deed in lieu vs. foreclosure

Guest 0.10 Dollars($)

We're in CA and our current value is $400-$420 and we owe $630 (that includes a 2nd). We have 2 offers from $340-$370 and are in pre-foreclosure. The 2nd won't agree to the sale so we need to foreclose or get a deed in lieu...what happens with the 2nd? Do we have to go to bankrupcy? We can no longer afford the payment on the house due to reduction in income. We want to hand the house to the bank and rent but not sure about the 2nd and what they can do to us?

larry · Joined: 27 Jun 2007 Posts: 3328 473.51 Dollars($)

Hi stacylp,

Welcome to the forum.

Foreclosure is the worst thing that can happen to someone. So I think you should try to avoid foreclosure. First of all talk to your lender ASAP and check out if you can afford any option like forbearance or mortgage modification.

Why are you trying DIL? Have you tried to sell the house and pay off the lender? No doubt DIL is better than foreclosure but the lenders do not always agree for DIL. You should first try out short sate and then if you cannot do it, you can request the lender for DIL.

Feel free to ask if you have any further questions.

Best of luck,
Larry

Guest 0.10 Dollars($)

You don't have to lose your house - Consider a Chapter 13 Bankruptcy - it will stop a foreclosure in it's tracks. You can still sell your home but it may give you the time you need to get top dollar. If you don't pay the 2nd mortgage - you will get slammed with the unpaid note. So, another option may be to sell or DIL (if you can't afford to keep the house) wait for the assessments of unpaid balances to hit and file a Chapter 7 -

Good luck

michelle · Posted: Tue Mar 11, 2008 6:12 am Post subject:

Hi stacylp, welcome to the forum

I do have to agree with Larry that foreclosure should always be the last resort when attempting to get out of a home you can no longer afford. Unfortunately it appears that the lender of the second mortgage is the one not agreeing to your work-outs. Even if the lender on your first mortgage agrees to a DIL, you still can not proceed without the agreement from the second lender as they hold interest in the property.

In regards to your question as to the repercussions of the 2nd should the home foreclose, we would need more information. Was the second mortgage used to purchase the home or did you remove equity at some point? That can make a difference in how any deficiency will be treated. California is a non-recourse state - meaning that if the money was used to purchase the home, any deficiency would not cause further legal action. Also, the mortgage debt relief act that was recently passed may provide tax relief to you for any debt forgiven.

Carrie also throws the bankruptcy solution into the mix, which might also be a good option for you as well.

I believe it would be in your best interest to consult an attorney on this entire matter. These situations can be quite complex and you really should understand the possible consequences in order to make the decision right for you.

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