To avoid the foreclosure process, a borrower may choose to offer a deed in lieu of foreclosure to the bank - forfeiting all their rights to the property and, at the same time, canceling all debt owed to that bank on the property.
A deed in lieu is one of the last resorts a borrower should consider; only after all other options have been exhausted.
Consider first the following possibilities before offering the deed to your home: 1.
A REINSTATEMENT of your existing loan (see related article) 2.
A FORBEARANCE agreement (see related article) 3.
A LOAN MODIFICATION (see related article) 4.
A personal loan from a friend or family member (if for a short term & you can repay) 5.
Draw from existing assets (sell something of value; borrow from life ins.
, etc.
) 6.
Consider a second mortgage or home equity line - be very careful here!!! (Use only if your current financial state is guaranteed to be temporary and you know you can easily afford two mortgages in the very near future).
This can be very risky and may even jeopardize your options at a deed in lieu at a later date (see below).
7.
Try reviewing your budget to free up extra money to put towards your mortgage 8.
Consider a second job 9.
Try to sell your home on your own first, especially if you have significant equity built up Do all you can to stay in your home before deciding to simply hand over your property to the bank.
With all this said, if you simply can't pay your monthly mortgage payments any longer and have truly exhausted all the options available to you, then a deed in lieu of foreclosure could be the next best step for you.
As the borrower, a deed in lieu will bring instant relief of your indebtedness.
It will also come with the instant release from all foreclosure proceedings.
The endless creditor calls will cease.
A "foreclosure" will not appear on your credit report.
The deed in lieu agreement will still appear as a negative on your credit report, but is not as devastating as a foreclosure.
The acceptance of this agreement by the lender is very advantageous for them as well.
They will save a great deal of money over the expensive process of foreclosing on a property.
A deed in lieu can be completed in a very short time frame when compared to a foreclosure that can sometimes literally take years.
The angrier a borrower is with his lender, especially if the lender would not work with him at all, the greater the bank's risk for homeowner revenge on the property.
The lender does not want to "inherit" a property that has been destroyed by the previous homeowner.
Again their costs go up significantly.
If the borrower abandons the property, even in pristine condition, the bank runs the risk of vandals destroying the property or squatters enjoying free shelter from the elements.
Obviously these people will not be interested in taking care of the property.
A deed in lieu can be a great compromise for both parties.
The bank may only consider this arrangement, however, if the property has no other liens against it, such as tax liens, judgments imposed by creditors you owe money to, second mortgages, equity lines of credit, or even contractor liens.
They need to have clear title when taking over the property.
They may negotiate some of these liens for you and you may need to resolve some yourself in order for a deed in lieu to be feasible for both parties.
A bank will not be as interested in a deed in lieu if your mortgage with them is higher than the property is currently worth.
This is the very unfortunate situation many homeowners find themselves in today.
Many banks may be willing to proceed anyway since they will probably end up with the property one way or the other and this is their least expensive, least time consuming, and least risky way of acquiring your home.
There are some real disadvantages to a deed in lieu of foreclosure.
The most obvious is the loss of your permanent residence.
Your credit will be negatively impacted, making it more difficult to buy another home, rent a place, establish any additional credit, and may even affect your future job applications (remember, it's not as detrimental as a foreclosure, though).
You may also lose a substantial amount of established equity.
While a deed in lieu is a viable option to your current mortgage challenge, be sure to carefully consider all other possibilities before signing over your home to anyone.