deed in lieu

You’re in default on a real estate loan – is there a better option than a foreclosure? Indeed. As in, deed in lieu of foreclosure, an instrument to satisfy the loan that offers several advantages to both the borrower and lender. The big advantage of a deed in lieu of foreclosure to the borrower is that it is an immediately release from most or all of the personal indebtedness associated with the defaulted loan. (That’s a better outcome than you can hope for from a hardship letter and loan modification!) The borrower also avoids the public notoriety of a foreclosure proceeding, AND: A deed in lieu hurts your credit far less than a traditional foreclosure. Advantages to a lender include a reduction in the time and cost of a repossession and lower risk of borrower revenge, i.e. theft or vandalism of the property before eviction. Unlike a loan modification and its inseparable twin, the hardship letter, in order to be considered a deed in lieu of foreclosure the indebtedness must be secured by the real estate being transferred. Both sides must enter into the transaction voluntarily and in good faith. Sometimes the lender will not proceed with a deed in lieu of foreclosure if the outstanding indebtedness of the borrower exceeds the current fair value of the property. Other times, lenders will agree to a deed in lieu of foreclosure since they’ll end up with the property anyway and the foreclosure process is costly to the lender.