When reviewing options to avoid foreclosure, there are many things to consider. Each option comes with different benefits and risks that could impact your financial future and likelihood of ever obtaining a mortgage loan again. Further, there are very different qualification standards for loan modifications, short sales and deed in lieu transactions. While a deed in lieu is not the most sought after option, it can be the most fragile transaction in terms of foreclosure alternatives.
When pursuing a deed in lieu transaction, it is safe to assume that the debtor has exhausted all other avenues. In fact, most lenders won’t even consider a deed in lieu until the debtor has at least tried to resolve their mortgage debts in other ways. However, there are three main benefits associated with a deed in lieu transaction. First, the debtor can be resolved of liability over the mortgage debts fairly quickly and easily. Next, a deed in lieu of foreclosure is not reported on public record and may not even be reflected on some credit reports. Finally, a deed in lieu can better protect the debtor’s credit than a foreclosure and they may be able to secure a new mortgage loan in a few short years.
Unfortunately, the deed in lieu process is not as favorable as other mortgage debt relief options. Besides losing the home and moving out, the debtor also faces a few other challenges. First, qualifying for a deed in lieu can be difficult. The lender holds all of the power of approval and the burden of proof falls on the homeowner to prove financial hardship. Next, the home must not be significantly under-valued, possess more than one lien or have negative equity. Finally, the homeowner may still be responsible for paying the deficiency balance on the home to cover the expenses the lender faces for selling and closing