Deed in Lieu of Foreclosure
If a homeowner cannot pay the mortgage payments and is in default, he or she may not have to go through the foreclosure process if the lender accepts a transfer of title of the property or deed in lieu of foreclosure.
What is a deed in lieu of foreclosure?
A deed in lieu of foreclosure is a legal document conveying property to the lender after the borrower defaults on his/her mortgage payment.
What happens when the lender accepts deed in lieu of foreclosure?
When the lender accepts deed in lieu of foreclosure, the right to the deficiency judgement is waived. The lender takes possession of the property and, by doing so, avoids the cost of foreclosure, eviction, auction sale, etc. When this happens, the lender will not come after the homeowner for the difference between the amount owed and the proceed from the sale of the property. Usually the lender will not do this unless the lender feels like the homeowner has little wealth and it is not worth their time and cost in risking coming after the homeowner. Usually, even if the lender manages to file a deficiency judgement suit against the homeowner and successfully won, the homeowner still cannot pay.
Problems with deed in lieu of foreclosure
A homeowner should not expect all problems to go away when the lender decides to accept the deed in lieu of foreclosure. Deed in lieu of foreclosure process may not resolve all claims against the property. This is why the warranty deed is so popular to protect buyers against future claims against the property.
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