What is a deed in lieu of foreclosure?

When defaulting on a home loan, many people believe that they are out of options and must have a foreclosure. However, one option that may be useful is called a deed in lieu of foreclosure. Doing this transfers the deed from the borrower to the lender, and in effect, cancels out the debt in exchange for the property the debt was on. There are a few things that you must know about deeds in lieu of foreclosure before deciding whether this is a viable option for you.

A deed in lieu of foreclosure is a way to get rid of a defaulted loan that provides several advantages over foreclosing. The biggest advantages for both the borrower and the lender are that it is immediate and easy. Both parties can avoid the expenses and time that comes with a foreclosure proceeding. Lenders will often be willing to do a deed in lieu of foreclosure because it guarantees them the property in its current state with less expenses, and often will be willing to negotiate on more generous terms.

There are some rules about deeds in lieu of foreclosure to protect borrowers. It must be done in good faith, which means that both parties must voluntarily enter into the agreement, and must be satisfied in doing so. Similarly, the debt that is being cleared must be on the property itself – a borrower cannot exchange property for another unrelated debt under a deed in lieu of foreclosure. Sometimes, a lender will not do a deed in lieu of foreclosure on a home mortgage that has more debt than the house has value, since they will get the property either way. Still, the advantages of a quick and cheap process sometimes wins out, and some lenders will do a deed in lieu of foreclosure even if they will not claim as much value on the debt.

A deed in lieu of foreclosure can be a viable alternative to foreclosure if both parties are willing to do it. The most important aspect of any negotiation is communication, so if you are interested in doing a deed in lieu of foreclosure, get in contact with your lender and they will likely be glad to help.

Graham Billings

Graham Billings

Graham Billings is a senior at the University of North Carolina at Chapel Hill with a double major in Economics and Political Science. He plans to graduate in December of 2009 and then attend law school in the fall of 2010. He is a member of the Economics Club at Carolina, which brings in speakers and hosts events in order to discuss current economic issues and help those who do not have a background in economics become more familiar with it. He is a National Merit Scholar and Dean’s List recipient. He is originally from Greensboro, North Carolina and attended the Early College at Guilford for high school, taking classes at Guilford College. In addition to economics, his academic interests include the legal and political system. He headed the only student-run, high school-level Honor Court in high school and participated in a national model Congress in San Francisco, run by Harvard students, and won awards of excellence for his work on the mock Supreme Court. Additionally, he tutors Carolina students in economics on a volunteer basis.
Graham Billings

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