When Will a Deed in Lieu Work?

Problem Mortgage Options

For a homeowner having trouble making mortgage payments on a home that has declined in value, several approaches can be tried to alleviate the problems. The homeowner should contact the lender to see if the current mortgage can be modified or refinanced to a lower interest rate and payment. If the homeowner reaches the point where payments are unaffordable, payments have been missed and no options are available from the lender, the homeowner may be forced to give up the home.

Getting Out of the Mortgage

If a homeowner is unable to make the mortgage payments, the lender will eventually foreclose on the home and take it back through the legal system. To avoid the cost of foreclosure and the resulting damage to the homeowner's credit, other options exist to get out of the home. A short sale involves selling the home for less than the mortgage balance and getting the mortgage company to forgive any amount of the loan that is not repaid by the price of the home when sold. A deed in lieu is when the homeowner signs over all ownership rights to the home to the lender in exchange for the lender dropping all claims against the homeowner for payment on the mortgage.

When to Deed in Lieu

A homeowner who is behind in house payments or has reached the point she will no longer be able to make the full payments may be a candidate for a deed in lieu of foreclosure. If the home is worth significantly less than the mortgage balance, it will further strengthen the homeowner's case for giving up the home. If the home is worth the same or more than the mortgage balance, the home can be sold before the homeowner gets too many payments behind.

Potential

If you think a deed in lieu of foreclosure is an option for you to get out from under your mortgage, contact your lender and discuss it with a lender representative. The lender will want to know why you cannot make the scheduled mortgage payments on the house. The deed in lieu option may come up if you try to modify the mortgage and your situation prevents the lender from offering any modification plan. If the lender is willing to take a deed in lieu, the mortgage company will take care of the required paperwork.