How Do I Create a Deed in Lieu of Foreclosure?
Full Question:
Answer:
A deed in lieu of foreclosure is a method sometimes used by a lienholder on property to avoid a lengthy and expensive foreclosure process, With a deed in lieu of foreclosure (DIL), a foreclosing lienholder agrees to have the ownership interest transferred to the bank/lienholder as payment in full. The debtor basically deeds the property to the bank instead of them paying for foreclosure procedings. Therefore, if a debtor fails to make mortgage payments and the bank is about to foreclose on the property, the deed in lieu of foreclosure is an option that chooses to give the bank ownership of the property rather than having the bank use the legal process of foreclosure.
A DIL can be used in limited circumstances. The debtor must have exhausted all efforts to sell the home professionally marketed at it's as-is, fair market value. The debtor also can't have another mortgage in default and must not have the ability to make the monthy payment or make up the difference between the sale price and what is owed.
When a lender agrees to accept a deed in lieu of foreclosure, there is no guarantee that it will forgive any outstanding balance owed under the promissory note. However, it is common for the borrower to ask for that debt forgiveness. If the lender agrees, it is wise to document it in writing.
