A Deed In Lieu Of Foreclosure
If you are having trouble making your monthly mortgage payments, there are options offered to you that may benefit you financially, and oftentimes, leave you in a good area to purchase a home in the future.
Most of these choices are familiar to homeowners: refinancing, loan adjustment, or selling/renting your home. However, an alternative that numerous may not know is a deed in lieu of foreclosure.
In this post we discuss the essentials of a deed in lieu of foreclosure, and compare it to a comparable alternative, short sale. We likewise talk about a few of the benefits of a deed in lieu of foreclosure, in addition to a few of the downsides.
No matter which alternative you select, if you are having difficulty making your mortgage payments and are facing the possibility of foreclosure, it remains in your benefit to talk to a foreclosure defense attorney to help evaluate your possibilities.
Overview of a Deed in Lieu of Forclosure
At its the majority of fundamental level, a deed in lieu of foreclosure is when a property owner provides the deed to their residential or commercial property back to their mortgage loan provider in exchange for being eased of their mortgage financial obligation.
The lender then takes title to the residential or commercial property, and acceptance of the deed might end the liability of the homeowner and anyone else that is responsible for the mortgage financial obligation.
Many borrowers and homeowners frequently puzzle a deed in lieu of foreclosure with a brief sale. A short sale occurs when the house owner offers their home to a third party for less than the overall financial obligation staying on the mortgage loan.
The bank then consents to accept the proceeds from the sale in exchange for releasing the lien on the residential or commercial property. Although comparable, a deed in lieu of foreclosure can be an easier procedure.
As opposed to going through the selling process involved with a short sale, a deed in lieu of foreclosure permits property owners to merely hand over the deed in exchange for a release of liability.
of a Deed in Lieu of Forclosure
A deed in lieu of foreclosure can be advantageous to both the lender and the debtor. As noted above, this procedure permits the property owner to avoid the long and strenuous process of offering the home.
Additionally, it permits both celebrations to evade even longer and costly foreclosure proceedings.
There are also public advantages to the homeowner. Since both the lending institution and the borrower reach a mutual contract through this procedure, consisting of particular terms regarding when and how the house owner will leave the residential or commercial property, the possibility of having officials reveal up with eviction notifications, or public sales ads being published in papers (as holds true with foreclosure) is evaded.
Occasionally, the parties can reach a contract that permits the homeowner to rent the residential or commercial property back from the lender for a particular amount of time.
Because the loan provider saves cash by avoiding the expenses usually incurred through the foreclosure procedure, they may want to work more with the house owner to reach settlement terms that agree with to those that want to maintain their living conditions.
Drawbacks to a Deed in Lieu of Foreclosure
Although the lending institution and the borrower might reach favorable settlement terms while doing so, this isn't constantly the case. Many issues arise in the settlement process when there are secondary liens or judgements versus the residential or commercial property.
In this circumstance, the loan provider would need to go through the foreclosure process in order to acquire a clear title. If there are liens or judgements against your home, the lending institution might either choose not to accept a deed in lieu of foreclosure, or include extra terms to the arrangement which are in the best interest of the house owner.
Another major downside to a deed in lieu of foreclosure is that the house owner requires to do most of the work. When a homeowner uses for a deed in lieu of foreclosure from their lender (or servicer), they need to send all the documents required by the lending institution, work out all the terms and validate that the last agreement waives any deficiency liability.
Deficiency liability is the distinction between what the property owner owed the loan provider and the value of the residential or commercial property when it was returned to the bank.
In contrast, when a homeowner deals with a brief sale, their Real estate agent negotiates the general terms with the Buyer and often times their lawyer deals with negotiating with the loan provider or loan providers to get all of the liens released and shortage liability waived in writing.
Many Realtors and Attorneys will take all (or part) of the payment for their services out of the profits of the sale.
If you wish to work with an attorney to negotiate your deed in lieu of foreclosure, there is no closing or profits to help pay them so you will usually need to spend for their services out of your pocket.
Due to this cost, might homeowners that pursue a deed in lieu of foreclosure work out with their lending institution themselves and simply work with a lawyer to evaluate the final documentation before they sign it.
From the property owner's perspective, the main drawback though this process of the loss of the residential or commercial property, loss of earnings from the residential or commercial property, and the investment in the residential or commercial property. In addition to losing the cash invested in the home, there are also tax effects that homeowners need to understand.
Generally, a conveyance of residential or commercial property is taxable by the federal government. If the lending institution forgives some or all of the shortage and issues an internal revenue service Form 1099-C, borrowers may have to consist of the forgiven financial obligation as taxable earnings.
This is why it is always important to get income tax advice before you pursue a deed in lieu of foreclosure or a short sale.
A deed in lieu of foreclosure can be a beneficial alternative for some property owners. When dealing with foreclosure, it is crucial to comprehend all of your choices and ensure that you are investing your precious time and energy in the right direction.
An excellent way to do this is to speak with a foreclosure defense lawyer or a property lawyer knowledgeable about all of your options to help you create a success strategy to navigate the stressful foreclosure procedure.
Facing Foreclosure? Contact Adam Diamond Law
The legal team at Adam Diamond Law provides persuasive legal arguments based upon the most recent statutes and up-to-date case law created to protect you in foreclosure and keep you in your house. Contact us today to begin.
DISCLAIMER: This short article and any info included herein is entirely for informational purposes and is just suitable in the state of Illinois. While it is necessary that you educate yourself, nothing herein must be construed as legal recommendations or produce an attorney-client relationship. For specific questions, I always urge you to call a local attorney for advice relating to your particular legal requirements.