There was a forum discussion, where the poster wanted to do a deed in lieu of foreclosure on his house as he had to leave the property and move out of state. His house was destroyed by Hurricane Ike and he had to relocate to a different state for a new job. The poster could not afford to make payments on the mortgage anymore and wanted to sign over the property to the lender through deed in lieu. But the lender said a deed in lieu was not possible since the loan was insured by FHA. The lender further said that he could not approve the DIL even if the poster qualified for it, until foreclosure proceedings had started. The poster had the following questions:

1.    Does having an FHA loan disqualify him for a deed in lieu?
2.    Can he do anything to speed up the foreclosure proceedings so that the lender can offer a DIL?

The poster is no doubt stuck in a bad situation. On one hand, his house has been devastated by Hurricane Ike and may not sell in the market for a fair price. On the other hand, he cannot get rid of the property through a DIL as the lender would not approve of it.

A deed in lieu in this situation can be quite helpful for the poster. It will enable him to sign over the property to the lender. The lender can then sell off the property and recover the outstanding balance on the mortgage. Though it will affect his credit in a negative way, yet it will at least help him get rid of this property and move on with life.

FHA guidelines regarding DIL

There is no FHA rule or guideline that disqualifies a borrower for a deed in lieu of foreclosure. FHA lenders do accept deed in lieu requests if the borrower has exhausted all his loss mitigation options. FHA does not also have its own criteria to determine if a borrower qualifies for a deed in lieu. It is completely at the lender’s discretion if he would allow the borrower to deed over the house to him. The lender assesses the borrower’s extent of hardship, financial situation, etc. in order to check the borrower’s eligibility for the DIL. Thus, FHA does not have any rule that prohibits deed in lieu on FHA loans. In fact in 2006, when Hurricanes Katrina, Rita and Wilma wrecked havoc in many of the states, HUD extended special DIL authority to lenders to help borrowers affected by the hurricanes in major disaster areas. This may not apply to the poster’s situation. But it certainly goes on to prove that a DIL is possible on FHA loans.

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