A deed in lieu of foreclosure provides an option for avoiding the technical foreclosure of your property. Just as you would lose your property in a foreclosure sale, you also lose title to your property under a deed in lieu of foreclosure. In fact, you will sign a deed conveying title to your property to your mortgage lender. To make this a beneficial and worthwhile transaction, you will need to obtain the proper documentation from the lender.
It is critical that you obtain copies of all documents you sign or provide to your mortgage lender before, during and after executing a deed in lieu of foreclosure. These copies may prove critical if a dispute ever arises regarding the transaction and the intent of the parties. Before you send anything to your mortgage lender, you should always keep a copy for yourself. Additionally, keep all relevant correspondence from your mortgage lender.
The process involved with a deed in lieu of foreclosure varies from one mortgage lender to another. Some mortgage lenders require the borrower to enter into a conveyance agreement with the lender, before the borrower signs a deed. If your mortgage lender has asked you to enter into a conveyance agreement then you will need to do so, but keep a signed copy for yourself, and make sure you obtain a copy with the lender's signature on it.
Another critical document for you to keep is the actual deed that you grant to the lender. The deed will identify you as the grantor and the lender as the grantee. The deed should specify that title to the property is being conveyed in lieu of foreclosure, and that the lender is waiving all its other rights under the mortgage loan.
Perhaps the most critical document you need to obtain in connection with a deed in lieu of foreclosure is a release agreement signed by the lender. A release agreement waives the lender's right to pursue you for any deficiency owed on your mortgage loan. For example, if your house is only worth $200,000 at the time you execute a deed in lieu of foreclosure, but the outstanding balance on your mortgage loan is $250,000, then the lender may try and claim that $50,000 deficiency from you. Unless you have agreed with the lender that you will be responsible for that deficiency, you must get a release agreement in writing. The release agreement needs to be signed by the lender and needs to clearly specify that the lender has no right to try and collect any remaining balance from you on the mortgage loan.