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What is a deed in lieu of foreclosure?

When you are facing a foreclosure, you have a number of options to remedy the situation, such as the following: 

  •        Asking the lender for a repayment plan
  •        Asking for a loan modification
  •        Asking for a forbearance

If you have exhausted these avenues, you may want to request a deed in lieu of foreclosure, which is similar to a short sale but has a few distinct differences. In a short sale, a third party buys your home for less than the amount that is still owed on the property. When you obtain a deed in lieu of foreclosure, you transfer the title of your home to your lender. After you do so, the lender will release you from having to pay the mortgage on the home.

As Forbes magazine points out, obtaining a deed in lieu of foreclosure means you will still lose ownership of your home, but your credit score will not suffer the way it would if the foreclosure had happened. The magazine notes that between 2011 and 2012, the number of deeds in lieu of foreclosure increased 39 percent.

In addition to forgoing making any more payments on the home, the Attorneys’ Title Guaranty Fund Inc. notes that the lender could consider the equity you have in the home and even pay the fees associated with the transfer of the deed.

In order to go through with this process, you will need to fill out an application with your lender and submit detailed information about your finances, tax returns and a letter of hardship. In some cases, the lender could require that you try to sell your home for at least 90 days prior to granting you a deed in lieu of foreclosure.

While this information may be useful, it should not be taken as legal advice.

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