Using A Deed-in-Lieu of Foreclosure

A deed-in-lieu of foreclosure is simply a document in which the borrower assigns all rights and entitlement of a property over to the lender in order to stop a foreclosure and the implications of same.

It is a document that, when used, can benefit both parties.

For The Lender

The costs of recouping money from a defaulting borrower are often in excess of the the money owed. Lenders are pragmatic and will take the best and least expensive route to solve a problem – a Deed in Lieu will accomplish this.

For The Borrower

Using a Deed in Lieu has the advantage of allowing the borrower to walk away with the debt fully settled and with no adverse result on his/her credit score. It also save them the inconvenience, hassle and stress of the foreclosure procedure and all that it entails.

Conditions for a “Deed-in-Lieu” of Foreclosure to Work

  • For  a Deed-in-Lieu of foreclosure to be legal and take effect it must be voluntarily entered into by all parties
  • A deed-in-lieu is seldom used where the borrower has equity in the home. In these circumstances it is better to sell the house and get any excess over the amount owing.
  • Where there is more than one lender, for example a second (lessor) mortgage note the holder of the lesser mortgage may be reluctant to walk away from what is owed.  However sometimes they are aware that the chances of getting anything back in the event of a forced sale are negligible and they could well agree to a deed in lieu.

A deed-in-lieu can be instituted during the foreclosure process provided these conditions are met.

Learn more about the uses of a deed-in-lieu of foreclosure, and when you should and shouldn’t use it, through “what lies in your debt