A deed-in-lieu can help homeowners and mortgage lenders avoid the hassles of the foreclosure process. Homeowners who want a deed-in-lieu, though, must first convince mortgage lenders that they can no longer afford their monthly mortgage payments. The good news is that a growing number of mortgage companies are turning to deeds-in-lieu as a way to avoid the foreclosure process.
When banks accept a deed-in-lieu of foreclosure arrangement, they simply take back a home that its owners return to them willingly. Homeowners might prefer a deed-in-lieu when they can no longer afford their monthly home-loan payments. A deed-in-lieu is a quicker process, while a foreclosure can take months. Banks might choose a deed-in-lieu if they feel that simply taking back a home will be a shorter and less expensive process than a foreclosure that is all but inevitable.
According to a recent story in Realtor Magazine, banks are turning to deeds-in-lieu of foreclosure more often. The magazine cites numbers from RealtyTrac in pointing out that across the country in 2012, lenders closed more than 20,000 deeds-in-lieu of foreclosure. That is up nearly 40 percent from 2011.
Increasing the Odds
Homeowners will be more likely to gain a deed-in-lieu of foreclosure if they can first convince their mortgage companies that their monthly mortgage payments are now too high for them to afford. Mortgage lenders might decide in such cases that their borrowers will almost certainly stop paying their mortgage payments in the future. It makes more sense, then, for banks to simply take the home back from willing owners than it does to deny a deed-in-lieu and then have to begin foreclosure proceedings months later. Foreclosure can be costly and time-consuming; a deed-in-lieu of foreclosure is usually not.
Homeowners making a case for a deed-in-lieu need evidence, usually made up of copies of financial documents proving that their gross monthly income has fallen or that their monthly expenses have soared. Homeowners might send copies of their yearly income tax returns, most recent paycheck stubs or bank account statements to their mortgage companies to prove that their gross monthly income has dropped. They might include copies of medical bills to show that their monthly expenses have grown too high. Once lenders have this information, they can decide whether a deed-in-lieu makes more financial sense for them than an eventual foreclosure.
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