Byron Carlson Petri & Kalb, LLC | attorneys at law

Is a “deed in lieu” a viable option to foreclosure for you?

On Behalf of | Oct 29, 2024 | Residential Real Estate

One of the greatest fears that people have if they’re overwhelmed by debt is that they’ll lose their home to foreclosure. It may help to know that mortgage lenders don’t want to foreclose on a home unless they have no choice.

There are options for homeowners who can’t make their mortgage payments that can help them avoid foreclosure. If you’re able to pay enough each month to refinance or modify the loan, that may be an option.

If you can’t pay enough to make a loan modification worthwhile to the lender and you owe more on your mortgage than the home is worth, one option is something called “deed in lieu of foreclosure” or simply “deed in lieu.”

This is where the homeowner transfers the deed on their home to the lender. That relieves the lender of the burden of owning the home and owing on the mortgage. Sometimes, the lender will allow the borrower to continue to live in the home for a time and pay rent while they proceed to sell it. Often, the borrower has to leave the home. It depends on what kind of agreement is worked out.

How is a deed in lieu preferable to foreclosure?

It has a few important advantages. For example:

  • A deed in lieu typically stays on a person’s credit report for four years, while a foreclosure generally remains on it for seven years.
  • It typically helps homeowners avoid the fines and fees that lenders are allowed to assess during foreclosure.
  • It saves the embarrassment of having a home on the market that is listed publicly as “in foreclosure.

Whether you can get a lender to agree to a deed in lieu depends in large part on whether they think they can sell it easily without having to put time and money into it. If the home is in good condition, that helps. It also helps if there are no liens on it.

What was once a dream house can turn into a nightmare if you’re facing foreclosure. It’s crucial to know that you do have options. Getting legal guidance as soon as possible can help you review those options given your specific circumstances and find the best way forward.

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