PLEASE NOTE: The following post is not to be construed as legal, financial or real estate advice. Check with your local professionals as conditions and terms may vary by locality.
Deed-in-lieu is a term that we are starting to see and hear a lot more in the media these days. A deed-in-lieu, actually called a deed-in-lieu-of-foreclosure is a process where a home owner "returns" the title of the home back to the lien holder in exchange for forgiveness of the mortgage. It is becoming increasingly popular with lenders and investors because it shortens the time and lowers the expense of taking back a home that is in default. It is becoming popular with home owners because it relieves them of the stress and potential embarrasment of a foreclosure or short sale.
Some lenders, like Bank of America, have actually been proactive by sending out as many as 100,000 deed-in-lieu solicitations and are seeing good results. This process is also timely with a 30-45 day transaction time typical. Banks will also benefit by quickly turning around these properties for resale as they may not have damage and vandalism that is sometimes associated with foreclosed properties.
Leading the way again is Bank of America by recently offering incentives of $3,000 to $15,000 to get their customers attention.
All is not rosy, however, when choosing a deed-in-lieu to settle your home mortgage debt. There are some restrictions such as having only one bank or one loan to deal with and there is still a down side detriment to ones credit rating. The borrower's FICO will be affected like a short sale as the loan will be listed as "not paid as agreed." On the positive side, the lender will not continue collection attempts after the settlement of the deed-in-lieu.
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