How to Get a "Deed-in-Lieu of" After Bankruptcy


A deed-in-lieu of foreclosure is an agreement to turn over real estate to a mortgage company. People seeking the arrangement usually are facing foreclosure because of missed mortgage payments, or cannot sell their home because it is worth less than the balance on the loan—a situation known as being "upside-down" on the mortgage. A discharged, or completed, bankruptcy should not affect discussions for a deed-in-lieu agreement. Many people with in bankruptcy choose to allow foreclosure during the bankruptcy as they restructure or eliminate debt. However, it is possible to wait until after the bankruptcy to seek a deed-in-lieu agreement.

Read your statement or letters from the mortgage company to determine the status of your account. The bank will not consider your request for a deed-in-lieu of foreclosure, unless you are several months behind and standard foreclosure is imminent. If your mortgage is current, you must voluntarily begin missing payments to qualify for deed-in-lieu discussions.

Consult with a real estate agent and a nonprofit credit counselor for advice before missing payments. Missing mortgage payments after bankruptcy is another setback to your credit, and you should avoid that if possible. The real estate agent can advise about options for selling or leasing the house and avoiding giving the property to the mortgage company. The credit counselor can describe possible impact on your credit once you begin missing payments. Get a referral for a local nonprofit credit counselor by contacting your bank or credit union.

Consult with your bankruptcy attorney. The attorney can negotiate directly with the bank for a deed-in-lieu agreement—if you still wish to proceed after discussions with the credit counselor and real estate agent. Or hire an experienced real estate attorney. You can negotiate the agreement on your own, but using an attorney is best.

Authorize your attorney to contact the mortgage company about a deed-in-lieu of foreclosure. Or contact the bank yourself to explain why you wish to turn the property over to the bank. This could present a challenge because theoretically, the successful completion of the bankruptcy resolved your debt issues, presumably leaving you in a position to make the mortgage payments. However, you may have other financial setbacks since the bankruptcy.

Negotiate the deed-in-lieu of foreclosure through your attorney or on your own. Lenders make individual decisions on deed-in-lieu of foreclosure agreements, and there is not a standard approval process. Some lenders will agree and others won't. Keep negotiating with your lender until you receive a final answer. Your only option if the lender does not agree is to allow standard foreclosure or to pay the past-due mortgage payments and keep the house.

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