Deed in Lieu of Foreclosure: How the Process Works

Are you a homeowner who is unable to afford your current mortgage payments?  If you are, do you foresee an end to your financial problems anytime in the near future?  If you do not, you may be at risk of losing your home to foreclosure.  For many individuals, the thought of foreclosure is stressful, frustrating, and overwhelming, but there may be an alternative option.  That option is a deed in lieu of foreclosure.

A deed in lieu of foreclosure is when a property owner who still owes money on their mortgages gives the property deed to their financial lender.  Although this process seems simple, there is much more involved than just simply handing over the keys to your home.  For starters, many states have rules and restrictions on the use of deeds in lieu of foreclosures.  This foreclosure alternative will be accepted by many financial lenders, although it is typically not a preferred method of solving the problem.

One of the many reasons why a lender may hesitate to accept a deed in lieu of foreclosure is because of the money lost.  Yes, your financial lender will take steps to resell your home, either independently or with the services of a professional real estate agent, but they may be responsible for transaction fees.  Are there judgments against the property in question or is it used to secure another loan?  If so, these loans will need to be paid by the financial lender agreeing to the deed in lieu of foreclosure.  If your property is loan is judgment free, you stand a higher chance of being offered a deed in lieu of foreclosure.

Speaking of being offered a deed in lieu of foreclosure, there are many financial lenders who will not outright suggest this as an option.  One of the reasons for doing so is uncertainty.  All parties who names appear on the mortgage and property deed must agree to a deed in lieu of foreclosure and they must be certain that they will not change their minds after a period of time.  For that reason and due to uncertainty, it is rare for a financial lender to extend the offer of a deed in lieu of foreclosure; however, that does not mean that an offer will not be accepted.

When inquiring with a financial lender about a deed in lieu of foreclosure, a personal meeting is advised, but a written request is also important and required by many lenders.  This helps to prove borrowers are not pressured into accepting this offer.  In fact, your financial lender may first suggest other alternatives, such as you attempting to sell your property yourself or a foreclosure short sale, which involves the use of a real estate agent hired on behalf of the lender.

As a reminder, if you are in danger of losing your home to foreclosure, consider inquiring about a deed in lieu of foreclosure.  Although you will find some variances, you will find the most success if your home is lien free, clean, in good condition, and unable to sell.