Walking Away From Your Home Rather than Suffering the Effects of Foreclosure

Homeowners, who are faced with the threat of losing their home due to delinquency in the payment of mortgage, but who still hope to save themselves from the negative effects a foreclosure will make on their credit rating, may resort to either a short sale or, the now becoming popular, deed in lieu of foreclosure.

In the deed in lieu of foreclosure arrangement, a homeowner is still bound to lose ownership of his or her property; the homeowner’s financial incapability causes him or her to surrender his or her property to the lender in exchange of the cancellation of the loan. This arrangement also does away with the necessity of filing for a foreclosure proceeding, saving both lender and loaner from the inconveniences and fees associated with it.

Prior to the actual acceptance of the deed in lieu of foreclosure, however, the loaner may be required to put his/her property on the market, usually for a duration of three months (there are instances, though, when property owner is simply asked to turn over the deed/title to the lender). If asked to sell his/her own house, this is because lenders would, as much as possible, prefer not to incur costs associated with maintaining and selling it.

A deed in lieu arrangement will definitely not cause a major effect on your credit, just make sure that the lender agrees to forgive whatever balance on the loan may still remain after your property has been sold. But to enjoy all the benefits a deed in lieu of foreclosure can provide, you first have to qualify for it. Eligibility for this arrangement requires that your property does not have tax liens on it and that you do not have home equity loans or any other existing mortgages.

There are lenders, especially those who already have more than a handful of foreclosed properties, who would not be willing to accept a deed in lieu proposal. They would rather take cash for payment of mortgage. There are also lenders, however, who would think twice before rejecting the proposal, knowing that a foreclosure would be more costly on their part.