We understand that for many people there is no life experience as stressful as an impending loss of the family home for financial reasons. Foreclosure proceedings usually further impact an already difficult time in any homeowner’s life. That’s why we’re going to explain a deed in lieu of foreclosure, an admittedly imperfect alternative that might at least eliminate some of the drawn-out pain of foreclosure.
But first let’s examine a couple other possible options.
Modification or Refinancing
If your loan is troubled, the first thing you need to do is call a meeting with your lender. It could be possible that they’ll work with you to try to modify the terms of your loan or refinance it altogether. If you get nowhere with your current lender, explore refinancing options with other sources. Sometimes a lower interest rate can make a huge difference in your ability to make the monthly payments.
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The willingness of lenders to work with troubled borrowers will often depend on the state of the local economy. If too many homeowners are defaulting at a moment in time, the lender might fear ending up with a large portfolio of hard-to-sell real estate and be more willing to work with you. If, on the other hand, the real estate market is hot, the lender might prefer to get your property back on the market as soon as possible and be less willing to negotiate ways of keeping you in your home.
When Foreclosure is Inevitable
After you’ve stated your case with your lender and explored all other options, making the effort to get a deed in lieu of foreclosure might be the best possible alternative.
In this strategy, you agree to give up your home before your lender can act to legally repossess the property. It eliminates the long, drawn out and very emotionally painful court battle that you’ll almost inevitably lose. This deed instrument might also be less of a hit on your credit report than a foreclosure.
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Your lender can often be motivated to accept such a deed since it’s faster and easier and less expensive than acting through the courts. They also know that the departing borrower is likelier to be more accommodating to the move. In other words, there’s less risk of theft or vandalism from the home if both parties are working together and on better terms than they might be during foreclosure.
One warning: this is only a viable option if the mortgage is unencumbered. If you have other liens on your home — a tapped credit line, for instance — you must first pay it off before your lender will work with you on a deed in lieu of foreclosure.
Will your lender consider this deed instrument in your circumstances? You’ll never know without asking. But first talk to your attorney and explore all of your options. We wish you the best possible course of action during these trying times.