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!
Welcome to forums!
To Guest,
You can contact your lender and apply for a deed in lieu of foreclosure. If the lender accepts your request, it will be easier for you to get rid of the debts.
To adgibson,
Your query has been replied to in the given page:
http://www.mortgagefit.com/annoucements/about52452.html#215792
Take a look at it. I hope it will help you.
Sussane
Welcome to forums!
To Guest,
You can contact your lender and apply for a deed in lieu of foreclosure. If the lender accepts your request, it will be easier for you to get rid of the debts.
To adgibson,
Your query has been replied to in the given page:
http://www.mortgagefit.com/annoucements/about52452.html#215792
Take a look at it. I hope it will help you.
Sussane
I'm handling an estate (my aunt) with an underwater mortage. I was to be the sole heir and executor, but opted to handle the meager estate under a "commissioner" title. All available moneys went to funeral expense as per state law. I want no part of the mortage or property. I've been notified of both pending foreclosure (just filed by attorneys), short sale option (no relatives are interested due to extensive renovations that would be required), and a deed in lieu option.
Since I have no financial interest (positive or negative) would a deed in lieu of foreclosure be appropriate? Any downside to that?
Since I have no financial interest (positive or negative) would a deed in lieu of foreclosure be appropriate? Any downside to that?
Hi Guest,
You can go for the option of deed in lieu of foreclosure in order to get rid of the property. You should contact the lender and apply for the deed in lieu of foreclosure. The lender will sell off the property in order to recover the debt and no one will be liable for paying any deficient balance resulting from the sale of the property.
Thanks,
Jerry
You can go for the option of deed in lieu of foreclosure in order to get rid of the property. You should contact the lender and apply for the deed in lieu of foreclosure. The lender will sell off the property in order to recover the debt and no one will be liable for paying any deficient balance resulting from the sale of the property.
Thanks,
Jerry
Jessica, I was awarded a Deed-in-lieu-of forclosure on June 22, 2011, however, when I checked my credit report it stated I received a "Forfeit of deed in lieu of forclosure" what does this mean? Is it legal to word my deed in this manner. It also states "Forclosure process started" what is going on I was under the impresson that a Deed in Lieu of forclosure would state just that, not Forfeit of Deed in lieu of. Can you please help me, I will not accept the change and will fight to have the wording changed. Also if this is illegal can you advise me on whom to call or check with to have this judgement rectified.
[Email address deleted asper forum rules. Thanks.]
[Email address deleted asper forum rules. Thanks.]
Hi Jennie,
Well... this is something which your attorney will be able to assist you with in a better manner. You should immediately contact your attorney and check out whether or not you can change the wording in the deed.
Thanks
Well... this is something which your attorney will be able to assist you with in a better manner. You should immediately contact your attorney and check out whether or not you can change the wording in the deed.
Thanks
I received papers from the bank for DIL and not sure if I should continue
forclosure or go for the Deed in Lieu ? I am 72 and not interested in my
credit rating anymore. I always had great credit until now. My condo assoc. is sueing me for HOA back fees. I don't have any money for any
kind of fees.
forclosure or go for the Deed in Lieu ? I am 72 and not interested in my
credit rating anymore. I always had great credit until now. My condo assoc. is sueing me for HOA back fees. I don't have any money for any
kind of fees.
Hi Bobbi!
Welcome to forums!
You can apply for a deed in lieu of foreclosure in order to get rid of the debts. You should contact your lender and apply for a deed in lieu of foreclosure. The lender will check your financial situation and let you know whether or not he will accept your request.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
You can apply for a deed in lieu of foreclosure in order to get rid of the debts. You should contact your lender and apply for a deed in lieu of foreclosure. The lender will check your financial situation and let you know whether or not he will accept your request.
Feel free to ask if you've further queries.
Sussane
my house was a total loss due to fire, insurance will not pay home improvement loan off, home improvement loan has pmi coverage. cant afford to start over and still pay this HI loan. what can i do..
Hi nate,
If you want to save the property, then you will have to contact your lender and apply for a loan modification. If the lender is convinced about your financial hardship, then he will consider your request and give you a repayment plan to pay off the debts. However, if you don't want to save the property, then you should contact your lender and apply for a deed in lieu of foreclosure.
Thanks
If you want to save the property, then you will have to contact your lender and apply for a loan modification. If the lender is convinced about your financial hardship, then he will consider your request and give you a repayment plan to pay off the debts. However, if you don't want to save the property, then you should contact your lender and apply for a deed in lieu of foreclosure.
Thanks
For the guest below who indicates a FSBO will sell quicker and net a larger sale price; statistics show otherwise. Now more than ever do homeowners need the assistance of an agent who can navigate through the sometimes nightmarish transactions involving Short Sales, Forclosures and the "feeding frenzie" of buyers who will continue to offer below list price even when the home has been priced to market with statistics to back the price up. What tools does an average homeowner have to navigate these transactions? Finally, few banks will accept a Deed in Lieu until all other options have been exhaused, which by then has destroyed your credit. Consult with professionals that know their business and also seek the services of an attorney.
can u tell me how long this would take? i mean when will i have to find another place to live.
When your lender agrees to the DIL, how long can you stay within the property?
Hi Rodney,
After the deed in lieu of foreclosure is over, you will receive an eviction notice from your lender. This eviction notice will mention the time period within which you will have to leave the property.
Thanks
After the deed in lieu of foreclosure is over, you will receive an eviction notice from your lender. This eviction notice will mention the time period within which you will have to leave the property.
Thanks
We filed bankruptcy and it was discharged through the courts. We are now receiving papers from the resort property wanting us to sign a deed in lieu of foreclosure. They said it wasn't to collect any debts. Upon receiving the papers, it said we would have to pay $450. If this was already discharged in our bankruptcy, why should we have to worry about this?
the reason why I asked, a couple across had their house bank owned, and they are still in it. I am thinking in order for them to do that, would be to give up there DEED. Is there another reason why they are still there, and the bank took the house?