When money is tight and homeowners can't pay the mortgage, people think foreclosure is inevitable. However, that's not always the case—there are financial tools available that will allow you to stay in your home.
One of them is called a deed in lieu of foreclosure.
A deed in lieu is a tool that allows homeowners to transfer the ownership of the property to the owner of the mortgage. In exchange for the title, the mortgage company releases that person from all mortgage debt. According to Fannie Mae—one of America's leading providers of mortgage loans—only some people qualify for a DIL. In fact, there's only a few situations in which a DIL would be the recommended course of action.
If you're facing any of the following, deeds in lieu could be your best option:
- If you cannot refinance or modify your mortgage
- If you're facing long-term hardship with no relief on the horizon.
- If you're far behind on your mortgage and bankruptcy relief isn't available to you.
- If you owe more on your home than it's worth.
- If you are unable or unwilling to sell the home to another family.
Bank of America's eligibility standards are a little broader: people are eligible for a DIL if they are going through a financial hardship, such as a divorce, job loss, or medical emergency. If the person is not able to afford the current mortgage payment or cannot modify the current mortgage to make it manageable, then he or she can obtain a DIL. If the property owner has been trying to sell property at a fair market value with a licensed real estate agent for at least three months, and has not been successful, then he or she is eligible for a DIL.
Other banks have similar DIL qualifications, but you will want to contact your mortgage lender to learn their specific list of prerequisites before you request a DIL.
The Rules for Deeds in Lieu
The U.S. Department of Housing and Urban Development declares that a deed-in-lieu must be completed within 90 days of initiation. This way, a DIL can help you to get rid of your piling mortgage debt quickly. Effective since the Mortgagee Letter 2002-13, the HUD will allow up to $2,000 to pay off second liens when trying to determine whether or not a homeowner is eligible for a DIL. The funds can help a struggling family to pay off junior liens, or they can be given to the homeowner when/if he or she leaves the home. Some banks and mortgage companies will also give their clients' money to help with relocation expenses, or thousands of dollars to settle home equity loans, lines of credit, or other pressing financial obligations.
If you have already conceded to a foreclosure, and then discovered that you are eligible for a DIL, you may have the right to reverse your foreclosure before it is official and take this option instead. People who want to erase their decision to foreclose will need to follow the process laid out in the mortgage company's Quality Control Plan.
Once the DIL is official, the home loan is over.
This means that you are no longer the owner of your property, but you have effectively gotten rid of the financial pressures that were such a burden. Oftentimes banks will still allow the former property owner to remain in the home. To learn more about deed-in-lieu of foreclosures, contact your mortgagee and discuss the process.