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Everything You Need to Know About a Deed in Lieu of Foreclosure

home titleHome Title Experts Discuss Deed in Lieu of Foreclosure

As an Attorney owned and operated title company, we are committed to helping our clients secure their dream homes. However, with the financial crisis of 2008, we’ve also unfortunately seen many home¬≠owners affected by the mortgage ‘meltdown’. Millions of Americans have had to re-finance or sell their homes, as they are no longer able to keep up with their mortgage payments.

In really dire circumstances, however, another lesser-known route is to opt for a deed in lieu of foreclosure. But what does this mean, and who does it benefit?

What is Foreclosure?
When a home-owner is unable to continue with their mortgage payments, they forfeit their legal rights to the property if they cannot sell it or pay the outstanding debt over a certain period of time. The mortgagee or lender (typically your bank or a mortgage provider) can then take over the ownership of the property, which will usually be sold or auctioned as a ‘foreclosed’ property.

Foreclosure is a lengthy legal process – it can take anywhere from a few months to over a year or more – and damages the home-owner’s credit score, making it incredibly difficult to secure another loan for years after. For this reason, foreclosure should be avoided as much as possible.

What is a Deed in Lieu of Foreclosure?
A deed in lieu of foreclosure, then, is a transaction whereby the home-owner voluntarily transfers the rights to the property to their mortgagee, before foreclosure is declared. By doing so, the home-owner essentially trades their property rights in exchange for release from their mortgage payment obligations.

The specific terms of a deed in lieu of foreclosure must be negotiated by the lender and home-owner or the home-owner’s attorney. In some instances, the home-owner can leave the property immediately and relocate elsewhere; in other cases, the home-owner can stay in the home for a few months without paying rent, in order to pack up and organize their relocation. It is also possible that the home-owner may be able to receive a relocation stipend, depending on the kind of loan they had.

When do I need a deed in lieu of foreclosure?
There are often other steps that can be taken before home-owners need to resort to this option. However, you should consider negotiating a deed in lieu of foreclosure if:

  • You are experiencing long-term financial hardship, such as retrenchment, a divorce, or unexpected medical expenses.
  • You are unable to refinance your mortgage agreement.
  • You have tried for at least 120 days to sell the property at a fair market price, but haven’t been able to sell.

Who benefits from this transaction?
The home-owner benefits by not having a foreclosure on their credit record. While it may be a painful process to let go of the home they purchased, it is far preferable in the long-term to avoid foreclosure.

Deed in lieu of foreclosure also frees the home-owner from their debt obligations, and so – without the added disruption of foreclosure and a deficiency judgment against them and it may be easier to get another home loan in future.

It is also advantageous to the mortgagee, as they are now in control of the property and can immediately take steps to preserve or maximize its market value. The mortgagee can also avoid the costs and time involved with facilitating a foreclosure auction.

For more information on how we can help with a deed in lieu of foreclosure conveyance, contact Florida Home Title Company today.