Before you consent to do a deed in lieu of foreclosure with your lender, it is best to first know what options you have as a homeowner to stop foreclosure. It is also best to consider if doing a deed in lieu will give you the benefits you desire, or give you consequences that you later regret.
If you are facing foreclosure, then you are probably wondering what a deed in lieu of foreclosure is and how it could possible benefit you. A deed is a piece of paper that is publicly recorded document that says who owns real property (real estate). When you bought your house, a deed was signed from the previous owners stating that they sold the house to you. So when you offer a deed in lieu of foreclosure, it means that you as the homeowner will sign over the deed to the lender voluntarily. This gives the lender ownership of your house and once they own the house, then they can skip the foreclosure process and evict you.
Why would a homeowner want to do this? Most people assume that if they give the deed to the lender then the lender will forgive them of the entire loaned amount, or mortgage, on the property and call it even. Some believe that this will be better for their credit and others believe that it will prevent a deficiency judgment. NONE of these beliefs are necessarily true.
If you give the deed to the lender and perform a deed in lieu of foreclosure, it stops the foreclosure. But stopping the foreclosure in this manner doesn’t mean that the lender will forgive you of what you owe. They can still go and sell your house for whatever amount they can get out of it and then come after you for the remaining balance.
To further clear up the clutter of deception here, you aren’t doing yourself any favors in terms of salvaging your credit score. By the time the lender will accept a deed in lieu of foreclosure, you will have missed several payments, and the damage is done. A deed in lieu is still a foreclosure type situation and even though you gave the deed back willingly, it doesn’t erase the fact that you couldn’t make your payments and the lender had to come after you – it all shows up on your credit report.
There are many creative ways to stop and avoid foreclosure besides a deed in lieu. It is well worth the time to investigate these options BEFORE you firmly decide to give the deed back. There are other options that can keep you in your home and salvage your credit.