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Deed In Lieu Of Foreclosure

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What Is A Deed In Lieu Of Foreclosure?

A deed in lieu of Foreclosure is a document that affects the transfer of the deed of a property from the owner to the lender to help avoid Foreclosure.

All rights due to the mortgagor (homeowner) are fully forfeited to the lender, and in most cases, all financial obligations are overlooked.

It is usually an option of last resort that is considered after others, including short sales and loan modifications. It has proven abortive and is hugely beneficial to both parties as getting a foreclosure over the line is a time-consuming, messy, expensive, high risk and low reward activity, giving a negative credit standing to defaulters with the blemish reflecting on credit reports for up to seven years.

Deeper Definition

When mortgages end up underwater (with debts exceeding the property’s worth), homeowners agree to deed-in-lieu agreements with their lenders to avoid Foreclosure.

It usually occurs on the back of a mutual agreement between the property owner and the lender upon acceptance of the failure of the mortgagor to make regular loan payments.

Once the deed is delivered to the lender, they reciprocally release the lien on the property, allowing the lender to cut their losses without making the homeowner face foreclosure and its repercussions- the legal implications, the burden of the loan, public visibility, embarrassment, and so on.

Both parties are expected to agree to their own volition and with good intentions. The homeowner’s signature must be appended, notarized by a notary public, and archived in public records.

Both parties have come to an understanding that eliminates the possibility of forceful eviction. In some cases, the property owner may agree to lease it out to the mortgagor for a specified period.

Some of the benefits of a deed in lieu include the high chances to be assisted in moving via the ‘cash for keys’ agreement, minor damage to credit(A deed stays on the credit report for 4years, a foreclosure for 7).

The drawbacks include the loss of the home, no guarantee of acceptance by the lender, e.t.c.

Other substitutes for Foreclosure that could be explored include: loan modifications and short sales, and consultation with a licensed financial expert is highly exposed.

Deed In Lieu Of Foreclosure Example

A lender whose mortgagor cannot meet up with repayments can grant him respite with the deed. 

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