Hey guys, Mike from Mike Buys Houses here and as I do every week, I was talking to a lot of people this week who were going through some unique situations. In this video we highlight What is a Deed In Lieu of Foreclosure? I want to specifically focus on one conversation I had around a homeowner being advised that she could potentially do a deed in lieu of foreclosure to avoid having her house foreclosed upon. Since I haven’t discussed this option before on here, I thought I would expand on what a deed in lieu of foreclosure is and why people might utilize them.
Before I get into it though, I wanted to explain how this conversation began. This homeowner was facing foreclosure and read an article that went into some detail on foreclosure and what to expect. While she was going through this information, she filled out our form and I gave her a call the next day. So, if any of what I talk about is relevant to you in any way, give me a call or fill out the form below and we can talk through your specific situation.
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Deed In Lieu of Foreclosure
A deed in lieu of foreclosure is when a homeowner voluntarily returns the deed to the original lender of the property, typically a bank.
Whichever bank gave you the original mortgage is the one that established you will need to pay back the amount due over a set number of years, typically 30. If you start to fall behind on your payments, thus meaning the bank is not getting their money, they will start the foreclosure process. This normally will take anywhere from 2 to 4 months.
Therefore, if you are in this position, you may be able to do a deed in lieu of foreclosure, which just means voluntarily giving the property’s rights back to the bank to avoid foreclosure. Really, you don’t want foreclosure to start because of the credit impact it would have on you. It is much easier to turn over the property than work back from a 7 year credit hit from foreclosure.
Once you return the deed to the lender, the lender releases the loan. After the loan is released, you will officially not owe any money towards it. In essence, you are trading back the house to the bank so you don’t have to pay any more money to them.
Why a Lender Would Accept a Deed in Lieu of Foreclosure?
Foreclosure is a nightmare for homeowners, but it is not much better for the banks. They don’t want to go through the foreclosure process most of the time. Foreclosure costs them money, time and aggravation. Therefore, if there is a chance they can just take back the property and not deal with foreclosure at all, that might be too enticing to pass up. This should help you learn a little bit more about What is a Deed In Lieu of Foreclosure.
Now, it will be up to the lender’s discretion to accept a deed in lieu of foreclosure. They don’t have to agree to proceed.
If you as a homeowner are having a hard time selling the property, or if the house needs a lot of repairs and work done, or if there’s just not enough equity for a buyer to come in and fix it up, then the bank may view the property as too much work. Just keep that in mind, a deed in lieu of foreclosure is not a slam dunk, but it can be an option.
Banks are big businesses at the end of the day, and they don’t want a bad asset just sitting on their books. While it doesn’t matter to individuals as much, banks may prefer the debt owed to them over the asset itself. The bank will think long and hard before they willingly accept a very underwater home, or a property with other judgements on it.
These situations are best for creative financing. The bank may not want your property, but that doesn’t mean you’re out of options. Reach out to us and let us know what’s going on with you. We can find you additional options to ensure your financial flexibility.
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Other Options to a Deed in Lieu of Foreclosure
So, if you are worried that your lender may not accept your offer for a deed in lieu of foreclosure, then you can consider options like a loan modification or a short sale.
For a loan modification, you will typically need to show that there was a situation that caused a financial hardship and that you have since resolved said situation. For example, if it was loss of employment, then showing proof that you got a new job and are earning a salary that can support the mortgage payments.
For a short sale, you would simply be negotiating with the bank to sell the property at a loss for less than it’s worth.
Additionally, you could go the realtor route. If you want to connect with some realtors who we have worked with in the past, let me know and I can connect you with someone. The main thing you would want to focus on when selling with a realtor is to listen for what they think you could sell the property for. Does their valuation align with what your expectations are?
For Sale By Owner is also in play for you as well. It will be more difficult to market the property, as you won’t have access to the MLS, but you will save on paying out commissions and would help you to avoid foreclosure. This would be best if there is not a lot of equity in the property.
Finally, you could sell to us here at Mike Buys Houses. Since we buy via cash and via terms, we can close on your property within a week and there would be no work needed by you. We buy as is, and if we buy on terms, you will typically net more money for your property than if you were to sell with a realtor.
So if this is something that you might be interested in, fill out the form below or give me a call at 267-984-4765.