How Hard Is it to Get a Mortgage Deed in Lieu?

Deed in Lieu

A deed in lieu is a contract that grants the house to the lender. While short sales and foreclosures also tend to put the house in lender hands, a deed in lieu does it outright. The borrower essentially agrees to hand the keys over to the lender in exchange for the removal of the mortgage, before it can lead to anything more unpleasant. A deed in lieu can be quick and easy when done correctly, and if borrowers do not mind giving up their house, it is a workable alternative. Lenders, however, are picky about what deed in lieus they accept.

Additional Liens

If a borrower's house has an additional lien on it after the primary mortgage, this makes it very difficult to use the deed in lieu option. Lenders will rarely even think about taking a deed in lieu if there is something like a second mortgage or home equity line of credit attached to the property. The deed in lieu grants the property and all associated finances, which means the lender would inherit these subordinated debts as well. The last thing lenders want is another debt to collect, so they tend to refuse a deed in lieu unless the primary mortgage is the only property debt.

Proof of Hardship

Borrowers also must usually prove that they are going through financial hardship. For instance, some lenders will refuse to accept a deed in lieu until after the mortgage has gone into default. Other lenders will require statements that show a borrower's cash and income levels before agreeing to the alternative. They want to make sure the borrower really cannot pay off the debt and that there is little to be gained by using the foreclosure process.

Advantages

Once the lien and hardship hurdles have been crossed, getting a deed in lieu can actually be a very easy option -- that is one of the reasons it remains an attractive choice. Borrowers do not have to put the house on the market and wait for it to sell like a short sale requires. There are no lengthy court disputes or uncertain options like a foreclosure can create. The deal is strictly between the borrower and lender and can be accomplished very quickly if all the pieces are in order.