Avoid Foreclosure

Deed in Lieu of Foreclosure

The deed in lieu of foreclosure offers several advantages to both the borrower and the lender in certain circumstances. The biggest advantage to the borrower is that it immediately releases him from most or all of the personal indebtedness associated with the defaulted loan, personal liability is a problem in most states (if you've ever had a car reposed, you know what this means…taking the collateral is just the beginning). With a deed in lieu of foreclosure, the borrower also avoids the public notoriety of a foreclosure proceeding and almost always receives more generous terms than he would in a formal foreclosure.

If you have been unable to make your monthly mortgage payments and have also been unsuccessful trying to sell your home at the market value, a deed in lieu of foreclosure may be the best option to get you back on track. As a way to avoid California foreclosure, this procedure allows you to transfer title to your property to your lender or mortgage company voluntarily and your debt or deficiency is usually completely forgiven. This will not save your home, but it will protect your future. A deed in lieu of foreclosure will also help you avoid the lengthy legal process of a formal foreclosure (judicial foreclosure or non-judicial foreclosure) and public record filings. Although a deed in lieu of foreclosure is a negative item on your credit report, it is less harmful than an actual foreclosure.

The process works this way: under certain circumstances, a lender will accept the property back from the borrower as full payment of the loan. This benefits the lender because it saves them the time and expense (including attorney fees, trustee fees, and eviction costs) of actually going through the foreclosure process and removing the borrower from the property.

Frequently, it is possible to convince the lender that it is in their best interest to accept title to the property as payment in full on the loan.  This process is not simple. It requires a complex, detailed analysis of current and future (projected) value of the property. Once the lender is comfortable with the actual “fair market value” of the property, they must be convinced the borrower can not afford to make the payment.

As with a short sale, it is critical to walk the thin line between convincing the lender the borrower has no money NOW, but at the time the borrower applied for the loan they DID have the money (thus avoiding allegations of mortgage fraud).