Deed In Lieu of Foreclosure, The Last Resort Loan Modification
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.
Related posts:
- Foreclosure or Bankruptcy, What to Do When Loan Modifications Don’t Work
- What Is A Foreclosure?
- What Is A Loan Modification? The Three Keys To Loan Modification Success
- Foreclosure or Bankruptcy, What to Do When Loan Modifications Don’t Work
- What Is A Foreclosure?
- What Is A Loan Modification? The Three Keys To Loan Modification Success