A deed in lieu of foreclosure is an option if you have missed your mortgage payments and are on the verge of a foreclosure. It involves voluntarily giving up the title of the property to your mortgage lender. In some cases, you can get some money from the government or the lender with a deed in lieu of foreclosure.
Deed in Lieu of Foreclosure
If you have missed your mortgage payments, your lender may send letters warning you of the possibility of foreclosure. A foreclosure is when the lender seizes your home and sells it to cover your debt. Instead of the lender having to use force to obtain your property, you give it to your lender with a deed in lieu of foreclosure. In exchange, your lender cancels your loan. A deed in lieu of foreclosure may have a less damaging effect on your credit compared with a foreclosure.
A foreclosure takes up much of your lender's time, effort and funds. The lender usually has to pay various legal and financial costs associated with the process. As such, lenders are often willing to negotiate. Depending on your situation, you may be able to get your lender to agree to forgive all your debt for a deed in lieu of foreclosure. In addition, your lender may offer to give you money in exchange for you voluntarily giving up your home.
To get you to leave your home by a certain date, your lender may be willing to give you about $1,000, according to a 2009 article by CNNMoney.com. This helps with your moving costs and saves your lender foreclosure expenses. Homeowners in foreclosure sometimes vandalize the properties or remove fixtures before leaving. With a cash-for-keys deal, your lender can get you to agree to leave your home in good condition. This makes the property more attractive to prospective buyers, allowing your lender to get a higher sale price.
The government has a program that may provide you with money if you choose to give up your property title. The Home Affordable Foreclosure Alternatives (HAFA) program grants $3,000 upon closing of your deed in lieu of foreclosure. You have to meet several requirements to be eligible for HAFA. Your mortgage has to be owned or guaranteed by Fannie Mae and Freddie Mac or serviced by lenders that participate in the government program. You must also show proof of your financial difficulties.