Posted on: 10th May, 2006 01:22pm
If you're not able to pay your mortgage and you can't sell the home or get a work out plan, a deed in lieu of foreclosure is your third option. This option allows you to transfer the property to your lender in exchange for being released from your mortgage.
Does deed in lieu of foreclosure affect credit score?
When you go for deed in lieu of foreclosure, it affects your credit score. Your score will drop by 250 points or so and will stay on your credit report for 7 years. After 7 years, you can have the deed in lieu removed from your credit report and start to rebuild your credit. At the end of the 7th year, you can request the bureaus to remove it from the report.
How long after deed in lieu can you buy home?
Because a deed in lieu has a negative impact on your credit, lenders won't offer you a mortgage for the first 2-3 years. In the meantime, if you try and rebuild your credit the chances are that you may be approved for a loan after the 2-3 years has expired. After that you can buy a new home.
Related Forum Discussions:
my wife and i along w/another couple bought a 2 family with an agreement that one resident would buy the property in one year, he defaulted and left us with a ton of damage and bills. long story short we ended up doing a deed in lieu on the property. our wives were the primary lendees on the mortgage as a result we are seeing a major hit on her credit score taking it down to a 660 or so. lenders can't use her on a loan if we want to refinance or anything because they say the hit disqualifies her. we did not enter this deal to go into the hole, we worked real hard for many years to keep our credit very very good and this one property seems to have wrecked us, we don't have a ton of money, we work hard and have a small home of our own that we would like to refinance, i am getting no's from lenders. i really need some help and i feel hopeless at this point. i just don't want to see all that my wife and i are working for shot because of one bad deal that we only entered into because one tenant wanted to buy the place and take care of it and then we got stuck with it. it took thousands out of our pockets before the deed in lieu. as i said other than that we have had excellent credit, mine is over 740-750. please offer any advice, it is truly truly appeciated. i feel that we are good hard working people and we just don't want to feel hopeless.thank you so much, matt long
I live outside of the state of FL where I bought properties totaling nearly $500,000. I am upside down on all of them and as of July, 2010 retired due to the stress in trying to maintain them. I stopped payment on all properties as of June, 2010. I've seen a bankruptcy lawyer in my home state who recommended I let them all go into foreclosure. I have therefore been in default for nearly 15 months, not having made any payments. I have only recently learned about the possibility of the bank issuing at 1099C to the IRS and that I may have to pay income tax on what the IRS considers "income" on the deficiency. In the meantime, the properties have been up for short sale and have been listed in the MLS for at least 120 days. My realtor is recommending that I defer to a "buyer/investor" out of New York who would buy all my properties and do the negotiating with the bank (BoA). I don't know what route is the best to take at this point. I'm not at all concerned about my lowered credit score possibly lasting for 7 years or so. That doesn't worry me. BUT, will I need to pay an exorbitant amount of taxes on a 1099C that I'm assuming the bank will issue to the IRS. Or, is a 1099C issued only in the case of a short sale or deed in lieu of foreclosure? I've researched extensively and haven't been able to find an answer. NOTE: I have a condo, a house, and a lot mortgaged through BoA. The lot is now in the process of foreclosure, though I understand there's a moratorium on foreclosures, so I likely have a LITTLE more time to determine which route to go.
Any suggestions as to what the best route is for me to go? Have the "buyer" buy the properties and do the negotiating (all the paperwork, which is virtually that required to do a short sale, is completed and ready to be sent to his firm once I make a decision), pursue a deed in lieu of foreclosure, or allow the properties to go into full foreclosure? Obviously, time is of the essence. Thanks so much for your advice! -Rose
Any suggestions as to what the best route is for me to go? Have the "buyer" buy the properties and do the negotiating (all the paperwork, which is virtually that required to do a short sale, is completed and ready to be sent to his firm once I make a decision), pursue a deed in lieu of foreclosure, or allow the properties to go into full foreclosure? Obviously, time is of the essence. Thanks so much for your advice! -Rose
Hi Guest!
Welcome to forums!
If the deficient balance is forgiven by the lender, then it will be considered as your income by the IRS and you will be liable for paying taxes on it. However, if you pay off the deficient balance resulting from the short sale of the property, then you won't have to pay any taxes. 1099c is issued by the lender whenever he forgives a certain portion of the borrower's debt. In my opinion deed in lieu of foreclosure will be a good option to go for.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
If the deficient balance is forgiven by the lender, then it will be considered as your income by the IRS and you will be liable for paying taxes on it. However, if you pay off the deficient balance resulting from the short sale of the property, then you won't have to pay any taxes. 1099c is issued by the lender whenever he forgives a certain portion of the borrower's debt. In my opinion deed in lieu of foreclosure will be a good option to go for.
Feel free to ask if you've further queries.
Sussane
Sussane,
Thank you for your reply and advice. The state I live in is SC. It is my understanding that, in a full foreclosure, the bank may or may not go after a judgment for deficiency on my loan. If there is "no deficiency," then a 1099c will be issued. If there IS a deficency, then there will not be a 1099c issued. From what a real estate lawyer has told me in SC, it's really a crap shoot because it will depending upon what lawyer is doing the negotiating. Sometimes one is issued, sometimes not. At any rate, I'm thinking the best route to go is to avoid a 1099c. I may have a 50/50 chance there at least. And, if a 1099c IS issued, I just have to prove insolvency at the time of the default on the loan. I'm learning all sorts of things in this process. The scariest thing is that there doesn't appear to be any rhyme or reason to one's outcome. I guess I'll wait and see since I'm now in the throes of foreclosure and have been going on the advice of a bankruptcy AND real estate attorney in SC. I hope this helps SOMEONE and saves them all the trouble of researching through the maize of information out there! -Rose
Thank you for your reply and advice. The state I live in is SC. It is my understanding that, in a full foreclosure, the bank may or may not go after a judgment for deficiency on my loan. If there is "no deficiency," then a 1099c will be issued. If there IS a deficency, then there will not be a 1099c issued. From what a real estate lawyer has told me in SC, it's really a crap shoot because it will depending upon what lawyer is doing the negotiating. Sometimes one is issued, sometimes not. At any rate, I'm thinking the best route to go is to avoid a 1099c. I may have a 50/50 chance there at least. And, if a 1099c IS issued, I just have to prove insolvency at the time of the default on the loan. I'm learning all sorts of things in this process. The scariest thing is that there doesn't appear to be any rhyme or reason to one's outcome. I guess I'll wait and see since I'm now in the throes of foreclosure and have been going on the advice of a bankruptcy AND real estate attorney in SC. I hope this helps SOMEONE and saves them all the trouble of researching through the maize of information out there! -Rose
I am upside down in my mortage. I have a ARM 7.07 %. I messed up and got into the adjustable loan. I have an excellent payment history. As of September 1, my payment went up and with all the other obligations I am unable to handle. I tried to talk to mortagae company I make too much money to get any help from them. I am about to miss my 1st mortgage payment. With that said I do not plan to stay in the house actually I don't want to live there anymore it needs work and I don't and will not have the money to do it. What are my options?
Hi Buffy,
You can apply for a deed in lieu of foreclosure in order to get rid of the property. A deed in lieu of foreclosure will have a negative affect on your credit report and lower your scores by 250 points, you won't be liable for paying the deficient balance resulting from the sale of the property.
Thanks
You can apply for a deed in lieu of foreclosure in order to get rid of the property. A deed in lieu of foreclosure will have a negative affect on your credit report and lower your scores by 250 points, you won't be liable for paying the deficient balance resulting from the sale of the property.
Thanks
Does one hire an attorney in the state where the about to be foreclosed property resides? We are FL residents but the property about to be foreclosed on is a vacation home in NC. Also, when do you file for the deed in lieu of? We have tried to do a short sale with our bank for three months and had a buyer but it fell thru recently and now we have been sent a letter from a trustee corporation in NC that the bank has asked them to initiate foreclosure. Must we immediately try to start a deed in lieu of? We have been told it takes months/years on a foreclosure and we are still trying to get a short sale.
Hi Guest,
You may contact a NC based attorney in order to deal with the foreclosure. As you're already facing foreclosure, it will be better if you could apply for a deed in lieu of foreclosure now. If the lender accepts your request, you will be able to sell off the property and won't be liable for paying any deficient amount to the lender.
Thanks
You may contact a NC based attorney in order to deal with the foreclosure. As you're already facing foreclosure, it will be better if you could apply for a deed in lieu of foreclosure now. If the lender accepts your request, you will be able to sell off the property and won't be liable for paying any deficient amount to the lender.
Thanks
I will be doing a deed in lieu in early 2012. Is there asny tax consequences to this? I was of the opinion that Congress has extended no taxes on this program through 2012. Thank you for your help.
Welcome genep,
Your deficient balance will be forgiven by the lender when you go for a deed in lieu of foreclosure. This forgiven debt is considered as taxable. However, depending upon the Mortgage Debt Relief Act, you won't have to pay taxes for the forgiven debt.
Your deficient balance will be forgiven by the lender when you go for a deed in lieu of foreclosure. This forgiven debt is considered as taxable. However, depending upon the Mortgage Debt Relief Act, you won't have to pay taxes for the forgiven debt.
Hi have a property that I sold to a friend. The buyer put down 30% and I carried the first deed of trust and note for 5 years. After the second year the buyer can not make the payments and wants to do a deed of lieu of foreclosure to revert the property back to me. I do not want to ruin my friends credit rating. Do I have to report to the credit reporting services since I am the note and first deed of trust holder?
Hi John,
As your name is mentioned on the note and the deed of trust, it is not mandatory for you to report the deed in lieu of foreclosure to the credit bureaus. Unless you report it to the credit bureaus, it won't affect your friend's credit.
Thanks
As your name is mentioned on the note and the deed of trust, it is not mandatory for you to report the deed in lieu of foreclosure to the credit bureaus. Unless you report it to the credit bureaus, it won't affect your friend's credit.
Thanks
I have a rental property and primary residence mortgages both held by BofA. Due to a change in income I will not be able to keep up on payments with the rental property. I am thinking foreclosure may be the easiest option versus a dee in lieu. I have a second mort. on the rental property and am concerned with the tax liability and second mort holder pursuing for owed funds. Can the second holder collect anything after forclosure on the property? I've heard the credit hit is the same for a forclosure and deed in lieu. any advice or comments would be great.
Hi Guest,
If you go for a foreclosure, you will be liable for paying off the deficient balance from the sale of the property to the lender. However, if you go for a deed in lieu of foreclosure, then you won't be liable for paying the deficient balance resulting from the sale of the property. However, both the options will reduce your credit scores by 250 points.
If you go for a foreclosure, you will be liable for paying off the deficient balance from the sale of the property to the lender. However, if you go for a deed in lieu of foreclosure, then you won't be liable for paying the deficient balance resulting from the sale of the property. However, both the options will reduce your credit scores by 250 points.
Hello, Ms.Bennet, I just got married 2yrs,ago. I own a rental home with my mother.I am thinking of doing a Deed n lieu. Because my mother now has Alzheimer's. We also have a home we live in.My question, how would this effect my wife's credit.?We would one day like to get a bigger home. She is 51 and I'm 61. Also, should I get the forms together for the Deed nLieu or should I just send a letter to the lender telling them that this is what I want to do.?
Sincerely
Bobby B.
Sincerely
Bobby B.
Hello, Ms.Bennet, I just got married 2yrs,ago. I own a rental home with my mother.I am thinking of doing a Deed n lieu. Because my mother now has Alzheimer's. We also have a home we live in.My question, how would this effect my wife's credit.?We would one day like to get a bigger home. She is 51 and I'm 61. Also, should I get the forms together for the Deed nLieu or should I just send a letter to the lender telling them that this is what I want to do.?
Sincerely
Bobby B.
Sincerely
Bobby B.