When faced with the possibility of losing your house, you may have to choose between several unattractive options. One such option is offering your lender a deed in lieu of foreclosure. This involves giving the deed to your property back to the mortgage lender. Using the deed in lieu can give you a few advantages that you cannot get from other methods.
Less Credit Impact
One of the primary advantages of using a deed in lieu of foreclosure is that it has a smaller credit impact to the homeowner. When you use a deed in lieu of foreclosure, it at least shows the mortgage lender that you are trying to make the best of a bad situation. If you simply walk away from your mortgage, it appears that you do not care about making things right and it will hurt your credit score worse.
Another major benefit of using a deed in lieu of foreclosure is that you can get the deficiency amount of your mortgage forgiven. With a traditional foreclosure, after the mortgage lender sells your house, you could be held responsible for the difference between the sale price and the mortgage balance. This is known as a deficiency and it could be many thousands of dollars. When you use a deed in lieu of foreclosure, the lender agrees to forgive this amount.
Move on Faster
In most cases, you can use a deed in lieu of foreclosure to move on faster than you would be able to with a foreclosure. When you use a deed in lieu of foreclosure, you can give the deed back to the lender right away instead of letting the foreclosure drag on. The lender can then finalize the agreement and it will stop making late payments appear on your credit report. You can move on and get past the problem with your mortgage.
When you use a deed in lieu of foreclosure, you may have a better opportunity to get a mortgage loan in the future. Lenders take foreclosures very seriously and if they see one on your record, they will be very hesitant to extend a mortgage to you. With a deed in lieu of foreclosure, it is still serious, but lenders do not look on it as negatively as they do on a foreclosure.