WORD: Deed-in-lieu

The WORD for today is:

Deed-in-Lieu—is an option for avoiding foreclosure. The consumer is allowed to voluntarily relinquish the home when they have not been able to make payments as a last ditch effort to avoid foreclosure. While the consumer will not be able to stay in the house this is still a better option for them than a foreclosure. When the lender eventually resells the home, if the amount they net is less than the amount of the mortgage the lender is very likely to file for a deficiency judgment against the consumer.

Literally means to return the deed to the lender in lieu (instead of) forcing the lender to take back control of the property through foreclosure action. It will be reported as a deed-in-lieu to credit reporting agencies which is much better than a foreclosure and perhaps slightly worse than a “short sale.” When the loan is an FHA backed loan the borrower is entitled to $500.00 when they sign the deed-in-lieu and vacate the home as agreed. The borrower may still incur a tax liability for some or all of the debt which has been forgiven. It would be wise to talk with a tax accountant before agreeing to this relinquish of the property in this manner.

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