Deeds, instead of foreclosure, allow homeowners to surrender their properties to their mortgage lenders without going through foreclosure. The financial impact of a deed instead of foreclosure may be lower than that of a traditional foreclosure.
To Know About A Deed instead Of Foreclosure
A mortgagor, or homeowner, may choose to submit a deed instead of foreclosure as an alternative. The homeowner mortgagor transfers ownership of the house collateral property to the mortgagee lender in consideration for the cancellation of all remaining mortgage debt. The agreement must be entered into willingly and in good faith on the part of both parties. The document is registered in public records after the homeowner had signed it before a notary public and notarized it.
Default On A Mortgage Vs. A Deed Instead Of Foreclosure
Deeds instead of foreclosures are different from regular foreclosures in several important ways. The primary difference between a deed in lieu and a foreclosure is that the former is an agreement between the homeowner and the lender. At the same time, the latter is the lender's involuntary reacquisition of the property due to the homeowner's prolonged failure to make payments.
With this method, debtors might lessen the blow to their credit rating. According to Alesia Parker, senior branch manager at Atlanta-based residential lender Silverton Mortgage, a deed instead of foreclosure is typically a homeowner's last-ditch effort to prevent foreclosure. If the home sells for less than what is owed on the mortgage during a foreclosure, the bank may file a lawsuit against the homeowner to collect the difference.
Deeds Instead Of Foreclosure: How To Get One
Depending on the property's condition and whether or not there are tax liens or judgments against it for failing to pay property taxes, getting a deed in lieu can be difficult. According to Boies, lenders must factor in the cost of discharging any judgments or tax liens as part of the transfer instead of foreclosure. Deeds-in-lieu-of-foreclosure is not available to every homeowner, and those who think they could be eligible should contact their mortgage servicer to discuss the situation in greater detail.
Taxes And Deeds Instead Of Possession
Taxes on the amount of debt forgiven through a deed in lieu of foreclosure do not need to be paid by homeowners because of the extension of the Mortgage Forgiveness Debt Relief Act through the end of 2025. Boies says it is unclear whether the law would be expanded or if it will be included in other measures being discussed to safeguard homes. She recommends seeing a tax expert if you're concerned about potential tax consequences.
Advantages And Disadvantages Of A Deed Instead Of Foreclosure
Pros
- Your credit score is less likely to drop as a result.
- Perhaps this will expedite the process of acquiring a home.
- Your neighbors won't be able to look up your address online and learn it's been foreclosed on.
- The credit impact of a deed instead of foreclosure is typically less severe than that of a foreclosure. Therefore it may be preferable for homeowners who have exhausted all other options.
Cons
- You'll have to give up your house sooner rather than later.
- There is a ban on pursuing better alternatives, such as loan modifications or mortgage relief.
- Chances are, you'll have to give up any property equity you might have.
- The largest drawback is that the borrower will lose the property and, by extension, any income or investments connected to it.
- Most homeowners have difficulty letting go of the house they worked so hard to buy and preserve.
Alternate Methods To Prevent A Foreclosure
If you're worried about getting into problems with your mortgage lender due to foreclosure, you might want to consider your choices first. Short sales and loan modifications are two of them.
Changing the Terms of a Loan
When you get a loan modification, the conditions of your existing mortgage are altered to make payments more manageable. To help you obtain and stay current on your mortgage payments, your lender may be willing to adjust your interest rate, loan duration, or monthly installments.
Sold Short
A short sale is an option besides a deed instead of foreclosure or a foreclosure case if you don't want to or can't keep the house. A short sale is when a mortgage lender agrees to accept less money than is outstanding on a home loan.
In Conclusiveness
If you are having trouble keeping up with your mortgage payments, a deed instead of foreclosure may be an option. Know the potential consequences of a deed instead of foreclosure on your credit and future home-buying prospects before signing any paperwork. The best course of action might be determined after investigating alternate strategies, such as loan modifications, short sales, and mortgage refinancing.
