Q. Can you provide the definition of a deed in lieu of foreclosure?
A. In technical terms, you exchange the ownership interest in your home, represented by a deed,
back to the secured lien holder for consideration of avoiding mortgage foreclosure and in some cases
forgiveness of a mortgage deficiency.
Q. Great, now can you give me the definition of a deed in lieu of foreclosure using words I can
A. You give the bank the keys to your home and you walk away, they agree not to hold a
foreclosure sale or ever ask you for any more money. Everyone rebuilds their lives from that point
forward and leaves the other one alone.
Q. Why would anyone want to do a deed in lieu of foreclosure?
A. Many reasons exist that make a deed in lieu of foreclosure preferable over a mortgage
foreclosure auction. Both sides can potentially benefit from a deed in lieu of a foreclosure;
otherwise the concept would never work.
Q. Start with the homeowner, why would someone just give up their house and walk away?
A. At this point we need to examine how the homeowner arrives at a desire for a deed in lieu of
foreclosure. Two groups of people pursue a deed in lieu of foreclosure as a solution for mortgage
trouble. First those who do not want to keep their home under any circumstances and second those
who, despite a desire to keep their home, reached the conclusion that no foreclosure prevention
options will allow them to retain their house.
Q. Who would not want to keep their home?
A. The best example comes from an actual case of mine from years ago. As I discussed with the
clients their many options to avoid the pending foreclosure I casually said "You do want to keep
the house, right?"They responded something like this "You mean we don't have to live here
anymore? You know a way to move out of this rat infested sink hole? We don't have to endure
the caustic neighbors or smell the backed up septic system anymore? We can move to a place
closer to our jobs where the roof doesn't leak and foundation isn't crumbling?" With great
excitement in their voices they asked "Can we really do that?" From that conversation forward I
never again discussed mortgage foreclosure options without examining a deed in lieu of foreclosure
or short sale.
Q. How often did you see cases where people did not want to keep their home?
A. More often than you might imagine, most cases came about for other reasons.
Q. Ok, why would someone want to give up their home as a first choice?
A. Review this list for ideas:
Q. Even with all of those reasons, don't most people want to keep their homes?
- Don't like the house itself.
Perhaps you liked it when you moved in and changed your mind, maybe when you lived there
for a while and learned the quirks of the home you didn't like it anymore. How about if you never
liked it but it was the only thing you could afford at the time.
- No longer right location.
Many people buy a house near their job, but they change jobs. Some folks buy a home near the
playground and the kids grow up.
- No longer right size or type.
Maybe you bought a two bedroom home and now you have 8 children, or you own a 6 bedroom
house and now everyone is grown and gone. Your business may have necessitated that you get
a place in a business district with a store downstairs and an apartment where you lived above
but the business no longer exists. Many farmers find themselves living on farms after they
decided to stop farming.
- Neighborhood or zoning degradation.
It's easy to imagine a neighborhood that changed for the worst to the point you no longer want
to live there. Drugs, crime or every other house on the block foreclosed on and boarded up
could be the root cause. Some people bought multi family buildings so they could live in one unit
and rent the others only to find they could no longer rent anything.
- Repair and structural issues.
It does not take too many major roof or foundation problems to make you want to walk away
from a house you might not get to keep under any circumstances.
- No need for home at all anymore.
At some point people may downsize to an apartment or just move in with their children. If this
happens at the same time as a foreclosure it may be just the right time to walk away.
- So over mortgaged its better to start over.
This concept requires some extra consideration because many homeowners need to at least
walk through the thought processes on over-mortgaged property.
- Painful memories.
Aside from all potential financial issues, after a major personal setback such as a divorce or
death of a spouse you may want to give up the house simply because every moment inside it
brings anxiety or grief.
A. Absolutely, the majority of people want to keep their homes if given the option, but many need to
face the cold hard fact that losing their home emerges as inevitable and the only real choice becomes
the course of events that ends in their moving out of the house.
Q. How does a homeowner end up at the conclusion that they must give up the house?
A. Review this list for ideas:
Q. If I tried a repayment plan or mortgage modification with my bank and they turned me down or I could not keep up with the program does that mean all hope is gone and I should be looking at a deed in lieu of foreclosure?
Mathematically Beyond Hope
Some people read the writing on the wall and know they will lose the house just based on the
math. Calculating a chapter 13 bankruptcy payment just takes a calculator, and at a minimum
you need make the former regular mortgage payment. While loan modification might lower your
old payment, bringing the amount lower than 50% of the previous level never happens. For folks
who have lost income so dramatically they can't even make half of their former first mortgage
can figure they simply do not have the income to keep their home.
- No Applicable Methods To Stop Foreclosure
In some situations none of the many options to stop a foreclosure remain available either because
of time or that they do not fit the individual's circumstances. People who recently filed bankruptcy may not file again, most mobile home loans do not qualify for modification, neither do most private mortgages for example.
- Exhausting All Options
It might amaze you to see how far some people go to save their home, but at some point they
must endure the sight of their own foreclosure sale. Homeowners might get a repayment plan and
fail then arrange a modification that does not work, followed by a second try at modification and
file bankruptcy when that crashes and file yet another that fails to save the house. In the end
the only options left involve exactly how they lose the property.
A. No, often a professional mortgage negotiator or lawyer can get a better payment or achieve a plan where a homeowner could not. In many cases someone with extensive experience can put together a second chance plan too. Don’t think these extra opportunities come automatically, or by right or that they come easily or free, but they do happen every day.
Even if you have tried a modification through your bank and have failed there is still help..
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