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?
We got a letter from Green Tree on a mobile home we turned over in a a DIL 10 years ago wanting the difference. We heard nothing from them until now.
We were told we would owe nothing on it if we turned it back over to them and it showed as paid on our then credit report. Why are they allowed to do this?
We were told we would owe nothing on it if we turned it back over to them and it showed as paid on our then credit report. Why are they allowed to do this?
Welcome Guest,
Your lender is not allowed to do this. In case of a deed in lieu of foreclosure, the lender forgives the deficient balance resulting from the sale of the property. Moreover, after 10 years, they ca claim the deficient balance. You should check out the SOL period as per your state laws. If the SOL period is passed, then they won
Your lender is not allowed to do this. In case of a deed in lieu of foreclosure, the lender forgives the deficient balance resulting from the sale of the property. Moreover, after 10 years, they ca claim the deficient balance. You should check out the SOL period as per your state laws. If the SOL period is passed, then they won
Hello, My husband and I purchased our home 6 years ago, at the peak of the housing market... We live in a community that was supported mainly by a automotive giant, who has since left town. Our home is worth about half of what we owe at this point. My husband is in the construction business and I work part time, we also have 3 young children. We have been struggling for a long time with our payments and finally fell behind. We talked with an attorney who told us to quit paying and save up to live a better life...Not sure how I feel about this advice. Our mortgage co. offered us the option of deed in lieu of foreclosure but than turned around and denied us the option. What do we do now? We have found a rental for much less but are worried about the fall out from a possible foreclosure.
Hi mom23qts,
You should go for the rental property. In the meanwhile, you should re-apply for the deed in lieu of foreclosure in order to sell off and get rid of the property. Moreover, if the lender accepts your request, then you will be able to get rid of the property and won't be liable for paying any deficient balance to the lender after your property is sold off.
You should go for the rental property. In the meanwhile, you should re-apply for the deed in lieu of foreclosure in order to sell off and get rid of the property. Moreover, if the lender accepts your request, then you will be able to get rid of the property and won't be liable for paying any deficient balance to the lender after your property is sold off.
We have been paying on a home for nearly eleven years. About a year after purchasing the home we began to notice mold on the walls. I quickly began investigating solutions and removal methods. We took steps to resolve the issue (though there was no leak we replaced the roof and put in a ridge vent, scrubbed all mold off, used mold resistant primer and paint...anything and everything that we could think of to do). The mold returned, and it has been a constant battle since that first year. There was a flood in 1993 that did get into the basement, and we were told that no claim had ever been filed on the home because there had been no damage done. I believe that this is the actual source of the problem, but doubt that we could do anything at this point to make a claim. We have looked over the flood insurance policy and our home owners insurance policy and it looks as though neither would pay anything.
When my husband's back was injured, which required back surgery and months of not being able to work, we began to struggle financially, but were able to keep our heads just above water with my income. Because he is in construction he is limited on the work that he has been able to do since the surgery, and we ended up getting behind. We applied for the Options Program, and are currently enrolled in it, but continue to struggle. We were sent a list of options including Short Sale, Debt in Lieu etc...my concern that is along the way I have also inherited a small piece of property that has been in my family for a hundred years. I cannot put that property at risk of being lost in the event of any of the Options that are available. We plan to build on the property, but the work toward that goal has been slow going. Would a DIL put that property at risk?
At this point (after dealing with chronic fatigue, sinus infections and headaches, allergy issues, and a host of other symptoms that I believe are related to the mold; we are ready to just walk away from this home and live in a tent if we have to just to escape this sick house.
We feel lost as to what to do...we have considered telling the lender and the insurance companies about the conditions that we have been living in and let them fight it out, but feel that we would still be held liable and possibly lose the other property as a result.
Please respond with any advice that you may have for this miserable situation.
Thank you,
Bonnie
When my husband's back was injured, which required back surgery and months of not being able to work, we began to struggle financially, but were able to keep our heads just above water with my income. Because he is in construction he is limited on the work that he has been able to do since the surgery, and we ended up getting behind. We applied for the Options Program, and are currently enrolled in it, but continue to struggle. We were sent a list of options including Short Sale, Debt in Lieu etc...my concern that is along the way I have also inherited a small piece of property that has been in my family for a hundred years. I cannot put that property at risk of being lost in the event of any of the Options that are available. We plan to build on the property, but the work toward that goal has been slow going. Would a DIL put that property at risk?
At this point (after dealing with chronic fatigue, sinus infections and headaches, allergy issues, and a host of other symptoms that I believe are related to the mold; we are ready to just walk away from this home and live in a tent if we have to just to escape this sick house.
We feel lost as to what to do...we have considered telling the lender and the insurance companies about the conditions that we have been living in and let them fight it out, but feel that we would still be held liable and possibly lose the other property as a result.
Please respond with any advice that you may have for this miserable situation.
Thank you,
Bonnie
Hi Bonnie,
The deed in lieu of foreclosure won't put the inherited property in danger. In case of a deed in lieu of foreclosure, your deficient balance will be forgiven by the lender. So, the lender won't go after your inherited property to recover the debts.
Thanks
The deed in lieu of foreclosure won't put the inherited property in danger. In case of a deed in lieu of foreclosure, your deficient balance will be forgiven by the lender. So, the lender won't go after your inherited property to recover the debts.
Thanks
Hi Jerry,
Thank you for your response. I have a couple more questions. Say they are unable to sell the house for a few years, and the mold issue presents itself bringing down the value of the house; would the lender then be able to make us pay anything?
What about other property? Land that was gifted, or ownership of any other property, vehicles etc.? I understand that these must be listed in the event of foreclosure and/or bankruptcy.
Thanks again,
Bonnie
Thank you for your response. I have a couple more questions. Say they are unable to sell the house for a few years, and the mold issue presents itself bringing down the value of the house; would the lender then be able to make us pay anything?
What about other property? Land that was gifted, or ownership of any other property, vehicles etc.? I understand that these must be listed in the event of foreclosure and/or bankruptcy.
Thanks again,
Bonnie
I can't keep paying my investment prop, just talked to a lawyer about "Deed in lieu". He's suggested for me to keep paying the mortgage while he process the "Deed in lieu" with the bank. But why we have to keep paying and isn't that "Deed in lieu" about?
Hi!
Welcome to forums!
To Bonnie,
If the lender accepts the request for a deed in lieu of foreclosure, then he won't come after you in order to claim the deficient balance from you. You will have to list all your assets in case of bankruptcy.
To ozgrad,
Your query has been replied to in the given page: http://www.mortgagefit.com/Mortgage-problems/deed-in-lieu.html . Please take a look at it. I hope it will help you.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
To Bonnie,
If the lender accepts the request for a deed in lieu of foreclosure, then he won't come after you in order to claim the deficient balance from you. You will have to list all your assets in case of bankruptcy.
To ozgrad,
Your query has been replied to in the given page: http://www.mortgagefit.com/Mortgage-problems/deed-in-lieu.html . Please take a look at it. I hope it will help you.
Feel free to ask if you've further queries.
Sussane
how will deed-in-lieu affect our credit? how long before we can re-bulid our credit again?
Hi kat!
Welcome to forums!
A deed in lieu of foreclosure will lower your credit score by 250 points. It will remain in your credit report for the next 7 years. You can take steps to rebuild your credit after the deed in lieu of foreclosure sale gets over. You can check out some of the self help credit repair tips from the given page: http://www.mortgagefit.com/credit-rating/credit-repair.html .
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
A deed in lieu of foreclosure will lower your credit score by 250 points. It will remain in your credit report for the next 7 years. You can take steps to rebuild your credit after the deed in lieu of foreclosure sale gets over. You can check out some of the self help credit repair tips from the given page: http://www.mortgagefit.com/credit-rating/credit-repair.html .
Feel free to ask if you've further queries.
Sussane
in my consolidated loan will I lose my car also
will i lose my car from my consolidated loan
Hi Coco,
Your query is not very clear to me. Please post your query in details so that it helps us to give you some suggestions. However, if you don't pay off your car payments on time, then you may lose your car.
Thanks
Your query is not very clear to me. Please post your query in details so that it helps us to give you some suggestions. However, if you don't pay off your car payments on time, then you may lose your car.
Thanks
Can I do a deed in Lieu if the mortgage loan is only under my name but I have added someone to the title of the property as joint tenants even though they are not on the loan?