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Debt Relief – Insolvency – Bankruptcy Information » Uncategorized » Deed in Lieu of Foreclosure issues and solutions

Deed in Lieu of Foreclosure issues and solutions

An alternative to a foreclosure is a deed in lieu of foreclosure (DIL),  a situation in which a mortgagor or borrower covers all interest in a real property  to the mortgagee (lender) to satisfy a loan that is in default and avoids foreclosure proceedings. This has advantages for both the lender and the borrower. The borrower avoids the public notoriety of a foreclosure proceeding and may receive more lenient terms than they would in a formal foreclosure. A Deed in lieu of foreclosure doesn’t hurt the borrower’s credit as much as a standard foreclosure. The lender gets reduction in the time and cost of repossession, lower risk of revenge from the borrower, and more advantages if the borrower files for bankruptcy.

In order to be considered a deed in lieu of foreclosure, the indebtedness must be secured by the property being transferred. Both parties must enter into the transaction voluntarily and in good faith. A settlement is then made taking into consideration that the property is at least equal to the fair market value. Lenders will agree to this usually since they will end up with the property anyway and the foreclosure process is pricy.  Neither the borrower nor the lender is obligated to continue with a deed in lieu of foreclosure unless both have come to a final agreement.

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A Deed in Lieu of foreclosure may not be accepted by mortgagors who can financially make their mortgage payments. This is a potential way out of foreclosure for concerned homeowners who are dedicated to find their way back to financial solvency. It may not always be the best way, but much better than going through the foreclosure process or filing for bankruptcy. Many believe that a Deed in Lieu of foreclosure looks better on your credit report than a bankruptcy or foreclosure. In some cases you may end up handing over the title and letting the lender sell the house.

If you choose to try a deed in lieu for foreclosure, you need to sign several legal documents such as the Agreement in Lieu of Foreclosure and a deed. This document lays out the terms and conditions of the deed-in-lieu. The second document is the deed and conveys legal ownership of the property to the lender. These documents both need to be signed and agreed to by both parties. The lender marks down that the borrower is paid and provides them with two documents. One states that the debt is canceled and the other waives lenders right to a deficiency judgment.

There are some disadvantages to a Deed in Lieu. You most likely will not be able to get a Deed in Lieu if you have second or third mortgages; home equity loans, or tax liens. Getting a lender to accept a deed in lieu of foreclosure is difficult because most lenders want real estate—especially the ones with a lot of properties. Banks might approve of the deed instead of foreclosure expenses. It’s important when considering this way out of bankruptcy to avoid tax consequences. A deed in lieu may generate taxable income based on the amount of forgiven debt.

 

The best thing is to think about your financial situation well in advance to avoid any other problems. The bank might not approve the Deed in lieu of foreclosure, so you should think of all your options and find a bankruptcy solution that works for you. Banks might get you out of a home loan by taking a hit on financial expenses and have to sell the house. That’s where the experts at Tampa bankruptcy solutions come in, to help all individual financial problems.

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