Realizing that you can’t keep up with the payments on your house is often a panic-inducing moment. If you’re facing foreclosure, you know how damaging it can be to your credit and financial future, but there’s simply no way you can cover the payments.
While this is a tough situation, you have options beyond simply allowing the past-due notices to start rolling in. One of those is deed in lieu of foreclosure, and we explain below the process, the benefits, and the effects you can expect from taking this route out of your home.
How It Works
A deed in lieu of foreclosure, which is sometimes called a mortgage release, is a process where the homeowner voluntarily transfers the property ownership to the mortgage owner in exchange for being released from the remaining mortgage debt. Here’s how it works:
- Oftentimes, you’ll need to submit various documents to your lender proving your income and expenses.
- Then, the lender might require that you try to sell your home for a specified period of time.
- If your application is approved, you’ll receive a deed transferring ownership to the lender along with estoppel affidavit, which explains the terms of the agreement. These will need to be signed at a scheduled closing.
- You will agree to vacate the house, empty it of all belongings, and leave it clean by a certain date.
Depending on the terms, you might be completely released from all debt, or you might have to pay a deficiency balance, which is the difference between the amount owed on the property and what it’s eventually sold for.
How It Can Help
Even if the foreclosure process has already started, you can benefit from a deed in lieu of foreclosure in the following ways:
- Possible release from the remaining debt.
- Avoidance of a public foreclosure sale.
- Might be less damaging to your credit score than a foreclosure.
- Could be eligible for relocation assistance or flexible options for leaving the home (such as staying rent-free for 3 months or paying the market rental rate for up to a year.)
Keep in mind that these benefits all depend on the terms of the agreement with your lender.
How You Can Be Affected
While this option is better than going through a foreclosure, it doesn’t mean everything will turn out perfectly afterwards. Keep in mind that:
- If you’re responsible for a deficiency, you could be sued for the remaining amount.
- There could be tax implications. Cancellation of debt could be considered income.
- If you have other liens or home equity financing, that can make the transaction more complicated or even disqualify it.
As with any important decision, weigh these factors along with the benefits and prepare for them during the process.
Losing your home is a devastating event, but taking steps to deal with it proactively can soften the blow and allow you to move on faster. By voluntarily releasing ownership of your home, you can free yourself of the stress of missing payments and a long, complicated foreclosure process.
Want to sell your house fast and avoid foreclosure altogether? Call us at 469-250-0018 or fill out a form online to receive a cash offer on your house within 24 hours and let us take over the payments!