No one wants to lose their home to foreclosure – and lenders would prefer not to take that step either. Fortunately, there are a number of potential options to consider if you’re not able to keep up with your mortgage payments.
Refinancing or a loan modification may be possible if you can still pay enough toward the mortgage that it’s worthwhile for a lender to make this option work. If not, your current lender may allow a short sale, wherein you sell the property for less than it’s worth. But, there’s also another option that’s typically considered a last resort before foreclosure.
How is a deed in lieu better than foreclosure?
A “deed in lieu of foreclosure” (or just “deed in lieu”) is a document that transfers the property’s title from the owner to the lender. That means the lender fully owns the property and the borrower no longer owes the lender anything. Typically, the borrower moves out of the house once this option is executed. However, a lender may let them rent it for a time while they put it on the market.
While a deed in lieu may not sound much better than foreclosure, it has a number of advantages worth considering if you’re facing foreclosure:
- It can save the embarrassment of having your former home listed publicly as a foreclosed property.
- It’s less damaging to your credit score than a foreclosure, which can stay on your record for as long as seven years. It will still lower your credit score, but not as much.
- It typically saves you from having to pay any late fees, fines, legal fees and other costs that a lender can still assess in a foreclosure action.
A deed in lieu is less costly in time and money to a lender than foreclosure. However, whether a lender is agreeable to this opportunity largely depends on how quickly and for how much the home can be sold. If it’s in good condition and there are no liens on it, the lender may be able to sell it without having to put much money into it and get a good price. It also won’t have the stigma that’s sometimes associated with a foreclosure, which can make it easier to sell.
If you’re getting farther and farther behind on your mortgage payments, it can be overwhelming. Having experienced legal guidance can help you weigh all of your options and determine the best way forward for your individual situation.