subject: What is Deed in Lieu Real Estate Contract? [print this page] What is Deed in Lieu Real Estate Contract?
A deed in lieu real estate contract is sometimes offered to borrowers facing foreclosure. Instead of commencing with legal action, banks allow borrowers to return the keys to their home and walk away from the property. Borrowers cannot receive funds from the sale of the home and lose all invested money.
Not all banks offer deed in lieu contracts. However, more lenders are engaging in this strategy to reduce costs associated with the foreclosure process. According to Freddie Mac, the cost of foreclosure can range between $60,000 and $80,000 per property, while the cost of deed in lieu ranges between $1500 and $2500. Deed in lieu costs are often absorbed by borrowers to cover the cost of required documentary stamp tax.
Entering into deed in lieu of foreclosure is a cost-effective alternative for both lenders and borrowers. Deed in lieu helps borrowers avoid the embarrassment of foreclosure and can minimize the stress associated with having property repossessed. It is never easy to lose a home, but deed in lieu can make it less traumatic.
Deed in lieu of foreclosure is not without consequences. The primary disadvantage is deed in lieu can wreak havoc on credit scores and take up to ten years to fully recover from the financial fallout. In the credit world, deed in lieu is perceived the same as foreclosure. Debtors can expect a fico score reduction of 100 points or more and may be subjected to deficiency judgments.
It is crucial for borrowers to determine if their lender will hold them responsible for any deficiency between the sale price and loan balance. Many mortgage lenders obtain court-ordered deficiency judgments which often amount to several thousand dollars and can take a lifetime to repay. In addition to being expensive, deficiency judgments remain on credit reports for up to seven years after they are fully repaid.
Some mortgage lenders accept the returned real estate as payment in full and allow displaced property owners to walk away with only credit damage. This type of deed in lieu is known as 'Payment in Full without Pursuit of Deficiency Judgment' and is the preferred option. When banks issue deficiency judgments it is recommended to obtain legal counsel prior to signing the real estate contract.
Borrowers must meet deed in lieu eligibility requirements which require the property to be the borrower's primary residence. Debtors are prohibited from vacating the premises or leaving the home empty during the property transfer process. Borrowers must be a minimum of 31 days delinquent on home mortgage installments.
Lenders usually reserve deed in lieu as a last resort. In most cases, banks offer borrowers the opportunity to obtain a loan modification, refinance mortgages, or enter into a real estate forbearance agreement. After all, banks are in business to make money, not sell foreclosure real estate.
While deed in lieu may sound tempting, it is crucial to weigh the pros and cons of this foreclosure solution. Always consult with a mortgage specialist or real estate lawyer to determine if deed in lieu is the best option. Borrowers who fail to research available options could end up owing thousands of dollars on a property they no longer own. Get the facts before making this crucial financial decision.
