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?
Hi PEEWEE,
If your property is foreclosed by the lender, then he would come after you for the deficient amount resulting from the sale of the property. If you do not pay it off, the lender will be able to garnish your wages.
In case of a deed in lieu of foreclosure, the lender will forgive the deficient balance resulting from the sale. Thus, you won't be liable for any payments.
Take care.
If your property is foreclosed by the lender, then he would come after you for the deficient amount resulting from the sale of the property. If you do not pay it off, the lender will be able to garnish your wages.
In case of a deed in lieu of foreclosure, the lender will forgive the deficient balance resulting from the sale. Thus, you won't be liable for any payments.
Take care.
I have a house in NV. bought in 2005. I owe 300,000 on this with an 100% mortgage 80/20. We stopped payments on loans in 2008 due to loss of income, and put the house up for sort sale. We had an offer of 125,000 in 2009 which the bank said Ok to. We moved into a rental property at the end of the year as the buyer wanted to move in imediatly. Then at closing they wanted us to pay the 5000 in closing cost. We did'nt have this, so the sale was stoped by the bank. I spoke with the bank today and they (BA) want a deed in lieu. Will this take away responsibillity for both loans,& will I be taxed on the difference of the home value (80,000 at present)
Should I have legal help with this?
Should I have legal help with this?
hi guest,
a deed in lieu of foreclosure will help you in getting rid of the property. you won't be liable for the deficient balance resulting from the sale of the property. however, the lender can sue you for the second loan or charge it off. to know more about second mortgage charge off, check out the given page:
http://www.mortgagefit.com/know-how/secondloanchargeoff.html
take care.
a deed in lieu of foreclosure will help you in getting rid of the property. you won't be liable for the deficient balance resulting from the sale of the property. however, the lender can sue you for the second loan or charge it off. to know more about second mortgage charge off, check out the given page:
http://www.mortgagefit.com/know-how/secondloanchargeoff.html
take care.
Hi Jessica
My wife (devorice pending) owned 2 properties before we got married. As a token of good faith, since we were married I decided to contribute toward the mortgage payment. To make a the story short. One of the houses went into foreclosure. She did a "Short Sale" in March 2009, and sold the house. She told me after 3 months my name should be off the Credit report since my name was not on the "Deed Of Sale". A week ago I applied for a free credit report and my mortgage still appears on my credit report. What can I do to have that "Mortgage report" taking off my Credit report.
Yours sincerely
Alfred
My wife (devorice pending) owned 2 properties before we got married. As a token of good faith, since we were married I decided to contribute toward the mortgage payment. To make a the story short. One of the houses went into foreclosure. She did a "Short Sale" in March 2009, and sold the house. She told me after 3 months my name should be off the Credit report since my name was not on the "Deed Of Sale". A week ago I applied for a free credit report and my mortgage still appears on my credit report. What can I do to have that "Mortgage report" taking off my Credit report.
Yours sincerely
Alfred
Hi Alfred!
Welcome to forums!
If your name is not on the mortgage documents, then you won't be liable for the loan payments. You can contact the credit bureau and ask them to rectify the error.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
If your name is not on the mortgage documents, then you won't be liable for the loan payments. You can contact the credit bureau and ask them to rectify the error.
Feel free to ask if you've further queries.
Sussane
I have been on Long Term Disability for over 10 years (SSD and insurer paid) and according to my state laws it cannot be Garnished.
I am current on all bills, and a have squeaky clean credit report for over 25 years despite my medical issues. However, COLA haven't kept up with the real Cost of Living and I have exhausted my retirement plans, pension and savings keeping current on my bills. Now I am faced with a home loan for 45k more than the value, after a recent re-apprised by the local county tax office, and after paying on it 9 years. Add to this a slap in the face, I don't meet the new bankruptcy formula for chapter 7. Anyone would be hard pressed to convince me Washington didn't see this meltdown coming and changed the bankruptcy laws.
Either way now for the Bigger Rock and the Harder Spot... my father-in law and mother-in law are in their late 80's and live with us. Now my mother in her late 80's is beginning to need the same help.
So I am in the process of developing a letter to the 1st and 2nd mortgage holders. In it I am asking for permission to conduct a short, or a voluntary foreclosure, with some agreement as to saving enough of my credit score to rent a decent apt or home when we all move.
Do you have any viable suggestions?
Thank you for any reply
I am current on all bills, and a have squeaky clean credit report for over 25 years despite my medical issues. However, COLA haven't kept up with the real Cost of Living and I have exhausted my retirement plans, pension and savings keeping current on my bills. Now I am faced with a home loan for 45k more than the value, after a recent re-apprised by the local county tax office, and after paying on it 9 years. Add to this a slap in the face, I don't meet the new bankruptcy formula for chapter 7. Anyone would be hard pressed to convince me Washington didn't see this meltdown coming and changed the bankruptcy laws.
Either way now for the Bigger Rock and the Harder Spot... my father-in law and mother-in law are in their late 80's and live with us. Now my mother in her late 80's is beginning to need the same help.
So I am in the process of developing a letter to the 1st and 2nd mortgage holders. In it I am asking for permission to conduct a short, or a voluntary foreclosure, with some agreement as to saving enough of my credit score to rent a decent apt or home when we all move.
Do you have any viable suggestions?
Thank you for any reply
Hi Guest,
Rather than applying for a foreclosure, you should request your lender for a short sale. This will reduce your score by 80-100 points. In case of a foreclosure your score would get reduced by 250 points which can make it difficult for you to rent a property. However, you should remember that in case of a short sale, you would be liable for paying the deficient balance resulting from the sale of the property.
Rather than applying for a foreclosure, you should request your lender for a short sale. This will reduce your score by 80-100 points. In case of a foreclosure your score would get reduced by 250 points which can make it difficult for you to rent a property. However, you should remember that in case of a short sale, you would be liable for paying the deficient balance resulting from the sale of the property.
Hello,
I had a HELOC with a bank and now they have been bought by another bank. I thought it would go into foreclosure but the bank has done nothing, it is the only lien on the house, it was a rental but now it has been sitting empty for over six months.
I am considering bankruptcy, but should I do a deed in lieu now?
What should I do?
Thanks
I had a HELOC with a bank and now they have been bought by another bank. I thought it would go into foreclosure but the bank has done nothing, it is the only lien on the house, it was a rental but now it has been sitting empty for over six months.
I am considering bankruptcy, but should I do a deed in lieu now?
What should I do?
Thanks
Hi Greg!
Welcome to forums!
I've given my suggestions in regards to your query at:
http://www.mortgagefit.com/problems/heloc-deedinlieu.html
Take a look at it. Hope it helps you.
Sussane
Welcome to forums!
I've given my suggestions in regards to your query at:
http://www.mortgagefit.com/problems/heloc-deedinlieu.html
Take a look at it. Hope it helps you.
Sussane
hi when can i expect to be able to get another home loan after i have done a deed in lieu?
do i need to contact a lawyer to submit a letter to my bank or can i submit the letter?
Hi!
Welcome to forums!
To enigma,
You will have to wait for 3-4 years in order to get a mortgage after a deed in lieu of foreclosure.
To Fred,
It is not mandatory for you to take the help of an attorney and submit the letter for a deed in lieu. You can submit it yourself as well.
Feel free to ask if youe further queries.
Sussane
Welcome to forums!
To enigma,
You will have to wait for 3-4 years in order to get a mortgage after a deed in lieu of foreclosure.
To Fred,
It is not mandatory for you to take the help of an attorney and submit the letter for a deed in lieu. You can submit it yourself as well.
Feel free to ask if youe further queries.
Sussane
How long does the process take?
Welcome randy,
It takes a considerable period of time to complete the process of deed in lieu. Normally it would take around 90 days to complete the process.
It takes a considerable period of time to complete the process of deed in lieu. Normally it would take around 90 days to complete the process.
What if your mortgage is upside down?