Helping Neighbors In Need

A deed-in-lieu of foreclosure acts to sidestep the normal foreclosure process by simply deeding the property to the lender before foreclosure proceedings have been completed. There are, however, lenders whose policy is not to accept a deed in lieu and opt to pursue the formal foreclosure process to secure a more marketable deed to the property.

When offering a “deed in lieu” to avoid foreclosure, you will need to sign legal documents such as the Agreement in Lieu of Foreclosure and a warranty deed, quit claim deed, or a grant deed. The first document reveals the terms and conditions of the deed-in-lieu, and is signed by both the lender and borrower. The second document, which is the deed, conveys legal ownership of the property to the lender.

The agreement for deed in lieu of foreclosure is executed through an escrow company (or title company) who receives the borrower's note (marked as "paid") from the lender. The escrow company then records the deed used for transferring legal ownership of the mortgaged property and sends the note to the borrower releasing them from the liability of the mortgage payments.

The deed in lieu of foreclosure offers some advantages to both the borrower and the lender. The principle advantage to the borrower is that it immediately releases him from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he would in a formal foreclosure. A deed in lieu allows the lender to take ownership of the property without going through a lengthy, and costly, foreclosure process.

Although it is a negative strike on your credit rating, it is typically less harmful than a formal foreclosure.

The U.S. Department of Housing and Urban Development (HUD) has provided a list of frequently asked questions concerning Deed-in-Lieu on their website: Deed-in-Lieu, Frequently Asked Questions.

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