What the Heck is a Deed in Lieu of Foreclosure?
What the heck is a “deed in lieu of foreclosure” and can’t someone figure out a better name?
One of the most frequently discussed Foreclosure Options is a “deed in lieu of foreclosure” but its also likely the least understood option as well. Although it sounds confusing, this option is one of the fastest and easiest methods to avoid foreclosure sales and let’s you get on with your life with one major problem eliminated. Don’t Walk Away, Deed Away!
A “deed” is simply a contract for the transfer of property and “in lieu of” means instead of, so in reality you have a contract for the transfer of property rather than foreclosure proceedings or a Foreclosure Lawsuit to accomplish the same thing. Although the results are the same in that you no longer own your property, the deed in lieu of foreclosure is much less costly and stressful than a long and aggravating foreclosure lawsuit which is why its favored by many homeowners who plan to give up their property and move on anyway.
As with all of your foreclosure alternatives, you have to know what you’re trying to accomplish at the end of the process before deciding which option is best for you. For example, if you want to end all the garbage and stress involved in the foreclosure process as soon as possible, a deed in lieu of foreclosure is the cheapest and fastest way to do it. Strategic Default to Control Foreclosure
On the other hand, for homeowners looking to prolong the process for as long as possible to find alternative housing or in the hope that the economy and your income will improve sufficiently to save your home, the deed in lieu of foreclosure is the last thing you want and clearly not the best option for you.
Advantages of Deed in Lieu of Foreclosure
There are several advantages to entering into an agreement with your lender to effectively end the mortgage foreclosure process for you, the most important of which is predictability. By working with the lender, you’ll know whats happening and when and avoid finding out that your home is scheduled for sale when the police show up at the door! Further, in many circumstances you’ll not only have a definitive timetable but also get several additional months of “free” rent before moving out. Property Rental to Avoid Foreclosure
Use of this option also avoids the uncertainty which results from using the Walk Away foreclosure option as discussed in our comparison with the deed in lieu of foreclosure. In that situation, the lender will likely file a foreclosure lawsuit to both take your property and collect the unpaid principal and/or the attorney’s fees and costs incurred in filing suit, any damages to the property and interest on the whole package also known as a Deficiency Judgment.
As we’ve previously noted, a deed in lieu of foreclosure is the fastest foreclosure option and clearly the cheapest alternative as well. The lender will prepare the deed for you, therefore the only real cost associated with this option is retaining an attorney to briefly review the agreement on your behalf.
If you can’t afford to hire an attorney, use our Sample Deed in Lieu Cover and Hardship Letters as a guide for what to send to the bank and to help ensure that you won’t be responsible for any other costs or fees for anything related to the sale of your home. See more Sample Foreclosure Documents.
Impact on Your Credit Score
The bad news is that regardless of which foreclosure alternative you select, the damage to your credit score will be about the same. On average, involvement in the foreclosure process overall results in about a 100 point hit to your credit score whether you fight the foreclosure lawsuit, use a deed in lieu of foreclosure or even walk away without negotiating anything. Beat Foreclosure Stress
The good news is that once the damage is done and the “penalties” assessed, you won’t be hit a 2nd time when you move forward with one of the foreclosure options available to you. Therefore, short sales, deeds in lieu, etc… will do no further damage to your credit and is not an important consideration when selecting the best option for your situation. Ten Ways to Stop Foreclosure and Protect Your Foreclosure Rights.