When facing foreclosure there are several options to consider. For those who are unable to secure a loan modification or refinancing agreement, and would prefer to stay out of bankruptcy; a deed in lieu of foreclosure can be a viable option. However, it comes with some additional considerations that all homeowners should review before pursuing a deed in lieu option.
A deed in lieu of foreclosure can be a relatively quick and easy process, by which one can resolve their mortgage trouble by simply giving their property back to the lender. Essentially, a homeowner could be out from under their mortgage debt within a period of a few weeks, with little effort on their part. Unlike a short sale or loan modification, a deed in lieu allows a homeowner to walk away from their mortgage and debt without having to negotiate much in terms of an agreement. A deed in lieu of foreclosure can also protect the homeowners credit and borrowing status more so than a foreclosure.
Although a deed in lieu is a better option than entering foreclosure, it can have some negative impact on the borrower’s credit. A deed in lieu is generally only granted once the borrower defaults on the mortgage and displays inability to maintain the mortgage payments, which causes some credit damage. However, unlike a foreclosure, a deed in lieu will have less negative impact due to the ability to resolve mortgage debts quicker with fewer missed payments. A deed in lieu may also require that the borrower pay the deficiency balance on the home, or the difference between what was owed on the home and what the lender sold the home for. In some cases, the lender may waive the deficiency balance requirement, but the borrower would then be responsible for paying taxes on the deficiency forgiveness.