Homeowners who are facing foreclosure sometimes try to negotiate with the mortgage lender for permission to sell the home, and walk away without having to pay any difference between the selling price and the mortgage loan. However, if a sale is not possible, and there is no other available option for the homeowner to keep the home, the homeowner can avoid foreclosure through a deed in lieu of foreclosure.
A deed in lieu of foreclosure is a process by which the homeowner signs over his or her interest in a property to the mortgage lender in full settlement of the mortgage loan owed. A deed in lieu of foreclosure is also known as a mortgage release. Once the homeowner signs over the interest, he or she may have to immediately leave the home, unless he or she negotiates an exit plan that allows him or her to stay in the home for a short period of time. In some situations, the homeowner may receive financial relocation assistance.
Unlike a short sale, the homeowner in a deed in lieu of foreclosure gives up equity in the property when he or she signs it over to the lender. This means that the homeowner gives up the right to receive any money made in excess of the mortgage debt owed once the home is sold. This excess money is referred to as surplus, and is usually paid to the homeowner if the home is sold under other conditions.
While deed in lieu of foreclosure transactions generally release the homeowner from all obligations relating to the mortgage loan, the homeowner has to be careful when signing the agreement. In entering the agreement, the homeowner can agree to be responsible for any unpaid part of the mortgage loan after the home is sold. The homeowner should closely read the agreement releasing the homeowner from the mortgage loan carefully. Even if the lender has made verbal promises that the homeowner will be released from a deficiency, the promise has to be in writing.
Homeowners should note that the deed in lieu of foreclosure does not take care of any other underlying debts secured by the home. If the homeowner owes a second mortgage on the home, or another kind of loan that was secured by the property, the homeowner will still be liable for those loans. For this reason, the mortgage lender would have to foreclose on the property in order to get clear title. This may mean that if the property has multiple liens on it, the mortgage lender may be less willing to accept a deed in lieu of foreclosure.
Like with a short sale, the deed in lieu of foreclosure does have a negative effect on the homeowner’s credit history, but it is less damaging than a foreclosure.
Contact Us for Legal Assistance
There are different way in which homeowners can avoid foreclosure if they are facing financial hardship. If you are feeling overwhelmed, and think you can no longer afford to make your mortgage payments, call us at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan. Our experienced attorneys can guide you through different alternatives to avoid foreclosure.
(image courtesy of Gus Ruballo)