By Simon Volkov

Mortgage lenders sometimes offer deed in lieu to borrowers that can no longer afford home loan payments. Instead of proceeding with the foreclosure process, banks let homeowners return the property and walk away. Homeowners forfeit their rights to any proceeds obtained through the sale, along with all funds invested into the property.

Technically, deed in lieu does not prevent foreclosure. Instead, it spares homeowners from the stress of appearing in court or having the bank repossess their home. Banks save the expense of court costs and legal fees.

While it is never easy to give up your home, deed in lieu can make the process a little less painful. Homeowners should enter into credit repair strategies soon after the deed is transferred to the bank.

Deed in lieu is still considered foreclosure amongst credit bureaus. Homeowners are likely to experience a 100-point reduction of their FICO score. Foreclosure is reflected on credit reports for 10 years and prohibits homeowners from obtaining credit for at least 2 to 3 years.

A very important consideration of deed in lieu is whether or not the lender holds homeowners responsible for deficiency amounts. Currently, the government sponsors home saving programs that offer foreclosure alternatives of deed in lieu and real estate short sales. These include: Making Home Affordable, Florida Hardest-Hit Fund, and Keep Your Home California.

Homeowners who enter into deed in lieu through government sponsored programs are not held responsible for deficiencies. In fact, these programs provide relocation assistance funds to qualified applicants.

All other homeowners may find it beneficial to hire a lawyer to negotiate a ‘Payment in Full without Pursuit of Deficiency Judgment’ with their lender. This releases them from the financial obligation if the bank sells the property for less than the balance owed.

Deficiencies often amount to several thousand dollars and can take years to repay. If banks issue deficiency judgments they are reflected in credit reports for up to 10 years after the debt is fully paid. Banks can engage in collection actions including wage garnishment if borrowers do not enter into or comply with payment arrangements.

Homeowners are required to meet eligibility requirements before lenders offer deed in lieu. The financed property must be used as the homeowner’s primary residence. Homeowners cannot vacate the premises or leave the house empty during negotiation with their lender.

Loan payments must be at least 31 days past due before banks will consider deed in lieu. There must be extenuating circumstances that caused financial hardship such as long-term unemployment, death of a spouse, or divorce. Homeowners cannot possess assets that could be sold to cure mortgage arrears. Additionally, the property cannot be in foreclosure.

To determine if deed in lieu is an option, homeowners must contact their lender’s loss mitigation department. Loss mitigators do not make final decisions, but instead gather information which is provided to bank management.

Deed in lieu is generally offered as a last resort. Once completed, banks take immediate possession, so homeowners must be prepared to vacate the premises once the contract is signed.

While deed in lieu may sound like the perfect solution, it’s important to weigh the pros and cons and calculate the true costs. HUD offers complimentary housing counseling to help homeowners determine if this strategy is in their best interest or if other options exist that could minimize credit damage or prevent loss of property.

About the Author: Simon Volkov is a California real estate investor who specializes in buying and selling distressed properties. He provides an exclusive foreclosure prevention article library covering topics of loan modification, mortgage refinance,

deed in lieu

, and real estate short sales at

SimonVolkov.com

.

Source:

isnare.com

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