A deed in lieu of foreclosure is an agreement that allows a struggling homeowner to voluntarily transfer ownership rights back to the bank. The deed in lieu allows you to avoid foreclosure and its negative consequences. Foreclosure impacts your credit score and can affect you financially in the future. In some states, lenders can pursue deficiency judgments forcing the homeowner to repay part of the loan even after the foreclosure. Banks may be willing to work with you to complete a deed in lieu of foreclosure. Communication is essential to avoiding foreclosure.
1. Contact a U.S. Department of Housing and Urban Development (HUD) certified foreclosure prevention counselor. The HUD website allows you to search for a counselor in your area. Counselors will advocate with the lender on your behalf to negotiate foreclosure alternatives, including a deed in lieu of foreclosure.
2. Call the bank to request a deed in lieu of foreclosure. Each bank has different requirements for completing a deed in lieu of foreclosure. Some may require the home to be on the market before considering allowing you to relinquish ownership rights. If this is the case, you will need to contact a real estate agent who has experience with short sales. A short sale is when the lender agrees to accept less than what you owe on the mortgage loan.
3. Act fast. A deed in lieu of foreclosure is beneficial to banks because it allows them to avoid costly attorney and court fees. It also speeds up the foreclosure process, allowing the lender to sell the home quickly. Increase the chances of your lender agreeing to a deed in lieu of foreclosure by acting before you fall too far behind on your mortgage payments.
4. Ask about cash incentives. In addition to avoiding the negative credit consequences of foreclosure, some homeowners may be entitled to relocation assistance. Some banks offer cash in exchange for a graceful exit. The federal Home Affordable Foreclosure Alternatives program provides up to $3,000 to help homeowners with the cost of obtaining new housing, including security deposits and moving expenses.
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