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Mortgage Debt: Deed in Lieu of Foreclosure

Overview

Though the name may sound fancy, a Deed in Lieu of Foreclosure is simply where a borrower gives the property back to the lender (voluntarily) instead of having the lender foreclose on the property.  Of course, everyone who is having trouble paying the mortgage isn’t eligible for a Deed in Lieu of Foreclosure – there are some conditions.  The biggest of these conditions is that the lender must be willing to agree to accept the deed to the property instead of payments.  As you might guess, this means the house must be worth more than the amount owed or the bank will almost never consider it as an option.  So what are the pros and cons?

The Lender’s Perspective

For a lender, a Deed in Lieu of Foreclosure is sometimes a better option than full foreclosure because it costs the bank less money (mostly in legal and similar fees).  It also can take much less time than full foreclosure so the bank is free to resell the property much more quickly. Since banks generally don’t wish to own real estate, this is a big plus because they are able to sell the home and clear their books of the bad debt faster.  It also pre-empts some of the problems that often come with foreclosure like eviction, property vandalism, etc.

The Homeowner’s Perspective

For a homeowner at risk of foreclosure, there are some perks to a Deed in Lieu of Foreclosure.  With a foreclosure, the entire process is quite public. With a Deed in Lieu of Foreclosure, the process is generally much more private and less embarrassing.  While the process is not good for a consumer’s credit, a Deed in Lieu of Foreclosure is not as negative on a credit report as a full foreclosure.  And maybe most importantly, with a Deed in Lieu of Foreclosure, the process is over more quickly than with a foreclosure. For anyone who has been through painful and emotional challenges such as a foreclosure or bankruptcy, getting it over with is a HUGE blessing.

Summary

Maybe you’ve had life happen to you in the worst way.  You’re at risk of losing your home because you have no idea how to make payments on it any longer.  What are your options?  Over the past week or so, we’ve covered foreclosure, short salesand Deeds in Lieu of Foreclosure.  While these are all viable outcomes, they shouldn’t be your goal.  Your goal should be FREEDOM!  Maybe this means buckling down and living on a budget.  Maybe this means sacrificing and cutting expenses to the bone.  Maybe this means working a second job temporarily and making it work.  Do not give up!  If you have issues paying your mortgage, sit down and really determine if you can make the math work.  BE REASONABLE, and if the math works, figure out how to make your behavior work with it.  If the math doesn’t work, get about the business of making changes to make it work.  Don’t be too proud to sell your home, a car (or two or three), the boat or other fancy toys. LIVE WITHIN YOUR MEANS.

I wrote these articles about mortgage debt to help educate you.  I don’t want you to go down these roads until there is no other option.  If you need help navigating your options or simply figuring out how to make it all work, please contact me for coaching and we’ll figure it out together.

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