Posted on: 10th Apr, 2004 03:58am
If you can't keep up with the monthly payments on your mortgage and want to stop a foreclosure on your home, you should consider going for a deed in lieu. To find out what deed in lieu is all about, and whether there's a better alternative, check out the topics below.
- What is a deed in lieu?
- How does deed in lieu work?
- What are the tax consequences?
- What are the other benefits of deed in lieu of foreclosure?
- Is loan modification better than deed in lieu?
What is a deed in lieu?
A deed in lieu of foreclosure is where you deed your property to the lender in exchange for being forgiven the entire amount of the mortgage. The lender then sells off the property in order to retrieve as much of the unpaid mortgage amount as they can.
How does a deed in lieu work?
If you choose to try for a deed in lieu in order to avoid foreclosure, you need to sign several legal documents such as the Agreement in Lieu of Foreclosure and a deed. The first document sets out 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 lender marks the borrower's note as "paid" and provides the borrower with two documents - one which states that the debt is canceled and the other waives the lender's right to a deficiency judgment (the lender's right to ask for the amount of the debt they are unable to recover from the sale of the home).
This agreement is executed through an escrow company which receives the borrower's note (marked as "paid") from the lender. The escrow then records the deed in the property's file at the county recorder's office and sends the note to the borrower, releasing the borrower from all obligations under the mortgage.
The lender marks the borrower's note as "paid" and provides the borrower with two documents - one which states that the debt is canceled and the other waives the lender's right to a deficiency judgment (the lender's right to ask for the amount of the debt they are unable to recover from the sale of the home).
This agreement is executed through an escrow company which receives the borrower's note (marked as "paid") from the lender. The escrow then records the deed in the property's file at the county recorder's office and sends the note to the borrower, releasing the borrower from all obligations under the mortgage.
What are the tax consequences?
When you go for deed in lieu, you may have to pay 2 types of taxes. They are:
- Deed tax: Since this deed involves the transfer of property, the borrower may need to pay a state deed tax on conveyance of property to the lender. The deed tax is $1.65 if there is no consideration, or when consideration is $500 or less.
The tax is calculated on the difference between the fair market value of your property and your mortgage balance plus any liens removed from the property due to the deed in lieu. - Income tax on canceled debt: Under the Mortgage Debt Forgiveness Tax Relief Act (applicable till the end of 2012), you need not pay any income tax on canceled debt (unpaid loan balance which is forgiven by lender) resulting from a deed in lieu. However, a borrower will need to satisfy certain conditions for mortgage tax relief.
What are the other benefits of deed in lieu of foreclosure?
Other than the tax benefits, this mortgage process offers some other benefits to the borrowers as well as the lenders. Some of these benefits are-
- It helps you avoid foreclosure. Foreclosure has serious negative consequences on your finances. Again, lenders also try to avoid foreclosure as it is time-taking and very complicated too.
- Once the deed gets transferred through this legal process, there are no chances of your property going into sheriff sale. There are also no chances to initiate eviction process against you.
- Here the lender is bound to accept your property as payment in full. So, no deficiency judgment can be imposed upon you.
Is loan modification better than deed in lieu?
Mortgage loan modification is a better option than deed in lieu of foreclosure because it helps you keep your home. At the same time, you can save your credit scores from taking a big hit. That's because loan modification allows you to negotiate a lower interest rate and monthly payment on your mortgage.
If you have missed payments, they can be added to your principal balance and the term extended so that your monthly payments become affordable. So, loan modification is a better choice.
However, if you don't have sufficient income to meet your monthly payments, you won't be approved for loan modification. If this is the case, a deed in lieu may be your only choice to prevent foreclosure if your lender agrees.
If you have missed payments, they can be added to your principal balance and the term extended so that your monthly payments become affordable. So, loan modification is a better choice.
However, if you don't have sufficient income to meet your monthly payments, you won't be approved for loan modification. If this is the case, a deed in lieu may be your only choice to prevent foreclosure if your lender agrees.
when should you do a deed in lieu instead of foreclosure? On my foreclosure "all decrepencies are waived" would this be true with a deed in lieu?
I am in the middle of a deed-in-lieu. If the lender does not forgive me of all debt after they sell my house, can they come after my car or motorcycle if I am making payments on them? Can they make me sell them if I have equity in them? Thanks for your help..
Hi Eddy,
Welcome to the forum.
If the lender accepts DIL then generally they don't come after you for the deficiency judgment. So there is no question to place lien on you car or motorcycle. But you should consult it with the lender.
Feel free to ask if you have any further questions.
Best of luck,
Larry
Welcome to the forum.
If the lender accepts DIL then generally they don't come after you for the deficiency judgment. So there is no question to place lien on you car or motorcycle. But you should consult it with the lender.
Feel free to ask if you have any further questions.
Best of luck,
Larry
Hi Eddy,
The lender has no right to your other assests because they are not secured by the deed of trust. In other words they only have right to the property and that is it.
The lender has no right to your other assests because they are not secured by the deed of trust. In other words they only have right to the property and that is it.
I have been paying religiously for 4 yrs on a timeshare each time I try to use I get the run arround I have asked them to sell it as it states in my contract they will and they say that i need to dspeak with whoever wrote that as it is not part of my actual mortgage contract and of course hse no longer works there the manitanence and taxes were supposed to bill biannualy as I own a biannual week and i still get billed every week I cant get a straight answer as to how much I owe left so I could get a personal loan and pay it off and give it away to a charity or sell on ebay for $1.00
so I have refused to pay anymore I am not planning on buying a home over the next 3 maybe 4 years but I am sure will want to buy a car in a few years when my husbands truck is paid off as mine is getting older now. but our credit is ok right now a few blemishes only 1 that is not related to this disaster of a timeshare. would a deed in lieu be in my best interest? also they are telling me they have to wait until the account is severely delinquent to do it is this true or just another lie? Is there anything that I need to know going into this process.
so I have refused to pay anymore I am not planning on buying a home over the next 3 maybe 4 years but I am sure will want to buy a car in a few years when my husbands truck is paid off as mine is getting older now. but our credit is ok right now a few blemishes only 1 that is not related to this disaster of a timeshare. would a deed in lieu be in my best interest? also they are telling me they have to wait until the account is severely delinquent to do it is this true or just another lie? Is there anything that I need to know going into this process.
the maintanence and taxes are billed every year not every week oops.
Hi Guest,
Welcome to the forum.
If you cannot afford the mortgage then talk with your lender and ask him for deed in lieu. I am quit surprised to hear that the lender is not telling you how much you still owe to him. He can avoid you but you should try again and again. It is his duty. BTW if you can pay him off that is better otherwise request him for the deed in lieu.
Feel free to ask if you have any further questions.
Best of luck,
Larry
Welcome to the forum.
If you cannot afford the mortgage then talk with your lender and ask him for deed in lieu. I am quit surprised to hear that the lender is not telling you how much you still owe to him. He can avoid you but you should try again and again. It is his duty. BTW if you can pay him off that is better otherwise request him for the deed in lieu.
Feel free to ask if you have any further questions.
Best of luck,
Larry
thanks for the input I have aske them to do the deed inlieu but what they tell me is they wont do it until it gets turned over to there legal dept. I am trying my hardest with this co. but they are impossible to deal with I have been calling and calling and they will not take my calls so I have resorted to emails and certified letters to contact them I am just so tired of the timeshare at this point I dont even care i just want it gone
hi needinghelpinflorida,
what is the name of your lender? we work with alot of lenders and i'm surprised how rude they have been to you. i'm sorry to hear you are having such a difficult time. also, have you been able to get in touch with your lenders loss mitigation department?
what is the name of your lender? we work with alot of lenders and i'm surprised how rude they have been to you. i'm sorry to hear you are having such a difficult time. also, have you been able to get in touch with your lenders loss mitigation department?
My home is in forclosure. What is the time frame for deed in lieu of forclosure? I am in the redemption period and have aprox2 months left.
Own a former primary home in Florida with a first in line lender and a loan of $295,000 balance. 8 yrs.-no missed payments.
Second in line HELOC on the property of $327,000 thru a different lender (Countrywide).
Total thus is $622,000. 4 years---no missed payments.
Home is currently listed with a Realtor at $687,000 (down from original $869,000). Been on the market 18 months.
Actual value in that market should be above $600,000 somewhere.
Am about out of financial reserves to support those two payments plus my primary home payment here in NC.
Some SSA income plus wife's small pension. Gone back to work in real estate but very limited income success.
Any recommendations such as Deed in Lieu process or other process?
Many thx,
Robert
Second in line HELOC on the property of $327,000 thru a different lender (Countrywide).
Total thus is $622,000. 4 years---no missed payments.
Home is currently listed with a Realtor at $687,000 (down from original $869,000). Been on the market 18 months.
Actual value in that market should be above $600,000 somewhere.
Am about out of financial reserves to support those two payments plus my primary home payment here in NC.
Some SSA income plus wife's small pension. Gone back to work in real estate but very limited income success.
Any recommendations such as Deed in Lieu process or other process?
Many thx,
Robert
Hi Sandra,
Welcome to our forums.
Do you want to know the time period upto which you can go for deed in lieu right after the redemption period ends? well, this will vary from one state to another. I think if you're planning for dil, better talk to the lender now so that you too will come to know whether he's ok with it or may be he'll suggest something lese. By the way, do you still ahve dues left on your mortgage? i mean is this the equitable right of redemption under which you need to pay the arrears?
Welcome to our forums.
Do you want to know the time period upto which you can go for deed in lieu right after the redemption period ends? well, this will vary from one state to another. I think if you're planning for dil, better talk to the lender now so that you too will come to know whether he's ok with it or may be he'll suggest something lese. By the way, do you still ahve dues left on your mortgage? i mean is this the equitable right of redemption under which you need to pay the arrears?
Hi Robert,
I don't think a deed-in-lieu will be a good option here. How about an alternative payment plan with one of your lenders? will you then find it easier to repay both the loans? or say if you don't want to keep the house and it isn't selling, why not offer it for lease to purchase so that the lease payments will help you repay the loans. For this, you need to find out lease payments in your area and then check if the figure is good enough for you to pay off your debt.
I don't think if you ask the first lender for a deed in lieu, he'll agree because he'll have to pay off the second as because he'll be getting the ownership rights with the second lien on the home.
Regards,
Jessica
I don't think a deed-in-lieu will be a good option here. How about an alternative payment plan with one of your lenders? will you then find it easier to repay both the loans? or say if you don't want to keep the house and it isn't selling, why not offer it for lease to purchase so that the lease payments will help you repay the loans. For this, you need to find out lease payments in your area and then check if the figure is good enough for you to pay off your debt.
I don't think if you ask the first lender for a deed in lieu, he'll agree because he'll have to pay off the second as because he'll be getting the ownership rights with the second lien on the home.
Regards,
Jessica
my lender is the timeshare company Island One theydo in house lending I have been asking for a contact in the legal dept which is supposedly handles their mitagations and all I can get is collections they tell me I am not far enough behind for that kind of action and I try to explain I am trying to be proactive so both parties dont waste time stretching the process out and they say they have to give due diligence and will continue harassing collection attempts I am seriously about to have my home phone shut off because they keep calling so much yet when i answer the phone its a stupid automated call from a computer.I seriously think they are trying to drive me to the brink of insanity and trash my credit completely before they let go.
Good to hear back from you needinghelpinflorida,
You may want to speak to a time share specialist. Someone who sells time shares so that they can sell your portion. Of course you will have to pay them a commision but, your lender appears to be waiting for you to fall further behind before they consider workout options.
Another option would be to have an attorney review your documents to see if there are anyways for you to get out of the time share.
You may want to speak to a time share specialist. Someone who sells time shares so that they can sell your portion. Of course you will have to pay them a commision but, your lender appears to be waiting for you to fall further behind before they consider workout options.
Another option would be to have an attorney review your documents to see if there are anyways for you to get out of the time share.
Hi Robert,
I agree with Jessica I do not believe a deed-in-lieu is your best option. Florida is a tough market right now and I would not trust what your realtor is telling you he/she believes what your home would sell for. You need to definitely get an independent appraiser to appraise your home so you know what you are really looking at (i.e. the true value of your home). I know spending money on something you are trying to get rid of seems crazy but, this will allow us to better understand what your best option is.
Meanwhile what Jessica said is right to contact your lender's and talk to them about options and see where they stand at this point. Typically they will not want to discuss anything until you have fallen behind on payments but, at least they will have in their notes that you contacted them trying to work something out. MAKE SURE AND GET THE FIRST NAME AND LAST NAME OF WHO YOU TALK TO. If they will not give you there last name ask them for their code. This will ensure when you call back they will have an easier time looking up in their notes the conversation you had with them.
Do not worry we are here to support and help you through this situation. :)
I agree with Jessica I do not believe a deed-in-lieu is your best option. Florida is a tough market right now and I would not trust what your realtor is telling you he/she believes what your home would sell for. You need to definitely get an independent appraiser to appraise your home so you know what you are really looking at (i.e. the true value of your home). I know spending money on something you are trying to get rid of seems crazy but, this will allow us to better understand what your best option is.
Meanwhile what Jessica said is right to contact your lender's and talk to them about options and see where they stand at this point. Typically they will not want to discuss anything until you have fallen behind on payments but, at least they will have in their notes that you contacted them trying to work something out. MAKE SURE AND GET THE FIRST NAME AND LAST NAME OF WHO YOU TALK TO. If they will not give you there last name ask them for their code. This will ensure when you call back they will have an easier time looking up in their notes the conversation you had with them.
Do not worry we are here to support and help you through this situation. :)