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?
Hi Thevan,
If the lender accepts your request for a deed in lieu, then you will have to surrender the property to the lender and leave it. If you want to stay in the property, then you will have to negotiate with your lender. It will definitely affect your credit history. Your credit score would get reduced by 250 points and it will stay in your credit report for next 7 years. Once the deed in lieu is accepted, I don't think there is any need to apply for a short sale.
If the lender accepts your request for a deed in lieu, then you will have to surrender the property to the lender and leave it. If you want to stay in the property, then you will have to negotiate with your lender. It will definitely affect your credit history. Your credit score would get reduced by 250 points and it will stay in your credit report for next 7 years. Once the deed in lieu is accepted, I don't think there is any need to apply for a short sale.
I have rental property that brings in very little but costs me greatly. I have exhausted all bank account in order to make mortgage payments. They have been on the market 5 different times, and still no buyers. To make matter worse, no realtor wants to list them because they know they can't sell them. I am now looking at foreclosure. I don't know what to do. HELP!
You can apply for a deed in lieu of foreclosure with your lender. It will be the lender's discretion whether or not he would accept your request. If the lender accepts it, you would be able to get rid of the property and you won't be liable for the deficient balance resulting from the sale. If the lender does not accept it, then you will have to let the lender foreclose the property.
Hi Jessica, back in 2006, I was in the military and my girlfriend and I both purchased a timeshare in FL. Since then we split and I got out of the military. I was not able to pay for the timeshare and she refused to pay also. Now, I received paperwork for me to sign so that I would not be responsible for it anymore. Are there other options in timeshare properties? Owning that property never showed on my credit report, now after the Deed in lieu, it will?? is that correct?
thanks,
Charles
thanks,
Charles
Hi Charles,
If you go for a deed in lieu of foreclosure in order to get rid of the property, then it will be mentioned in your credit report. It would be considered as a negative item and will remain on your credit report for 7 years. Also, it would lower your score by 250 points.
If you go for a deed in lieu of foreclosure in order to get rid of the property, then it will be mentioned in your credit report. It would be considered as a negative item and will remain on your credit report for 7 years. Also, it would lower your score by 250 points.
My father has been ill since early 2008. I live 10 hours away and travel to help with his needs.As this became a financial and personel strain on my family I decided to put my home on the market in august of 08. In almost 3 years I`ve nevr had an agent bring a potential buyer or anybody else look at or make an offer. I bought the home in june of 07 for 165,000 I owe 150,000 to B of A. An appraisal in 03/10 came in at 125,000 I requested a deed in lieu , but since I wasn`t delinquent BofA said no. So I`ve decided not to make any further payments. I live in Ca. have no assessts and wish to leave to be closer to my father.Could you please explain the future implication of my actions for the deed in lieu. I`m going to wak with or with out BofA `s blessing. What should I agree to w/ BofA if they approve .I don`t want my ignorance to be taken advantage of by them. My father wants to sell me a home he has so I can be close by Is this wise ?Will BofA put a lien on that property if my name appears on a deed? Alot I know,THANKS
Hi HONDO!
Welcome to forums!
A query similar to yours has been replied to in the given page:
http://www.mortgagefit.com/problems/deedinlieu-sellhome.html#155869
Have a look at it. Hope it helps you.
Sussane
Welcome to forums!
A query similar to yours has been replied to in the given page:
http://www.mortgagefit.com/problems/deedinlieu-sellhome.html#155869
Have a look at it. Hope it helps you.
Sussane
My lender and I were not able to agree on a loan modification amount. As a result, I have no choice but to allow my home to go into foreclosure. I have heard about "keyes for cash". I understand the fundamentals of this program, but what is the timeline and more specifically how can I receive compensation for moving expenses and motel fees at this already unstable time in my life?
Hi Sasha,
I've given my suggestions to your query at:
http://www.mortgagefit.com/inprocess/about36446.html#156505
Take a look at it. Hope it helps you.
Take care.
I've given my suggestions to your query at:
http://www.mortgagefit.com/inprocess/about36446.html#156505
Take a look at it. Hope it helps you.
Take care.
hi jessica:
my wife and i are currently in a chapter 13 bankruptcy and will be until 2013.
we live in a town home association. the members of the association have recently voted in favor of a a one-time assessment of $16,700 due by june 1, 2010. we do not have the money to pay it in one lump sum or the option of paying $3,400 over a five month period with final payment due 10-1-2010. therefore, we have a huge problem. my question is: should we try to negotiate with our town home management (it's a 6 person board comprised of the people who live in the development) to pay them what we would normally pay in our first and second mortgages (our house is our collateral for the second mortgage) over about a nine-month period? in the meantime, unless we win the lottery, both our first and second mortgages will go into default and the wheels of foreclosure should be well underway by the time we have paid the town home association for their assessment. we feel this is just throwing good money after bad but we're concerned that if we don't pay it, the town home association (hoa for now on) can and will sue us at a later date. would we be better off now to find and move into a rental property (while our credit report does not show delinquent mortgage payments on it); stop making payments on both mortgages, as would no longer be living there and could not afford to pay both rent and 2 mortgages; let it go into foreclosure and
then with foreclosure pending, enter into a deed in lieu of foreclosure with our mortgage company and secure a release and satisfaction with the second mortgage company? also, can the hoa sue us after a deed in lieu of foreclosure has been entered into by all parties? thank you in advance for your opinion. :oops:
my wife and i are currently in a chapter 13 bankruptcy and will be until 2013.
we live in a town home association. the members of the association have recently voted in favor of a a one-time assessment of $16,700 due by june 1, 2010. we do not have the money to pay it in one lump sum or the option of paying $3,400 over a five month period with final payment due 10-1-2010. therefore, we have a huge problem. my question is: should we try to negotiate with our town home management (it's a 6 person board comprised of the people who live in the development) to pay them what we would normally pay in our first and second mortgages (our house is our collateral for the second mortgage) over about a nine-month period? in the meantime, unless we win the lottery, both our first and second mortgages will go into default and the wheels of foreclosure should be well underway by the time we have paid the town home association for their assessment. we feel this is just throwing good money after bad but we're concerned that if we don't pay it, the town home association (hoa for now on) can and will sue us at a later date. would we be better off now to find and move into a rental property (while our credit report does not show delinquent mortgage payments on it); stop making payments on both mortgages, as would no longer be living there and could not afford to pay both rent and 2 mortgages; let it go into foreclosure and
then with foreclosure pending, enter into a deed in lieu of foreclosure with our mortgage company and secure a release and satisfaction with the second mortgage company? also, can the hoa sue us after a deed in lieu of foreclosure has been entered into by all parties? thank you in advance for your opinion. :oops:
None of your creditors will be able to take any action against you as you are in Chapter 13. The court will place an automatic stay on your creditors which will stop them from taking up any actions against you. As far as the town home association is concerned, I would suggest you to speak to them and try to get an affordable payment plan. As far as your first and second mortgages are concerned, you would get a payment plan from your lender in order to pay off the dues within 3-5 years.
Hi Jessica,
I own property in long island and I have it listed as my primary residence. The mortgage and deed is solely in my name. However I did a favor for someone to put the mortgage in my name in 2007. The mortgage is currently due for 5/09. The person is living in the home. I currently have an eviction in process in the courts. she has made the payments all along before the market tumbled. what are my options. should i do a deed and lieu with the taxes on the loss on the property be forgiven to me by the IRS. Since a 1099 will be issued. Please advise ..Thanks..
I own property in long island and I have it listed as my primary residence. The mortgage and deed is solely in my name. However I did a favor for someone to put the mortgage in my name in 2007. The mortgage is currently due for 5/09. The person is living in the home. I currently have an eviction in process in the courts. she has made the payments all along before the market tumbled. what are my options. should i do a deed and lieu with the taxes on the loss on the property be forgiven to me by the IRS. Since a 1099 will be issued. Please advise ..Thanks..
If you are on the mortgage, then you can apply for a deed in lieu of foreclosure. This will help you in getting rid of the property and you won't be liable for the balance amount due from the sale of the property. However, it will have a negative impact on your credit report and lower your score by 250 points.
We sold the property but the new owners failed to record the deed with the county. They have since moved out without paying a dime in payments (since April 2009) to the private party lender, whome we used as well. The lender is now simply wanting their property back. However, we have received a deed in lieu of foreclosure form to sign and send back to them. We're not sure how this will affect our credit since it is a private party and if we could still be held liable for the payments the "new owner" failed to pay. Help?!
I am in the process of doing a DIL. What do I need to do to make sure that I don't have to pay anything after all is said and done (deficiency) and also how much is deed tax in NH. Do I have to pay this.