All Content Copyright The Foreclosure Helpline 2007
When you get behind on house payments and there is no way that you will be able to catch them up and continue the payments, then as a homeowner you have a decision to make. You have three options to choose from once the loan is defaulted past the point of no return. Two of the options, foreclosure and bankruptcy, will severely damage your credit rating and will show on your credit report from 3 to 10 years. The third option is to give the bank your deed in lieu of foreclosure.
When a homeowner cannot keep up their mortgage payments any longer, they can offer to give the title of the property to the lender to satisfy or cancel the mortgage that is in default and avoid foreclosure proceedings. A Deed in lieu of foreclosure is sometimes referred to as a voluntary deed, voluntary conveyance or cash for keys.
Stipulations that must be metHomeowners cannot just arbitrarily move out of the house and expect the lender to take it. When doing a deed in lieu of foreclosure, the lender must agree to accept the deed and cancel the mortgage. After all, they want their money not the house. There are times when a lender will agree if the circumstances are not brought on by blatant credit abuse on the homeowner's part.
Some lenders will consider a deed in lieu of foreclosure when they are no other options available. However they will have certain stipulations that must be met.
The lender will want proof that you have experienced a long-term financial hardship that has not been resolved. You house has been listed on the market for sale (at fair market value) for at least 90 days. You do not have any other loans or liens against the property The house is "broom clean" Deed In lieu Of Foreclosure And The IRSIf you are approved for a deed in lieu of foreclosure, the property may not be enough to cover the outstanding mortgage. In this case some lenders will waive their deficiency judgment rights whereas other you will owe the difference after they have paid to fix it up and sell it. Remember, if the lender does waive the deficiency amount, then the IRS will expect you to pay taxes on this amount as it is considered income that you have received.
Save Your Credit HistoryA deed in lieu of foreclosure does still impact your credit history much like a foreclosure and your credit scores will drop. However it will not show a foreclosure, it will show that foreclosure was started and it will show the late or missed payments before the deed in lieu of foreclosure was agreed upon. You may be eligible for a new home loan is as little as 2 years if you have kept your other credit accounts in good standing.
A Win-Win SituationThere are advantages for both the lender and the homeowner with this option. Of course the main advantage for the homeowner is that it releases him/her from the mortgage and saves the embarrassment of foreclosure proceedings. For the lender it reduces the time and cost of repossessing the home and other advantages if the borrower were to file bankruptcy due to pending foreclosure.
By trying to explain deed in lieu of foreclosure and how it can affect you, you should realize that you will need to speak with an attorney and a tax professional and see what the ramifications are for your circumstances.
You Probably Have More Options
Before you decide to sign for 'cash for keys', make sure you have researched all options that are available to you. There are a lot.
Learn More Here....
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