Deeds-in-Lieu of Foreclosure With Release From Any Personal Responsibility

Process

If you talk to your lender as soon as you realize you can't afford your mortgage payments, your lender may offer you some options. If you can't afford mortgage payments even with modifications to your mortgage, your options are usually a short sale or a deed-in-lieu of foreclosure. A lender doesn't usually agree immediately to a deed-in-lieu of foreclosure. You may need to try to sell your home for about three months before your lender accepts a deed-in-lieu of foreclosure.

Negotiations

With a deed-in-lieu of foreclosure, your lender usually agrees not to conduct a foreclosure. In some states, a lender may still be able to come after you for more money if the lender can't sell your property for as much as your debt. To get your lender to release you from any personal responsibility, you need to get your lender to agree in writing to forgive any deficiency that remains after the property sale.

Benefits

Without the mortgage lender's agreement to release you from any personal responsibility for your outstanding debt, you may have to pay a large amount of money or face bankruptcy even after losing your home. If the lender doesn't have to forgive your outstanding loan, your lender can go to court to obtain a deficiency judgment to get money from you. If you can't pay the amount, you may have to declare bankruptcy.

Drawbacks

A deed-in-lieu of foreclosure, even with release from personal responsibility, has several drawbacks. If you have other liens on your property, your lender may not agree to a deed-in-lieu of foreclosure. Other liens include second mortgages, home equity loans and tax liens. Also, you may find it difficult to get your lender to agree to a deed-in-lieu of foreclosure because lenders usually prefer cash over real estate.