Deed in Lieu or Foreclosure?
In most circumstances, a short sale or loan modification are usually your best options when you are falling behind on your house payments. But, if you and your lender can’t seem to agree on either of those options, a deed in lieu of foreclosure could be your next option. A deed in lieu of foreclosure is where you sign your house (the “deed”) over to your lender bank. In turn, your mortgage holder will agree to stop any pending foreclosure proceedings.
What are the qualifications for deed in lieu of foreclosure?
Although these vary from bank to bank, and all may not apply to every circumstance, a few the qualifications may include:
- 90 days behind in payments for judicial foreclosure states (Florida is one) and 30 days for non-judicial states (not always the case, but some do require it)
- Your house has been on the market as a short sale for at least 3 months (copies of MLS listings from your realtor usually satisfy this requirement)
- There are no other liens on your property (i.e. association dues, second mortgages, etc.)
How does a deed in lieu of foreclosure affect my credit?
A deed in lieu of foreclosure and a foreclosure are reported the same on your credit report. On average, a deed in lieu may drop you FICO score by 100 points and a foreclosure by 150 points. After 7 years, you may contact the bureaus and ask for it to be removed. Unfortunately, if you do not ask for the reported foreclosure to be removed from your credit report, it often will remain there indefinitely.
How is a deed in lieu of foreclosure different than foreclosure where my bank sues me?
First, you are voluntarily giving the property back to your lender when you sign a deed in lieu. Also, when reaching an agreement with your lender for a deed in lieu of foreclosure, you may be able to negotiate to have the “deficiency” waived. That means if your lender would sell the property after you sign the deed in lieu of foreclosure, and the proceeds of that sale are not enough to satisfy the full amount that you owed on your mortgage, the bank will not pursue you for the difference that is still outstanding. Make sure to have your lender’s agreement to any waiver of their rights to a deficiency in writing and signed by the lender. However, be wary that there are tax consequences to your lender waiving the deficiency and you should always consult with your CPA before entering into such an agreement.
With a straight foreclosure case, once your property is sold at auction (or later by your lender if your lender buys it at auction), a judgment will be entered against you for the deficiency amount and that judgment will be filed in the public records at the courthouse. Until that judgment is satisfied in full and your lender files a satisfaction of judgment in the public records, future lenders will be able to see that judgment is still outstanding and it may hurt your ability to obtain financing in the future.
Each person’s situation and circumstances are different. That’s why you should always talk to an attorney before making any decisions concerning your mortgage (even if you are still current on your payments). You need to be informed of any consequences down the road from the choices you make today. Give us a call today to discuss your options.
For more information regarding Snyder Law Group or your litigation needs, you can call (941) 747-3456 or send us an email to firstname.lastname@example.org.