Deed in Lieu of Foreclosure -- What Is It?
If you have not been making your mortgage payments your lender may suggest a deed in lieu of foreclosure; or you can propose this option to your lender. It involves you simply handing over ownership of your house to the lender and getting your loan cancelled in exchange. If your lender agrees, it will accept the deed to your property and, in turn, promise not to initiate foreclosure proceedings or to drop them if they've already been started. You do not have to sell the house; the lender will do that.
It has gotten harder to get lenders to accept a deed in lieu of foreclosure since the bank wants cash, not real estate. Before the lender will accept a deed in lieu of foreclosure, it will probably require you to put your home on the market for a period of time (three months has been a typical length of time). Banks would rather have you sell the house than having to sell it themselves. Banks do not have real estate sales departments so they must contract with real estate companies to sell the properties, often at a steep discount.
A deed in lieu of foreclosure can not be used if you have multiple mortgages or if you have liens on the property due to delinquent taxes, work on your home, or money judgements. You must be able to deed clear title to the entire property. You can not do two deeds in lieu of foreclosure and split the property between the first and second mortgage lenders, or other lienholders.
~Barb