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?
if you have two morages on your property and you want to deed in lieu of forclosure which company gets the property? What does the 2nd company get? And is it possible to deed in lieu of forclosure if you have two?
Hi gene,
Redemption period in Michigan is 12 months when a property is foreclosed. But when the homeowner himself surrenders property, which is otherwise known as deed-in-lieu, then there's no redemption period as such and he cannot redeem the property.
"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 "It's not that a person can be evicted from home within 12 months after foreclosure is declared. He will be evicted within a few days of the foreclosure sale auction wherein property is sold off to a buyer. Redemption implies that the person has 12 months in Michigan in order to purchase the property back from the buyer.
Hope this helps...
God bless you.
Samantha
Redemption period in Michigan is 12 months when a property is foreclosed. But when the homeowner himself surrenders property, which is otherwise known as deed-in-lieu, then there's no redemption period as such and he cannot redeem the property.
"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 "It's not that a person can be evicted from home within 12 months after foreclosure is declared. He will be evicted within a few days of the foreclosure sale auction wherein property is sold off to a buyer. Redemption implies that the person has 12 months in Michigan in order to purchase the property back from the buyer.
Hope this helps...
God bless you.
Samantha
hi gayletoo,
since you haven't reached the 20% equity, you can't cancel the pmi. so, the lender will probably ask you to refinance in order to offer you a new deal and a nw pmi payment. know more about refinance from the refinance faqs section .
good luck
since you haven't reached the 20% equity, you can't cancel the pmi. so, the lender will probably ask you to refinance in order to offer you a new deal and a nw pmi payment. know more about refinance from the refinance faqs section .
good luck
I am currently 4 months behind with my mortg payments held by countrywide. I am not sure what my best options are since I will not be able to get current and thus far have not been able to sell the unit. I am looking for more advice on this situation as there are more details that might complicate the issue...THANKS IN ADVANCE!!! Derrick 646-372-6046
Hi DAE.
Welcome to the forum. You should contact the lender ASAP and let him know the situation that you are presently facing. You can request the lender for loan modification or forbearance. BTW if you cannot afford any of these options then you can sell out the property and pay off the lender. There are also other options too to avoid foreclosure. Please take a look at the article 17 ways to protect yourself from the foreclosure trap
Feel free to ask if you have any further questions.
Best of luck,
Larry
Welcome to the forum. You should contact the lender ASAP and let him know the situation that you are presently facing. You can request the lender for loan modification or forbearance. BTW if you cannot afford any of these options then you can sell out the property and pay off the lender. There are also other options too to avoid foreclosure. Please take a look at the article 17 ways to protect yourself from the foreclosure trap
Feel free to ask if you have any further questions.
Best of luck,
Larry
My ex husband gave me private mortgage that was originally intended never to be paid back. He did not give it outright to me to avoid paying gift taxes. We were in the process of finding a best solution for this in case that one of us passed away. We wanted to make sure that the other person will get it. Unfortunately he passed away unexpectedly of food poisoning and his last day in the hospital he gave me a mortgage note and all the papers. Do I have any right to this property?
Thank you very much.
Thank you very much.
Hello Stefi.
Welcome to the forums.
Did your husband given the papers to you or he has signed the papers to your name? If he has signed the papers to you then you should be the owner of the property. If not then you should contact to an attorney as this things may get ugly.
Welcome to the forums.
Did your husband given the papers to you or he has signed the papers to your name? If he has signed the papers to you then you should be the owner of the property. If not then you should contact to an attorney as this things may get ugly.
Do you reccomend people who are behind on their mortgage to work with a Loss Mitigation company? They negotiate with the mortgage lender on a program that is more affordable for the homeowner. Any thoughts?
Foreclosurelight Loss Mitigation LLC
Foreclosurelight Loss Mitigation LLC
Welcome Guest.
Whenever you are facing problem contact the Loss Mitigation department of the mortgage company so that you can inform the Loss Mitigation department your problem and work out some agreement to avoid foreclosure. By the way, what do you want to means by "Foreclosurelight Loss Mitigation LLC"?
Whenever you are facing problem contact the Loss Mitigation department of the mortgage company so that you can inform the Loss Mitigation department your problem and work out some agreement to avoid foreclosure. By the way, what do you want to means by "Foreclosurelight Loss Mitigation LLC"?
I am not sure what to do. I live in florida and just got served a claim (or complaint from the lender) I have a week left to file a response to my county court. I think given my current situation a deed of lieu is my only option. Reserching the internet I have been in contact with a firm called The Debt Advocacy Center. They sell you the use of negotiating agressively claiming lenders used predatory tactics to negotiate a favorable outcome. In this case a Deed in Lieu with no deficiency Judgement. There might even be a small chance that they can erase all negative credit reports even though they say this is the best case scenarion and that I should not be expecting it. They haven't discused there fees yet, but in researching with the BBB found out as an example that for a loan anount of $100K thre fee is $2K - my loan amount in two mortgages (80/20) is $200K so I am assuming it would cost me $4K. They got me all scared thinking that I can't talk to my lender and get the same results myself especially the no deficiency judgment. Are they just full of crap?...If I get a deed of lieu do I automatically get a no deficiency judgement? Is it worth the peace of mind and pay this firm this kind of money to take care of this?
Hi robertoacenturion,
Welcome to our forums.
What I've understood from your post is that, the company, Debt Advocacy Center is offering to negotiate with your lender on your behalf so that you don't have to pay deficiency if you go for a deed-in-lieu. But the fact remains that you needn't pay any deficiency if it's a deed in lieu. This is in accordance with the laws in most states. So, I personally feel you need not sign a deal with this company. Rather, try and negotiate yourself if at all your lender demands a deed-in-lieu.
Wish you good luck
Welcome to our forums.
What I've understood from your post is that, the company, Debt Advocacy Center is offering to negotiate with your lender on your behalf so that you don't have to pay deficiency if you go for a deed-in-lieu. But the fact remains that you needn't pay any deficiency if it's a deed in lieu. This is in accordance with the laws in most states. So, I personally feel you need not sign a deal with this company. Rather, try and negotiate yourself if at all your lender demands a deed-in-lieu.
Wish you good luck
Thank you for responding. Is Florida one of the states that you don't have to pay the deficiency if you get a Deed in Lieu?
Welcome back Roberto.
Florida is a deficiency judgment state. But if the mortgage conpany accepts the deed in lieu of foreclosure then they will not seek the deficiency judgment.
Florida is a deficiency judgment state. But if the mortgage conpany accepts the deed in lieu of foreclosure then they will not seek the deficiency judgment.
My parents bought a home in P.A. 3 years ago. Commuting back and forth to N.J. 5 days a week and spending more than $700 in gas a month, not including other bills. They counted up all their bills and their monthly bills exceeded their income by 3 times. We were advised by a realtor and a banker to go through with Foreclosure. We've since moved out of the home and live in N.J.. We have a FHA loan on the home we left. Today I was told by our lender's Home Owners Assistance to send a letter for Deed in Lieu of Foreclosure. What should I put in the letter? What are the laws in P.A. when it comes to Deed In Lieu of Foreclosure? Will my parents still be held liable for the mortgage?? PLEASE HELP!!! YOU CAN EMAIL ME AT "EROXXZY4@HOTMAIL.COM"
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