What is a Deed In Lieu? How does a Deed In Lieu Work? Tax Implications? How will a deed in lieu impact your credit scores? How soon after can you apply for another mortgage?
Deed in lieu of foreclosure is a process in which you give away your property to the lender because you just can no longer make your payments. In exchange, the lender essentially cancels your loan and you are no longer responsible for the mortgage.
When you apply for a deed in lieu of foreclosure, you will need to sign an "Agreement In Lieu Of Foreclosure", a "Warranty deed" and a "quit claim deed" or a "grant deed". These documents detail the terms and conditions of the deed in lieu and transfers ownership of the property to the bank.
At that point, the lender records the loan as "paid" and no longer has a right to claim any unpaid balances even if the sale of the property does not cover the loan balance.
A Deed In Lieu may result in the former homeowner having two pay two kinds of taxes.... a Deed tax and Income tax on the canceled debt.
A deed in lieu of foreclosure does negatively impact your your credit score and score the deed in lieu still will be referenced on your credit report for 7 years. At the end of the 7th year, you can request the bureaus to remove it from the report.
How Long After A Deed In Lieu Can You Purchase Another Home?
You can purchase another home anytime but you will not have the ability to get a loan for a few years. Each lender may have different requirements or guidelines as to how soon after they will originate a loan for you.
If you have lost a home through the deed in lieu process, you should speak to a qualified loan officer to discuss your loan options prior to shopping for a new home.