In the simplest of terms, a deed in lieu of foreclosure is an option for someone who is behind on their mortgage payments and struggling to find someone to buy their home. Oftentimes, these people just want out of their mortgage, but simply turning your back and wiping your hands clean of a mortgage is not that simple. That’s when a deed in lieu of foreclosure might just be the answer you’ve been looking for. However, not all things are that easy, and there may be some disadvantages that are important for you to know.
How It Works
Just like it sounds, a deed in lieu of foreclosure requires the homeowner to sign a new deed to the property. The new deed transfers ownership of the property to the mortgage lender from the owner. So the lender accepts the deed, instead of (in lieu) of a foreclosure on your property. Essentially, you are giving up all your legal rights in owning your property to the company that financed your mortgage so you no longer have to worry about mortgage payments accruing. Once the mortgage lender has ownership of the property they are allowed to sell it and reclaim the balance from your original mortgage. This process avoids an auction process or any courthouse visits as is commonplace with a typical foreclosure.
Even though a deed in lieu of foreclosure can be a quick fix for people who are struggling with paying their mortgage many lenders choose not to discuss one for a variety of reasons. Some mortgage companies require you to list your property on the market for thirty days in order to give an opportunity for possible buyers to make an offer. Other mortgage companies may even require that you pay the difference of the mortgage balance and sale price of the property if the sale price doesn’t meet the mortgage balance.
If your mortgage company accepts and agrees to a deed in lieu, your credit will be less affected than if the property were to be foreclosed upon. This process allows you freedom in the future to finance another property a bit easier than with a foreclosure in your history. By signing the new deed you release all your ownership and legal responsibilities on the property forever.
Some lenders may only agree to a conditional deed in lieu, meaning you may have to be legal responsible for any balance between the mortgage balance and the sale price of the property. The mortgage company can always brings a claim against you if you fail to pay the difference. The lender only benefits from this type of deed when you have released all of your legal ownership to the mortgage company.
A Title Company You Can Trust: Colony Title
At Colony Title, we will help you through the process of getting your property’s title and help you avoid the pitfalls of hidden costs while you buy your home. We are also well trained in identifying any and all errors in public records and helping you resolve them. We specialize in real estate title insurance in both Maryland and Washington, D.C., and we will perform an expert title search, check through all past documentation, and examine records for any fraud or forgery. For more information on how we can get you into the home of your dreams, contact us online or give us a call at (410) 884-1160. To get more updates on housing markets and how to get into your home, follow us on Facebook, Twitter, LinkedIn, and Google+.