Once the document is signed the lender will issue a waiver to deficiency judgment, which will be used if the sale of the house is below the value of the mortgage. After this an escrow service executes the agreement; releasing both the lender and the borrower from their mortgage contract.

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Debt management, art of making the best of a bad situation

July 23rd, 2009 No comments

Debt management, art of making the best of a bad situation

So you are in serious debt. Really serious debt. You are actually quite desperate because you have no idea how you got in such a pickle and even less of an idea how you are going to get out. Debt management is your newest best friend. What is debt management and how can it help you to get out of debt?
Debt management is the art of taking control of your debt and using the tools at your disposal to minimize the cost and damage of debt. Debt management is not a single solution like a magic pill or a silver bullet, it is more like a way of thinking, an attitude that helps you make the right decisions to get yourself out of serious debt.

Debt management affects our lifestyle, our spending habits and our financial decisions. The principles behind Debt Management are simple: Understand your debt, minimize your debt and control your debt.
This is how it works:

Understand your debt.
You need to know how bad your situation is before you can fix it. Many people develop such a phobia to their debt, they try to ignore it ostrich style, and this obviously creates problems of its own burying the person deeper into debt. So get paper and pen and write out exactly what you owe, that includes your mortgage, credit cards, car loans, everything and include the interest rates you are paying on them.

Minimize your debt.
The second step after understanding your debt is to start to managing your debt by taking decisive action. Your first priority is to work out what your income is and compare it to your monthly expenses. This is where debt management gets really hard. Often people who are in serious debt have got used to spending more than they have and reducing their quality of life or spending habits seems impossible. However you will have to be hard on yourself, get your income and work out a budget that will fit into it. Working out a budget is a living project you will never finish, in you might have to re-design your budget after step 3, the important thing is to realize your limits and stick within them.

Minimize your debt.
There are different ways of minimizing your debt, lets have a look at two.

Debt management tools that will help your minimize your debt include debt consolidation and creating extra income to pay your debt.
Debt consolidation refers to taking on a large loan to pay for a bunch of smaller loans. This can be beneficial because one large loan can mean cheaper monthly payments and a lower interest rate.

You can also try to create some extra cash to pay your mortgage from assets, selling things you no longer need or can do without, redeeming of shares and insurance policies. It is often worth cashing in on an investment that is growing slower than your debt, once your debt is under control you can start to save again.

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