How a Deed in Lieu of Foreclosure Can Help Save Your House (and Your Credit)
A Deed is where the mortgage lender takes all the interest in the property instead of foreclosure, where the title is actually transferred, and where outstanding debts that drive the foreclosure are paid off.
Instead of foreclosure, the act of giving the deed is one step better than assigning the property as collateral, as it gives the lender’s possession. That’s a big move, but if you’re in foreclosure, there’s no question of losing your house.
Alternating to the issues going forward with a foreclosure, the advantages that you might want to think about are:
- The public embarrassment of going through a foreclosure is not there.
- You will keep a significant part of your credit rating.
- You may be able to negotiate better terms for cancelling the debt than going through foreclosure
- You will be able to get rid of all your personal debt connected with the property mortgage.
- The strategy is much more efficient than going through a foreclosure.
- With terms that you can afford, you can lease back the property from the lender, the new owner, and keep a roof over your family’s head for up to one year.
- To help with your relocation, you may be eligible for a one-time moving assistance payment of up to $3,000.
- After two years, instead of having to wait seven years if you go through a foreclosure, you will be able to apply for a new mortgage with Fannie May.
Consequences of a Deed in Foreclosure Place
Let’s be clear; the transfer of the deed to the lender to your property transfers all rights of possession. You won’t own your house anymore, but you will lose it to foreclosure. Yet you will be much better off negotiating a termination of a deed instead of eviction, rather than getting the matter worked out in the foreclosure court.
There are a number of websites that can provide information on the method of giving a Deed in lieu of foreclosure, and one that may be of interest by clicking here is Fannie May, “Know Your Choices. The question is, are you ready for it?
Are you at the end of your rope now, and you have no more choices available? Did you try to refinance, sell your mortgage, or sell your house for a short time, and nothing worked? And is there a foreclosure just around the corner? Instead of foreclosure, you are ready to look at the possibility of getting out of this mess by negotiating the transfer of the Deed.
A Short Sale mentioned above is an option. It may be an additional option where, as a pre-sale to foreclosure, you may be willing to work with the lender to take the time to sell the home for what is left on the mortgage. This can work where it is appropriate to sell your home for less than the remaining mortgage sum, and the proceeds go to pay down your debt.
For each short sale, terms vary, but it is a choice to negotiate with your lender, and more detail is available on the U.S. Government Housing and Urban Development, accessible by clicking here.
Talk to Your Lender
You have to work with your lender to get to your goal, and don’t be shy. There are also advantages for your lender to consider your choices with you.
Note of Caution. There are individuals out there who will want to try to take advantage of you in this emotional situation, so beware of the scammers on this planet. If anyone offers you something that seems too good to be true, then it’s probably is. Do not deal with others, unless they:
- Telling you to do anything that could be illegal, such as stop making payments.
- Telling you to transfer your deed over to them, as it will help them take care of everything for you.
- Telling you to send payments to them
There are legitimate programs out there, and only be mindful of what can be done to you by the bad ones. And there’s nothing they’ll do for you.
The Method With Your Lender
Both you and your lender must voluntarily enter into discussions, and your lender can take some cautionary approaches to ensure that you are fully informed and that you are actually voluntarily entering into the discussions.
Your lender will be able to assist in assessing your eligibility, which involves valuing your house, and evaluating all your options for a mortgage release once prior confirmation of voluntarily starting the process.
There are a few choices available as to what you can do, once you have qualified. You can opt to leave immediately, you may remain free of charge in the home for three months, or you might choose to offer a lease back for up to one year. Although not long-term solutions, the purpose of the last two will provide you with some breathing room to get your life and the life of your family in order.
The whole process will take about 90 days, and the house must be in good condition when you leave, and you could be eligible for up to $3,000 to help with moving expenses. Don’t be scared to inquire.
Implications Of Tax
Death and taxes are the two things we can all be certain of. And in the case of a Deed in lieu of foreclosure or a short sale, there may be tax consequences to you receiving a financial benefit of the difference between your remaining mortgage amount and the sale amount from the transaction. Please bear this in mind, it would be possible for your lender or other trained tax professionals to help you
To get out of a mortgage with dignity and then be saddled with tax debt is the last thing everyone wants.
One of the most difficult things you may have to face is foreclosure. You are not alone, and you might have choices, such as the transfer of your Deed in lieu of foreclosure.
Talk and be transparent with your lender, and see if you can make the best arrangements for you and your family. In the end, what you do is up to you, beware of scams.
When you’re ready to move forward with selling your house, we’re here to help. Contact us any time at (772) 732-2797