How does the "Deed-in-lieu of" work

[Eaglelvr]

What is the name of your state? Colorado

We have had the house on the market to sell since Nov'04 with no takers. We currently owe more on it then what it would appraise for. We have used credit cards to pay up current a couple of times that it has almost gone in foreclosure. Our credit is gone now with it being reported a couple of times as 30 days late and once 60 days late.

I am considering a deed in lieu of just to get out from under it.

Any advice?

Thanks in advance.

[JETX]

Originally Posted by Eaglelvr

How does the "Deed-in-lieu of" work

Deed-In-Lieu of foreclosure (DIL) is a disposition option in which a mortgagor voluntarily deeds collateral property back to the lender in exchange for a release from all obligations under the mortgage.

For more: [url]http://www.fredlaw.com/articles/banking/bank_0206_bao.html[/url]

Any advice?

About what??

[pty]

My disclaimer—I AM NOT AN ATTORNEY, but I did work in mortgage servicing, although it was several years ago, and things do change. Be aware that I’m speaking in general terms here because each situation (and each mortgage company) is different.

First, you need to call your mortgage company and see what options they can offer.

A deed in lieu is where they allow you to deed the property back to them and they forgive the debt (meaning they agree not to pursue a deficiency judgment). It saves them the time, trouble and expense of going through a foreclosure.

They would probably rather offer you a short sale (sometimes called a preforeclosure sale or a compromise sale) in which they would allow you to sale the property for the value and then forgive the remaining balance. That saves them not only having to go through foreclosure, but also having to deal with selling the property themselves. Plus, if they did foreclose and sell the property, they wouldn’t be able to sell it for any more than it’s worth either. IF they happen to be feeling generous, they might even agree to accept reduced payments for a short period of time (maybe 4 or 6 months) to give you more time to find a buyer.

Both a deed in lieu and a short sale report negatively on your credit, but still look much better than a foreclosure would. Also, they are reported to the IRS as ‘forgiven debt’ so there are tax consequences. When a mortgagor asked about this, my company’s standard reply was, “we can’t give you tax advice, you need to speak with your tax attorney.” But I believe that it’s considered income to you and you have to pay taxes on it.

Another option might be a modification. For example, if you have a high interest rate, and if that were lowered, then you could make the payments—they might agree to modify the loan and lower the interest rate.

So, again, call the mortgage company and speak to them about your options. Just be aware that they aren’t required to agree to any of these options. Generally, though they will try to work with you as much as possible.