Information on a Deed in lieu of foreclosure.
Another option to consider is a deed in lieu of foreclosure. This is when a homeowner will sign a deed that gives the property back to the bank in return for the lender stopping the foreclosure process. In addition, in almost all cases the lender will cancel any outstanding debts or mortgage loans that the borrower owes as well as eliminate any fees that are due on the account. The deed in lieu will provide mortgage help to struggling homeowners and provide them the means to get back on track with their lives.
What is a deed in lieu of foreclosure?
This is when the homeowner give the home or property back to the bank, lender, or the party who holds the mortgage. While some people may ask, why would I ever do this, the fact is that there are some pros to considering this option. When all else fails, this is often an approach to consider when the homeowner just can’t pay the mortgage anymore. It is often better to do this then go through a formal foreclosure proceeding in which the family may lose their home anyway.
After the lender takes back the home, they can decide to do what they want with it as they will own it at that point. In most cases the lender or bank that repossesses the home will proceed to sell the property in order to pay off the loan. However in some cases the bank may rent the property back to the family as part of the deed in lieu of foreclosure process. The pro here is that the family still has a place to live, even though they will need to in effect lease it and pay rent.
In addition, if the home value has declined to less than what the property can be sold for, the lender often will agree to forgive any deficiency that remains after the house is sold. Last but not least, the lender will also stop any foreclosure filings that may have started or that they were planning to initiate.
Pros of a deed in lieu of foreclosure
There are additional advantages and pros for both the lender and the homeowner. The number one advantage to the borrower is that it will release them from most or all of the financial obligations that they may have on the existing loan. So by going down this path it will resolve their personal indebtedness that is associated with the defaulted loan.
In addition, another pro of a deed in lieu of foreclosure is that the borrowers credit ratings and scores will be hurt much less than it would if the person were to lose the home to an official foreclosure procedure. This will help them avoid long term hardships, as it can be difficult to get back on track when someone has a poor credit score.
Yet another benefit that will result from a deed in lieu is that the borrower will also avoid the stress and the public notoriety of a foreclosure proceeding and they will usually may receive more generous terms from the court system as well as the lender than they would in a formal foreclosure filing. The approach is much less combative.
Last, but not least, another advantage is that, unlike in the short sale situation, you do not need to take responsibility, and incur the stress and expense, for selling your house as the lender will do this. Deed in lieu have many advantages, and homeowners should strongly consider them. But if they do not think it works, then they can always look into loan modifications and other programs, in order to get help.
Banks as well as lenders also have incentives to offer this foreclosure and mortgage assistance option to struggling homeowners and to follow through with it as well. Some of the biggest advantages and pros that a lender will have revolve around the reduction of risk and associated expenses that they will experience. For example, maybe the biggest advantage to a bank includes a reduction in the cost that they will no longer need to incur from a foreclosure filing.
They will have less expense as it will be less time for them to repossess the house. Taking over the house sooner, and working with and helping the homeowner should greatly lower risk of “borrower revenge” or the family damaging the home. For example, unfortunately many borrowers will vandalize their own home right after or before they move out. Another pro for the lender is they will have additional advantages if the borrower files for bankruptcy during this process.
Many banks and lenders are offering this option to homeowners. Read more Citi Deed in Lieu of foreclosure program.
What is the impact to my credit rating?
This is another big advantage to the deed in lieu of foreclosure process. The impact to your credit score is much less than if you were to go through the entire foreclosure process and lose your home from that. It is beneficial as it is more of a negotiated settlement then a combative filing in foreclosure court.
A deed in lieu is much better on your credit report than a bankruptcy or foreclosure. To make the impact even less, it is a good idea to negotiate with the lender or bank. So of these companies will be willing to make the approach even less impactful to the borrower. They will often consider requests that will involve them not even putting the deed in lieu on your credit report at all.
If that occurs, your credit score may not be lowered at all, which is another major pro to this type of program. Some lenders and banks are willing to do this, especially if you had very few missed payments or if you have other business relations and accounts with them.