Qualifying For A Deed In Lieu Of Foreclosure

If your property is on the brink of a foreclosure, a Deed In Lieu Of Foreclosure may be an option for you. However, most people do not understand how this works. Simply put, a Deed in Lieu of Foreclosure is a disposition instrument in which a homeowner voluntarily deeds the mortgaged property to the lender so that he or she will be released from all obligations of the mortgage. Although this only saves the homeowner from foreclosure and relieves from all mortgage obligations and you still cannot keep your home, a Deed In Lieu Of Foreclosure is less damaging than foreclosure. In simple terms, a Deed In Lieu Of Foreclosure lets you turn the property back over to the bank in order to avoid foreclosure.

Who are eligible for a Deed In Lieu of Foreclosure?

A Deed In Lieu Of Foreclosure may be a good option for someone facing foreclosure

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You may be eligible for a deed in lieu of foreclosure if:

  • you are going through a hardship such as loss of a job, divorce, medical emergency or death in the family
  • you can no longer afford your current mortgage payment
  • you are unable to modify your current mortgage to make it affordable
  • you were unsuccessful in selling your property at fair market value with a licensed real estate agent for at least 90–120 days

Requirements To Qualify For A Deed In Lieu of Foreclosure

Certain eligibility requirements must be met before banks may consider a deed in lieu agreement.

1. The home must be owner-occupied

During deed in lieu negotiations, borrowers are prevented from vacating the property or leaving it empty. The property cannot also be rented out or used for commercial purposes.

2. Borrowers must be at least 31 days delinquent on their mortgage payments

Borrowers must submit proof that they are financially insolvent and will be unable to pay future home loan payments.

3. Home must be listed with a realtor

In order for them to approve you for a deed of lieu, most mortgage companies require that the home should be listed with a realtor at least 30 to 90 days

4. You may have to get an interior appraisal of the property

Homeowners who are in the pre-foreclosure phase due to delinquency in mortgage payments should talk with their bank’s loss mitigation department of the bank because not all banks or lending institutions engage in deed in lieu of foreclosure. In most instances, lenders will attempt to provide borrowers with a loan modification or enter into a short sale agreement before offering the option of deed in lieu.

For people facing home foreclosures, remember this: avoid foreclosure as much as possible. Instead, shoot for a short sale. If it still seem impossible, then a deed of lieu of foreclosure could be the next best option.

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