Facing Foreclosure? Deed in Lieu Foreclosure Can Salvage Some Credit History
There’s no hiding from the ugly truth out there; the economic crisis as well as the housing industry collapse has left millions of people scrambling for answers where it pertains to keeping their homes or, if that’s simply no longer possible, how to get out with the least amount of damage done to their credit score. Responsible homeowners know that sometimes losing a home isn’t the worst thing that can happen during unforeseen circumstances.
When a homeowner is facing the possibility of foreclosure, they may be able to apply for a deed in lieu foreclosure proceeding that will keep the actual foreclosure from becoming a black eye on their credit report.
<b>Setting the stage</b>
For those of us in the industry, we have seen many different scenarios play out right before our eyes. We have seen the homeowners who were struggling to keep up with their payments finally give up, then remain in their homes until the legal foreclosure process was completed and they were forced from their home. While the story may end there for most people throughout the public eye, these individuals often find themselves facing even greater financial pressure after the home is lost to foreclosure.
Taxes are often left unpaid, forcing the towns to sue the former homeowner to collect them. Also, banks can attempt to sue and collect on time spent in the home without paying mortgage. These little known facts of life about foreclosure are not foregone conclusions, but they occur far more frequently than many private citizens realize.
<b>Deed in lieu</b>
Which leads us to deed in lieu foreclosure. This is an option that could be made available to many homeowners who are facing the prospect of foreclosure, but haven’t actually reached that stage in the game. Basically, the homeowner signs the deed over to the lender. Of course, as with most other aspects within the real estate and mortgage industry, there are many things that need to be considered for this to be a profitable and feasible transaction for both parties.
The first thing that clients should keep in mind when considering this option is that lenders won’t agree to a deed in lieu foreclosure if they have a home equity line of credit taken out against the mortgage, a second mortgage, or if they are upside down on their mortgage.
It’s also crucial to inform clients that everything they agree to with their lender, if they are able to do a deed in lieu foreclosure, should be written down and signed by both parties. This may seem like a no-brainer, but when it comes to desperate times, desperate homeowners will accept almost anything their lender agrees to on faith. Only when they attempt to go to court and realize that there is no legal recourse for them will they understand the importance of having everything written down, documented, and signed.
<b>An almost last resort</b>
For homeowners to consider a deed in lieu foreclosure, they should be well aware that they are tripping down the slope toward foreclosure and be honest enough with themselves, and their broker or lender, that they do not foresee any other way to avoid foreclosure. Some families have faced layoffs from their jobs and have ultimately been called back, or found other work, and have managed to work out a forebearance arrangement to delay payments by several months.
When a homeowner faces foreclosure, it can be difficult for them to accept that they are going to lose their house. Short sales are one option and still homeowners sometimes can’t seem to let go. Deed in lieu foreclosure is another, but it’s also important to disclose to the homeowners up front that most lenders do not want to deal with selling the home and will leave this up to the homeowner to find a real estate agent and work through the entire process to sell the home.
While it may not seem like much of a benefit for the homeowner, deed in lieu foreclosure basically protects the homeowner’s credit. And in this day and age of tougher lender restrictions, that could be worth the effort in itself.
David Reinholtz is a professional <a href=”http://www.loanofficerschool.com”> Mortgage expert in Real Estate Industry </a>.David is also a sales and marketing expert and trains professionals in every career field. David has personally trained tens of thousands of loan officers, mortgage brokers, real estate agents and individuals through The Close More University Seminar Series, <a href=”http://shop.loanofficerschool.com/”> LoanOfficerSchool.com Classes </a>, Correspondence and On Line Learning, and countless private engagements and training events throughout the country.
David is the Founder and CEO of LoanOfficerSchool.com, an approved education provider for The Conference of State Bank Supervisors and The National Mortgage Licensing Systems' (NMLS) required pre-licensing education and continuing education.
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