Do I Need to Pay My Mortgage While Doing a Deed in Lieu?

Function

A deed in lieu of foreclosure allows you to transfer ownership rights back to the bank. The process involves signing a new deed to relinquish your ownership rights. You avoid the severe credit consequences and risk of a deficiency judgment, while the bank saves time and money. A deed in lieu of foreclosure will impact your credit score, although the effect will not be as significant as a foreclosure. You do not need to continue making payments on the home to qualify for a deed in lieu of foreclosure.

Requirements

Your lender does not have to offer you the opportunity to complete a deed in lieu of foreclosure and usually you must experience a hardship that affects your ability to pay. You may need to submit a hardship letter and written request to the lender for consideration. According to Bank of America, you will need to provide detailed financial records, and the home must be appraised. The lender may also require you to place the home on the market for 90 days before agreeing to a deed in lieu of foreclosure. Based on an evaluation of your finances, title and value of the home, a decision will be made whether or not to grant the request.

Relocation Assistance

The Home Affordable Foreclosure Alternatives program is a government program designed to reduce mortgage payments by adjusting one or more conditions, such as the interest rate or length of the loan. It also helps homeowners who successfully complete a deed in lieu --provided the lender participates in the program -- by making up to $3,000 available for relocation expenses. To qualify, homeowners must be eligible for the Home Affordable Modification Program but unable to afford the adjusted mortgage payment; the loan must have been acquired prior to January 1, 2009 and your current mortgage must exceed 31 percent of your current gross income.

Other Foreclosure Alternatives

If you are not eligible for a deed in lieu of foreclosure, other options are available. The HUD Homeowner's Emergency Loan Program provides an interest-free loan of up to $50,000 to pay the delinquent loan balance or cover 24 months of mortgage payments. To qualify you must be unemployed or suffer a financial hardship. Bankruptcy is another option for homeowners. Surrendering the home in Chapter 7 bankruptcy allows you to wipe the slate clean. Debt is discharged, along with financial responsibility. If you are interested in keeping the home, Chapter 13 bankruptcy can discharge certain unsecured debt, such as a second mortgage. The past-due balance is paid through a court-ordered repayment plan. Legal aid organizations throughout the country assist low to moderate income homeowners with bankruptcy and foreclosure issues. Visit the HUD website to locate an agency near you.