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Deed in Lieu of Foreclosure - A Last Resort
By
Rich Pryor
If
foreclosure is looming and you are unable to
sell your house, you should consider a 'Deed
in Lieu of Foreclosure'. Basically you are
giving the house back to the lender, rather
than making them go through with the
foreclosure. A foreclosure on your credit
report is extremely damaging and will make
it nearly impossible for you to buy another
home for at least 3-5 years.
If you successfully negotiate a deed in lieu
with your lender, it SHOULD keep the
foreclosure off your credit report. You must
confirm with your lender specifically if
that is the case and, if necessary, try to
negotiate it as part of the deal. It is
considerably less expensive for the lender
to simply have you deed them back the house,
rather than pay the attorneys to complete
all the papers to actually foreclose and go
to the Sheriff’s Sale. Tell them you will
move out and leave the house clean and in
good shape, but you do NOT want the
foreclosure on your credit. Insist that they
put this in writing, but if they will only
tell you verbally then be sure to send THEM
a letter, certified mail return receipt
requested. Simply write, 'Dear John, this
letter is to confirm our verbal agreement on
xx/yy/zz that if I agree to a deed in lieu
of foreclosure, you agree the foreclosure
will not appear on my credit report.'
However, A Deed in Lieu may not be your
first, best option. If you have significant
equity, you should work diligently to find a
way to sell it to a private party or an
investor and recover the equity! If you
agree to a Deed in Lieu or the lender
completes the foreclosure process, any
equity you have is lost. If you have no
equity and are just ready to deed the home,
it is always better to deed it to the lender
than an investor. By deeding it back to the
lender, you are terminating the loan
agreement and walking away. If you deed it
to an investor, the loan is still in force
and in your name; if the investor fails to
follow through on their promise to make the
payments, the foreclosure could proceed, and
you would be powerless to stop it. Again, be
sure your investor is established and has
adequate financial resources to make the
payments on your home.
There are dozens of other ways to prevent
foreclosure, and most people should not have
to resort to a deed in lieu, provided that
they address the problem as early as
possible and communicate well with their
lender. But if all else fails, keeping the
foreclosure off your credit is better than
nothing.
Conclusion
Are you one
of the many that suffer from insurmountable
debt and wonder if bankruptcy is an option?
Give us a call at (203) 924-6700 or
contact us.
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