Posted on: 10th Apr, 2004 03:58am
If you can't keep up with the monthly payments on your mortgage and want to stop a foreclosure on your home, you should consider going for a deed in lieu. To find out what deed in lieu is all about, and whether there's a better alternative, check out the topics below.
- What is a deed in lieu?
- How does deed in lieu work?
- What are the tax consequences?
- What are the other benefits of deed in lieu of foreclosure?
- Is loan modification better than deed in lieu?
What is a deed in lieu?
A deed in lieu of foreclosure is where you deed your property to the lender in exchange for being forgiven the entire amount of the mortgage. The lender then sells off the property in order to retrieve as much of the unpaid mortgage amount as they can.
How does a deed in lieu work?
If you choose to try for a deed in lieu in order to avoid foreclosure, you need to sign several legal documents such as the Agreement in Lieu of Foreclosure and a deed. The first document sets out the terms and conditions of the deed-in-lieu, and is signed by both the lender and borrower. The second document, which is the deed, conveys legal ownership of the property to the lender.
The lender marks the borrower's note as "paid" and provides the borrower with two documents - one which states that the debt is canceled and the other waives the lender's right to a deficiency judgment (the lender's right to ask for the amount of the debt they are unable to recover from the sale of the home).
This agreement is executed through an escrow company which receives the borrower's note (marked as "paid") from the lender. The escrow then records the deed in the property's file at the county recorder's office and sends the note to the borrower, releasing the borrower from all obligations under the mortgage.
The lender marks the borrower's note as "paid" and provides the borrower with two documents - one which states that the debt is canceled and the other waives the lender's right to a deficiency judgment (the lender's right to ask for the amount of the debt they are unable to recover from the sale of the home).
This agreement is executed through an escrow company which receives the borrower's note (marked as "paid") from the lender. The escrow then records the deed in the property's file at the county recorder's office and sends the note to the borrower, releasing the borrower from all obligations under the mortgage.
What are the tax consequences?
When you go for deed in lieu, you may have to pay 2 types of taxes. They are:
- Deed tax: Since this deed involves the transfer of property, the borrower may need to pay a state deed tax on conveyance of property to the lender. The deed tax is $1.65 if there is no consideration, or when consideration is $500 or less.
The tax is calculated on the difference between the fair market value of your property and your mortgage balance plus any liens removed from the property due to the deed in lieu. - Income tax on canceled debt: Under the Mortgage Debt Forgiveness Tax Relief Act (applicable till the end of 2012), you need not pay any income tax on canceled debt (unpaid loan balance which is forgiven by lender) resulting from a deed in lieu. However, a borrower will need to satisfy certain conditions for mortgage tax relief.
What are the other benefits of deed in lieu of foreclosure?
Other than the tax benefits, this mortgage process offers some other benefits to the borrowers as well as the lenders. Some of these benefits are-
- It helps you avoid foreclosure. Foreclosure has serious negative consequences on your finances. Again, lenders also try to avoid foreclosure as it is time-taking and very complicated too.
- Once the deed gets transferred through this legal process, there are no chances of your property going into sheriff sale. There are also no chances to initiate eviction process against you.
- Here the lender is bound to accept your property as payment in full. So, no deficiency judgment can be imposed upon you.
Is loan modification better than deed in lieu?
Mortgage loan modification is a better option than deed in lieu of foreclosure because it helps you keep your home. At the same time, you can save your credit scores from taking a big hit. That's because loan modification allows you to negotiate a lower interest rate and monthly payment on your mortgage.
If you have missed payments, they can be added to your principal balance and the term extended so that your monthly payments become affordable. So, loan modification is a better choice.
However, if you don't have sufficient income to meet your monthly payments, you won't be approved for loan modification. If this is the case, a deed in lieu may be your only choice to prevent foreclosure if your lender agrees.
If you have missed payments, they can be added to your principal balance and the term extended so that your monthly payments become affordable. So, loan modification is a better choice.
However, if you don't have sufficient income to meet your monthly payments, you won't be approved for loan modification. If this is the case, a deed in lieu may be your only choice to prevent foreclosure if your lender agrees.
when should you do a deed in lieu instead of foreclosure? On my foreclosure "all decrepencies are waived" would this be true with a deed in lieu?
No that is not correct a short sale has less of an affect on your credit. They both will take some considerable time; however, hang in there we are here to walk you through the process.
Hi Saundra,
The deed in lieu has greater negative impact on the credit score, though you can avoid paying the deficiency. Know more on credit effect of deed in lieu .
Thanks.
The deed in lieu has greater negative impact on the credit score, though you can avoid paying the deficiency. Know more on credit effect of deed in lieu .
Thanks.
hi
mu wise and me refinance our house the last december
since then things been change in our lives
i wanted to sale my house but because she is in the title i can not put it
in the market without her consent, she abandoned me and i do not know for how long. (she does not want to sale)
i was thinking that the only way is to apply for deed-in-liu.
my question is: in this case do i need her consent to apply for dee in liu
thank you
bernardo
mu wise and me refinance our house the last december
since then things been change in our lives
i wanted to sale my house but because she is in the title i can not put it
in the market without her consent, she abandoned me and i do not know for how long. (she does not want to sale)
i was thinking that the only way is to apply for deed-in-liu.
my question is: in this case do i need her consent to apply for dee in liu
thank you
bernardo
Welcome Bernardo.
As your wife is also an owner of the property, you should take her consent to go for the deed in lieu of foreclosure. Is she also on the mortgage too? Who is making the monthly mortgage payments?
As your wife is also an owner of the property, you should take her consent to go for the deed in lieu of foreclosure. Is she also on the mortgage too? Who is making the monthly mortgage payments?
Welcome Bernardo.
Sorry to hear about your unfortunate situation. If your wife is on the title then you will not be able to do anything without her consent. In addition, she will have to sign for any type of transaction and/or transfer of interest in the property.
Even with a deed in lieu she would have to sign her interest over to the mortgage company.
Is their any way for you to get in touch with you wife?
Sorry to hear about your unfortunate situation. If your wife is on the title then you will not be able to do anything without her consent. In addition, she will have to sign for any type of transaction and/or transfer of interest in the property.
Even with a deed in lieu she would have to sign her interest over to the mortgage company.
Is their any way for you to get in touch with you wife?
Hi,
I recenlty lost my job, and my husband's paycheck isn't enough to pay our mortage payment. I am currently two months behind on my mortage payment.
My house is on the market as a short sale and I have a couple of offers. My bank is reviewing these offers, but it may take two more months for them to respond if they accept any of the offers.
My bank has told me that if I am three months behind on my mortage I can do a deed in lieu of foreclosure.
My question is what affects my credit score more:
a deed in lieu of foreclosure
or
being six months late on my mortage and short selling my home?
My husband and I want to to get out of this ASAP so we can start rebuilding our credit and get another home that we can afford only with his income.
I recenlty lost my job, and my husband's paycheck isn't enough to pay our mortage payment. I am currently two months behind on my mortage payment.
My house is on the market as a short sale and I have a couple of offers. My bank is reviewing these offers, but it may take two more months for them to respond if they accept any of the offers.
My bank has told me that if I am three months behind on my mortage I can do a deed in lieu of foreclosure.
My question is what affects my credit score more:
a deed in lieu of foreclosure
or
being six months late on my mortage and short selling my home?
My husband and I want to to get out of this ASAP so we can start rebuilding our credit and get another home that we can afford only with his income.
Hi Xochitl,
Welcome to forums.
A deed-in-lieu affects the credit score more than 6 months late and short sale. The bank may have suggested a deed in lieu if you're 3 months behind. But it's only verbally said. So, I think you try out with short sale first in case you get a good offer. How's the market like there in your county?
I'm suggesting a short sale as because I feel it's going to hurt your credit less than deed in lieu. However, if you go for the second option, you may be able to avoid paying any deficiency as such. It depends on you as to which one you'll choose since you are considering repairing your credit in order to buy another home.
Check out for more on how short sale and deed in lieu affects credit .
Thanks
Welcome to forums.
A deed-in-lieu affects the credit score more than 6 months late and short sale. The bank may have suggested a deed in lieu if you're 3 months behind. But it's only verbally said. So, I think you try out with short sale first in case you get a good offer. How's the market like there in your county?
I'm suggesting a short sale as because I feel it's going to hurt your credit less than deed in lieu. However, if you go for the second option, you may be able to avoid paying any deficiency as such. It depends on you as to which one you'll choose since you are considering repairing your credit in order to buy another home.
Check out for more on how short sale and deed in lieu affects credit .
Thanks
Our client filed a "Warranty Deed in Lieu of Foreclosure" before we got a lien filed on the property for the engineering we did on the property. Since it is now under someone else's name,is it too late to file a lien on the property?
Hi Guest. Welcome to the forum.
Your client is not the owner of the property now? He has given the property back to the bank. So you cannot put a lien now on that property. But you can ask him to pay if he owes money to you. How much does he owe to you?
Best of luck,
Larry
Your client is not the owner of the property now? He has given the property back to the bank. So you cannot put a lien now on that property. But you can ask him to pay if he owes money to you. How much does he owe to you?
Best of luck,
Larry
I am involved in a short sale with my lender who stated the process would take less than 30 days. It is now 4 months later and I STILL have no response. I just lost my buyer. Based on their neglegence, do you think I have valid justification for asking for a Deed in Lieu of foreclosure and do you believe this is the right way to go for me and my future credit score?
Hi Sandy,
Welcome to the forums.
I guess you will be justified if you ask for a deed in lieu because the lender hasn't even stated why they're late in carrying out the short sale. And you've even lost the buyer. But frankly speaking it's what you know; you can't give them this explanation that you've lost the buyer because they delayed. I mean they won't listen. So, it's better that you call them up asap and simply ask them how long they'll be taking or what plans they have for you?
Obviously if you go for deed-in-lieu, it will affect your score even more than a short sale does. Know about credit effects of dil and short sale . But I don't think the lender wants you to avail a repayment plan or some other option that can help you keep the home. So, I guess a deed in lieu will be ok for you considering the fact that you can avoid paying the deficiency, if any.
take care
Welcome to the forums.
I guess you will be justified if you ask for a deed in lieu because the lender hasn't even stated why they're late in carrying out the short sale. And you've even lost the buyer. But frankly speaking it's what you know; you can't give them this explanation that you've lost the buyer because they delayed. I mean they won't listen. So, it's better that you call them up asap and simply ask them how long they'll be taking or what plans they have for you?
Obviously if you go for deed-in-lieu, it will affect your score even more than a short sale does. Know about credit effects of dil and short sale . But I don't think the lender wants you to avail a repayment plan or some other option that can help you keep the home. So, I guess a deed in lieu will be ok for you considering the fact that you can avoid paying the deficiency, if any.
take care
i have an investment property in las vegas. i havent been able to make the last 2 month of payments and i am considering foreclosing, since i havent been able to figure out what to do. Is there any hope for me? what else can i do. I just don't want to loose my excellent credit score. Please help!
In Michigan, my understanding is that a borrower has up to 12 months before he can be evicted from a home that has gone to foreclosure (and he also has the same 12 months in which to redeem the property). If he surrenders the house to the bank, does he still have the 12 months available to him? Especially as it pertains to the eviction process.
I am currently paying a mortgage of $1914.00. $1100 is P&I, $500 is PMI and the remainder is taxes &insurance. The PMI is making this loan difficult to keep paying. I want to see if my lender will work with me to "lower" the PMI portion of this loan so that I don't default. Has anyone heard of this being done? And no I have not reached the 20% required to cancel the PMI. Thanks