What is a Deed-in-Lieu of Foreclosure?
If all else fails and you won’t be able to save your home, you may qualify for a deed in lieu of foreclosure. In its simplest form, a deed-in-lieu of foreclosure allows you to give the house back to the lender and avoid foreclosure proceedings altogether.
The Benefits of a Deed-in-Lieu
The deed-in-lieu offers several advantages to you. Primarily, you are immediately released from most or all of the personal indebtedness associated with the defaulted loan. Besides avoiding the public notoriety of foreclosure proceedings, your credit suffers less as well.
Lenders are willing to do a deed in lieu of foreclosure because they can reduce the time and cost of repossessing the house with a foreclosure. Additionally, banks lower their risk of the borrower seeking revenge (material theft and vandalism before sheriff eviction) as well as the being in a more advantageous position if the borrow subsequently files for bankruptcy.
Things to Consider with a Deed in Lieu of Foreclosure
- Your home may need to be listed for sale (or attempt a short sale) before the lender will consider this option.
- Many lenders have cash incentives to help borrowers relocate. Cash incentives, sometimes called Cash for Keys, can help pay for the expense of relocation.
- When applying for a loan in the future, lenders may ask if you’ve had a foreclosure or a deed in lieu of foreclosure in the past 7 years. This will have a negative impact on future home buying.
HAFA Deed-in-Lieu Program
The government Home Affordable Foreclosure Alternatives (HAFA) program is for homeowners who are eligible for the government Home Affordable Modification Program (HAMP), but are not able to secure a permanent loan modification or cannot avoid foreclosure. HAFA provides protection and money to eligible homeowners who decide to do a Deed-in-Lieu.
Getting Help with a Deed-in-Lieu of Foreclosure
When considering a deed-in-lieu of foreclosure, it helps to get some free advice before negotiating with your lender. Talk to a nonprofit housing counselor from a HUD-approved agency and find out the details on how a deed-in-lieu works, if it’s right for you, and how to get cash incentives based on your individual situation.