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?
Is it possible to get a mortgage after you have had a deed in lieu of forclosure?
Hi Maine!
Welcome to forums!
You won't be able to get a mortgage immediately after a deed in lieu of foreclosure. You'll have to wait for 3-4 years in order to qualify for a home loan.
Sussane
Welcome to forums!
You won't be able to get a mortgage immediately after a deed in lieu of foreclosure. You'll have to wait for 3-4 years in order to qualify for a home loan.
Sussane
I am two months behind on my mortgage (it is investment property). I don't qualify for loan modification because it is investment property. What would be my best option deed in lieu or foreclosure? The property has been for sale over 7 months with no offers.
If I do a deed in lieu of foreclosure, will I have to make monthly payments to the mortagage company?
Hi!
Welcome to forums!
To cochar,
In my opinion, deed in lieu of foreclosure is a better option. You should contact your lender and apply for it. It depends upon the lender whether or not he would accept your request. If he accepts it, then you won't have to pay the deficient amount resulting from the sale of the property.
To shirlgs,
If you go for a deed in lieu, the lender will sell off the property and recover his dues. Thus, you won't have to make monthly payments on your mortgage.
Sussane
Welcome to forums!
To cochar,
In my opinion, deed in lieu of foreclosure is a better option. You should contact your lender and apply for it. It depends upon the lender whether or not he would accept your request. If he accepts it, then you won't have to pay the deficient amount resulting from the sale of the property.
To shirlgs,
If you go for a deed in lieu, the lender will sell off the property and recover his dues. Thus, you won't have to make monthly payments on your mortgage.
Sussane
if i read correctly, if you have a second mortgage then yu are still obligated and can not do a deed in lieu?
Hi JCCT,
If you've a second mortgage, you can still apply for a deed in lieu of foreclosure. However, your first lender will include a non-merger clause into the deed in lieu agreement. As per this clause, the second lender will not be able to claim any legal action against the first if the latter does not clear the outstanding debt of the second lender.
Thanks
If you've a second mortgage, you can still apply for a deed in lieu of foreclosure. However, your first lender will include a non-merger clause into the deed in lieu agreement. As per this clause, the second lender will not be able to claim any legal action against the first if the latter does not clear the outstanding debt of the second lender.
Thanks
I am 62 years old. My daughter and son-in-law live out of state. He was recently in an accident and can not work. iIn addition ,I also, have medical conditons which puts stress on my heart which is not functioning due to an irregular heart beat.
I own a house which has been on the market for many months. Nothing is selling in my area.
I want to do a lieu of foreclosure. How do I begin this process and how long does this take?
Thanks!
I own a house which has been on the market for many months. Nothing is selling in my area.
I want to do a lieu of foreclosure. How do I begin this process and how long does this take?
Thanks!
Hi uunhappyinga,
You'll have to inform your lender that you want to go for a deed in lieu by writing a hardship letter to him. Depending upon your letter, the lender will judge your financial situation and will let you know whether or not he would accept your request.
The time taken to complete a deed in lieu of foreclosure may vary from state to state. In most cases, it takes around 90 days to complete the whole process. Once your property is sold off, you won't be liable for the balance amount. However, your credit score would go down by 250 points.
You'll have to inform your lender that you want to go for a deed in lieu by writing a hardship letter to him. Depending upon your letter, the lender will judge your financial situation and will let you know whether or not he would accept your request.
The time taken to complete a deed in lieu of foreclosure may vary from state to state. In most cases, it takes around 90 days to complete the whole process. Once your property is sold off, you won't be liable for the balance amount. However, your credit score would go down by 250 points.
i co-own a 2-unit house with my brother that we both used to live in but is now a rental property. he is filing chapter 7 bankruptcy which i now know means that the liability of our primary and secondary mortgages will fall solely on me. our tenants are moving out this month and we have had no interest in ads we put out for re-renting it. payments are up to date as of today, but i cannot afford to pay this on my own as i am married and have other property and obligations. i do not want to file bankruptcy but would like to find the solution that would give me the least detrimental hit to my credit. the house cma shows its current value to be about 85% of what we owe on it. there are two lenders involved as well. i am worried about a deficiency judgment if i foreclose or short sale.
Hi Jon!
Welcome to forums!
Your query has been answered in the given page:
http://www.mortgagefit.com/bankruptcy/ch7-deficiency.html#144286
Take a look at it. I hope it helps you.
Sussane
Welcome to forums!
Your query has been answered in the given page:
http://www.mortgagefit.com/bankruptcy/ch7-deficiency.html#144286
Take a look at it. I hope it helps you.
Sussane
hi,
i am an electrical construction worker and was injured in 2005. the injury was not enough to stop my regular $150k income which includes regular overtime which usually doubles and totals my income.
i had another injury while waiting for surgery on the first injury. this caused me to be out of the overtime loop for sure and my income was cut in half. i had bills up the yazoo. i was smart enough to carry disability insurance which paid for my auto loans totaling $1,200. i had to make this payment first then the insurance would reinburse me a month later.
this allowed me to make regular mortgage payments. the insurance ran out and now i had to pay the first and second mortgages totaling $2,900. i used the second mortgage to remodel my wife and my existing home. we were preparing the home to sell because of the extent of my injuries have left me permanently disabled.
well the housing market crashed at the same time we applied for a home modification program which did not reduce the monthly payment enough. we fell behind in our second and first mortgage. the mortgage company said to us that our home was only worth $200k down from $450k. our loans total around $395k with $25k in late payments.
i was told that they charged off the second mortgage. we feel that we should consider a dif because the entire area has lost half it's equity. the mortgage company wants to do a 4th modification on our property. we now make $85k and our auto loans will be paid off within the next 4 months. our only payments will be the first mortgage modified. the new amount is not known yet. what should we do? :roll:
i am an electrical construction worker and was injured in 2005. the injury was not enough to stop my regular $150k income which includes regular overtime which usually doubles and totals my income.
i had another injury while waiting for surgery on the first injury. this caused me to be out of the overtime loop for sure and my income was cut in half. i had bills up the yazoo. i was smart enough to carry disability insurance which paid for my auto loans totaling $1,200. i had to make this payment first then the insurance would reinburse me a month later.
this allowed me to make regular mortgage payments. the insurance ran out and now i had to pay the first and second mortgages totaling $2,900. i used the second mortgage to remodel my wife and my existing home. we were preparing the home to sell because of the extent of my injuries have left me permanently disabled.
well the housing market crashed at the same time we applied for a home modification program which did not reduce the monthly payment enough. we fell behind in our second and first mortgage. the mortgage company said to us that our home was only worth $200k down from $450k. our loans total around $395k with $25k in late payments.
i was told that they charged off the second mortgage. we feel that we should consider a dif because the entire area has lost half it's equity. the mortgage company wants to do a 4th modification on our property. we now make $85k and our auto loans will be paid off within the next 4 months. our only payments will be the first mortgage modified. the new amount is not known yet. what should we do? :roll:
Hi,
I am an electrical construction worker and was injured in 2005. The injury was not enough to stop my regular $150K income which includes regular overtime which usually doubles and totals my income.
I had another injury while waiting for surgery on the first injury. This caused me to be out of the overtime loop for sure and my income was cut in half. I had bills up the yazoo. I was smart enough to carry disability insurance which paid for my auto loans totaling $1,200. I had to make this payment first then the insurance would reinburse me a month later.
This allowed me to make regular mortgage payments. The insurance ran out and now I had to pay the first and second mortgages totaling $2,900. I used the second mortgage to remodel my wife and my existing home. We were preparing the home to sell because of the extent of my injuries have left me permanently disabled.
Well the housing market crashed at the same time we applied for a home modification program which did not reduce the monthly payment enough. We fell behind in our second and first mortgage. The mortgage company said to us that our home was only worth $200K down from $450K. Our loans total around $395K with $25K in late payments.
I was told that they charged off the second mortgage. We feel that we should consider a DIF because the entire area has lost half it's equity. The mortgage company wants to do a 4th modification on our property. We now make $85K and our auto loans will be paid off within the next 4 months. Our only payments will be the first mortgage modified. The new amount is not known yet. What should we do?
I am an electrical construction worker and was injured in 2005. The injury was not enough to stop my regular $150K income which includes regular overtime which usually doubles and totals my income.
I had another injury while waiting for surgery on the first injury. This caused me to be out of the overtime loop for sure and my income was cut in half. I had bills up the yazoo. I was smart enough to carry disability insurance which paid for my auto loans totaling $1,200. I had to make this payment first then the insurance would reinburse me a month later.
This allowed me to make regular mortgage payments. The insurance ran out and now I had to pay the first and second mortgages totaling $2,900. I used the second mortgage to remodel my wife and my existing home. We were preparing the home to sell because of the extent of my injuries have left me permanently disabled.
Well the housing market crashed at the same time we applied for a home modification program which did not reduce the monthly payment enough. We fell behind in our second and first mortgage. The mortgage company said to us that our home was only worth $200K down from $450K. Our loans total around $395K with $25K in late payments.
I was told that they charged off the second mortgage. We feel that we should consider a DIF because the entire area has lost half it's equity. The mortgage company wants to do a 4th modification on our property. We now make $85K and our auto loans will be paid off within the next 4 months. Our only payments will be the first mortgage modified. The new amount is not known yet. What should we do?
should property tax & insurance still be paid on a home that has recieved aforclusere notice
Hi Jessica!
Does the bank come after the home owner after the deed in lieu is accepted? Meaning can the bank, years later, take the home owner to court for the mortgage amount?
I understand that the home owner would have to be responsible from a 1099 standpoint, which is much better than a law suit for the total mortgage amount.
Can you clarify for me?
Thank you.
Does the bank come after the home owner after the deed in lieu is accepted? Meaning can the bank, years later, take the home owner to court for the mortgage amount?
I understand that the home owner would have to be responsible from a 1099 standpoint, which is much better than a law suit for the total mortgage amount.
Can you clarify for me?
Thank you.