Why a Deed-In-Lieu is a Bad Idea
While a deed-in-lieu of foreclosure might sound like a simple solution to homeowners facing foreclosure, this really provides them with little benefit.
The lender wins hugely. They get the property back quickly and cheaply and do not have to worry about legal fees or fighting a foreclosure defense.
So why is this happening? Despite the size and the length of the foreclosure crisis, there is still a dearth of accurate and useful information to help those facing foreclosure. At least, it is not getting to those who need it.
Homeowners are not sure where to turn. Everybody was hoping to get a principal reduction on their mortgage. Obama’s loan modification program was touted by many as a solution to this crisis. Homeowners are now discovering that they were not able to qualify for the much heralded loan modification schemes and are letting their homes go.
So what is the problem with doing a deed-in-lieu of foreclosure?
The homeowner could still get stuck with a deficiency judgment, unless they qualified under HAFA or got the lender to provide full satisfaction of the total amount due. Despite a lot of belief to the contrary, a deed-in-lieu could hurt your credit as much as a foreclosure. Thus, it could stop you buying again for five or more years.
Homeowners should first consider doing a short sale. A short sale has less impact on your credit, according to most experts, because it shows you were taking action. It also allows you to buy again after two years. Finally, it will be much easier and quicker to rebuild your credit, which could also save you thousands of dollars in car payments.
A word of warning, however – make sure that in the negotiation for a short sale, you get the bank to give you a full payoff so that you do not get stuck with a deficiency judgment or a promissory note. It is also wise to find someone with a successful track record to make sure that all goes according to plan.
In summary, in a short sale, the homeowner can sell the property at a low price in order to get it sold fast. This enables them to get on with their life, fix their credit and be eligible to buy another home in as little as two years. If they buy again, their mortgage will probably be half what it was before.
Tags: Deed-In-Lieu, Foreclosure, Homeowners
