Q. Imagine options to keep the home do not exist; does a person have other chioces for how they
want to give the house up?
A. Certainly, in addition to a deed in lieu of foreclosure a homeowner may file a Chapter 7 bankruptcy,
consummate a standard sale, negotiate a short sale or allow the foreclosure to take place.
Q. Which works out the best for the homeowner when staying in the house no longer remains a
A. If one assumes that a standard sale means a transaction where the home's price yields enough
money to pay the mortgage, taxes, real estate agent and maybe even some cash for the person
selling the property that would rank first as methods for disposing of a house that cannot be
Q. Which method should one use next when a standard sale look out of the question?
A. Not only would I advise a short sale before a deed in lieu of foreclosure, most banks demand the
home owner attempt a short sale before they entertain a deed in lieu of foreclosure negotiation.
Q. Then a deed in lieu of foreclosure would represent the next thing to do when a short sale fails?
A. Correct, then as a final option the people facing the foreclosure could allow the auction to take
place of file for bankruptcy and let the house go as a part of the bankruptcy process.
Q. Which should you do if your only options have come down to allowing the foreclosure auction or
filing for bankruptcy?
A. I have an entire article dedicated to the topic of what to do in cases where your only choice
involves filing a bankruptcy or doing nothing a watch the foreclosure sale proceed.
Q. So lets say I do not want the house and have no chance for a regular sale; I decide to try a deed
in lieu of foreclosure. What happens next?
A. Just about every bank requires before starting talks on a deed in lieu of foreclosure the home
needs to be on the market, even if an offer at the full asking price would not cover the mortgage
Q. What if an offer comes in from someone who wants to buy the house?
A. Accepting the offer, countering it or rejecting the offer falls on the shoulders of the mortgage
holder. If a sale occurs you don't need to worry about a deed in lieu of foreclosure, you will have
completed a short sale.
Q. When do the parties give up on a short sale and start talking about a deed in lieu of foreclosure?
A. Commonly lenders require leaving the home on the market for at least 60 days, but some will want
90 days or more.
Q. Imagine I have tried a short sale and now the time has arrived for a deed in lieu of foreclosure
discussion, what should I do?
A. I'm going to back up and say what I think you should have been doing. My first advice involves
hiring a professional who knows how to negotiate a short sale or deed in lieu of foreclosure on your
Q. Should that be an attorney?
A. It certainly can be, usually bankruptcy lawyers have some experience with both deed in lieu of
foreclosures and short sales. Many people who may not practice law do nothing but negotiate short
sales and deed in lieu of foreclosures, others also work both those options and loan modifications
and repayment plans.
Q. How do I decide who to hire?
A. This can get difficult. With the economy turning sour and the scam artists looking for areas they
can find people to prey on, many con artists elected to set up shop posing as these types of
negotiators. Others may have all the best intentions but do not have the experience. See how long
they have been in business. Membership in the Better Business Bureau looks like a good sign; but be
sure to check a companies ratings. Belonging to the BBB alone does not speak well if their BBB grade
stands as an F.
Q. I have spoken to some of those firms, and they want money up front, should I run from them?
A. No, not if that remains the only red flag. If I were running a company like that I would insist on
money up front too. I assure you from 20 years experience, they need to do that to stay in business
because people in foreclosure tend not to pay all their bills. You might never do such a thing as fail to
pay the firm that saves your home or secures the short sale or deed in lieu of foreclosure deal you
wanted, but people do. To evaluate a potential firm concentrate more on what they do with the
money. Do they say they hold it in escrow? Better yet, does an attorney hold it in escrow? Do your
homework and be careful, but most homeowners should not try to attain a deed in lieu of foreclosure
or a short sale on their own.
Q . OK, I hired the right firm to get me a deed in lieu of foreclosure after we tried a short sale, what
makes any of this better than just letting the foreclosure auction take place and waling away?
A. In most states the lender can pursue you for a mortgage deficiency after the foreclosure sale.
Take a situation where the mortgage on the house sits at $200,000 but the value of the home tumbled
to $120,000. At the foreclosure auction the highest bid only comes in at $110,000 and the house sells
at $110,000. You lose the home and walk away, but the lender may still have the right to sue you for
the remaining $90,000.
Q. If I had $90,000 I would never have been in foreclosure. What can they do to get that money?
A. Anything they might be able to do for any debt. Depending on the state they could sue you, and
in time maybe even get a garnishment, levy against other assets of get a court order for you to pay
that would put you in contempt of court if you did not come up this the money.
Q. I don't have any money! Why won't they leave me alone?
A. Now you might understand what a deed in lieu of foreclosure does and why you want one. With a
good deed in lieu of foreclosure deal the homeowner gives back the keys to the house to the bank and
walks away, for the lenders part they agree never to chase the former homeowner for a deficiency.
Q. What happens in a bad deed in lieu of foreclosure negotiation?
A. The bank takes the house back but the homeowner still has to come up with money or sign a
promissory note to pay back some of the deficiency at a later date.
Q. Would there ever be a situation where you would want to pay the deficiency?
A. I would say no, never a time when you would want to pay a deficiency, but many times you must
pay some or all of the deficiency anyway.
Q. What type of cases would put the homeowner in a position where you would predict them paying
A. I would always try for a deed in lieu of foreclosure with zero deficiency no matter what, but in
situations where the homeowner possesses other substantial assets you may end up with no choice
but agreeing to terms for some or all of the deficiency.
Q. Like what kind of assets?
A. Other property with equity, stock, bonds, the kind of things the bank might be able to get money
from if they went so far as taking you to court for the deficiency.
Q. How much will they try to go after?
A. Try? They will try for every penny. Once again, that defines the deed in lieu of foreclosure
settlement. You want to pay zero, the lender wants 100%.
Q. Where should a homeowner expect to come out in this deed in lieu of foreclosure contract?
A. Most people with a good professional helping them will end up getting a deed in lieu of foreclosure
deal with zero deficiency. I say this because most people in foreclosure do not have too many other
assets for the bank to levy on.
Q. What about people who do have other assets?
A. Than a good negotiator become even more important. Often they get their deed in lieu with no
deficiency either. In other cases they pay a small portion of the deficiency, even as a zero interest
promissory note over several years. If other cases they may pay a higher portion of the deficiency.
Q. Is a deed in lieu of foreclosure better than a foreclosure for my credit score?
A. While I suppose the technical answer would be "yes", I would say you need to look at everything
else when deciding if you want to try a deed in lieu of foreclosure or not. Even if a deed in lieu of
foreclosure does leave you in a better position credit wise, they are both so nasty that what ends up
being much more important is what you do later to improve your credit score.
Q. So a deed in lieu of foreclosure hurts my credit score?
A. It depends where you are starting from. I said above you should only be thinking about a deed in
lieu of foreclosure under a limited set of circumstances. For most people looking at this option their
credit score has already dropped so far down a deed in lieu of foreclosure will not make it too much worse.
For the rare person who still has good credit, a deed in lieu of foreclosure will surly bring your credit
score down close to where it would be after a foreclosure or bankruptcy.
Q. How could someone manage to have good credit or other assets if they are looking at a deed in
lieu of foreclosure?
A. Imagine someone who got transferred to a new town. They buy a home in the new town and
move there, say they even have a vacation home without a mortgage. The mortgage on their old
home was $250,000 and the market had fallen substantially. They tried to sell it for $200,000 but
nobody even came to look. They could keep making payments, they just do not want to anymore.
So far they never missed a payment and their credit does not have a single black mark.
Q. Would the bank let someone like that do a deed in lieu of foreclosure?
A. Yes, but that might be just the kind of person that would pay something toward the deficiency.
Q. If they owned the other house outright and they could pay the whole deficiency why would their
bank let them get away with less?
A. That would require a substantial court fight and a long period of time. Other things could happen in
the meantime that would hurt the bank's ability to collect too. In most cases like this they would rather
settle on a sure thing now even at a fraction of what is theoretically owed than try to fight for every
dime for years into the future.
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