Steps to Take for a Deed in Lieu

Nobody wants a home foreclosure reported on their credit report. Avoiding a foreclosure and getting from under an expensive mortgage payment is often a matter of negotiating a deed in lieu of foreclosure with a lender. Lenders are open to this agreement, where they take back the deed to a home. Foreclosing is a costly process for lenders, which is why some consider a deed in lieu to help eligible borrowers.

Instructions

1. List the house with a realtor and wait at least 90 days. Before considering a deed in lieu, your lender will ask if you attempted to sell the house. Lenders negotiate a deed in lieu after a house is on the real estate market for three months.

2. Approach your lender only if you are experiencing financial hardship. A deed in lieu isn't for borrowers looking for a quick way out of their mortgage. Lenders ask for specific documentations and only consider this option if a borrower can show evidence of hardship.

3. Write your letter to your lender. Inquiring about a deed in lieu can start the process of receiving mortgage help. But to qualify, write a hardship letter to specify why you need a deed in lieu. Include information regarding current monthly income, a list of debts and situations that brought on imminent foreclosure such as job loss, illness or divorce. Lenders review this information and then decide if you meet the criteria for a deed in lieu.

Tips & Warnings

• Your bank may lower the monthly payment and let you rent back the home, or give you 30 days to vacate the premises.

• A deed in lieu causes a drop in credit score, but damage isn't as severe as a home foreclosure.

References

• Bank of America: Signing Your Home Over to the Lender
• Fannie Mae: Know Your Options -- Avoid Foreclosure