Mortgage debts are one of the most tricky types of debt to resolve when finances become tight. Being a secured debt the risk of foreclosure is high if debts are not repaid. Refinancing may not be an option if the homeowner is already in default and loan modifications can be hard to come by. When a short sale hasn’t been effective or is no longer an option, there is one last solution for resolving mortgage debts outside of foreclosure.
A Last Resort
A deed in lieu of foreclosure is the last remaining option for managing mortgage debts without ending up in foreclosure. In this transaction, the homeowner voluntarily gives up ownership of the home to the bank in exchange for being released from responsibility of the mortgage debt. In other words, the homeowner signs over the deed to the lender and is able to walk away without having to repay the mortgage loan.
Qualifying for a deed in lieu is not always easy, as most lenders will require other measures be taken prior to accepting a deed in lieu offer. However, a borrower who has proven financial insolvency and is willing to vacate the home may be eligible to avoid foreclosure through a deed in lieu. Although leaving one’s home is never an option of choice it is far better than allowing the home to enter foreclosure and suffering the stigma and credit damaged associated with that process.