For those facing overwhelming debt that’s affecting their ability to make their mortgage payments, the fear of losing their home to foreclosure can loom large. There are potential options that can help homeowners avoid foreclosure.
Lenders would rather not foreclose on a home unless that’s the best chance they have of getting the money that’s owed them. That’s why they may agree to a loan modification or, depending on where interest rates stand, a refinance. Both of these still require the borrower to make regular payments each month.
If the lender isn’t able to reach an agreement with the homeowner that would make one of these options worthwhile for them, there’s another option besides foreclosure. It’s called a “deed in lieu of foreclosure” or just “deed in lieu.”
With a deed in lieu, the homeowner transfers the home’s deed to the lender. This makes the lender the owner of the home and relieves the homeowner of the mortgage debt. They will likely need to find another home because the lender will want to sell it. However, sometimes, lenders and homeowners work out an agreement where they can remain in the home while it’s on the market.
Deed in lieu vs. foreclosure
How is a deed in lieu preferable to foreclosure? There are a few key advantages.
- A deed in lieu remains on a person’s credit report for less time than a foreclosure (typically four years as opposed to seven with foreclosure).
- A homeowner can avoid the fines and fees typically assessed by lenders for a foreclosure.
- A deed in lieu lets homeowners avoid the embarrassment of having their home publicly listed as “in foreclosure.”
A deed in lieu is typically easier to get if the home is in good condition and doesn’t require the lender to invest money and time on repairs, refurbishment and clean-up. Lenders are also less likely to accept a deed if there are any liens on the property.
Determining what to do with the home can be one of the most challenging parts of getting out from under overwhelming debt – whether you ultimately file for bankruptcy or not. It can help to have solid legal guidance to help make the best decisions for yourself and your family.