If you're considering foreclosure alternatives, a potential deed in lieu of foreclosure agreement is contingent upon a appraisal of the home. For a lending institution to agree to a deed in lieu of foreclosure, the "fair market" value of the property must be judged to cover the outstanding debt of the borrower, with broader considerations given for the potential costs of an alternative bankruptcy proceeding. It is important, however, to examine how fair market values are calculated.

"Fair" market values are estimates of what the buyer would pay in a free market for the home. In the Supreme Court case US v. Cartwright, the Court established such values as "the price which the properly would change hands between a willing buyer and a willing seller, neither being under any compulsion...(and) having a reasonable knowledge of the relevant facts." Given that the market can't clear in an open environment, the valuation is inherently subjective just as in the Keynesian example above, you should gather all the data you can to determine potential value including sales of nearby homes, trends in the market and additional 3rd party opinions.

While you may be in a difficult position, you should always be an advocate for your financial situation, approaching the potential deed with a rational, calm approach based upon the best possible decision for you. Values in today's market may be clouded with uncertain trends, so take time to truly evaluate your entire financial position, considering all options as you seek to put yourself on more sound financial grounding going forward.