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Signing A Deed In Lieu Foreclosure To Avoid Full Foreclosure
By Vic Hurlstorm | March 31, 2009
A deed in lieu foreclosure is a way to avoid foreclosure open to homeowners unable to pay their mortgage as scheduled. Maybe you are afraid of losing both your house and the investment you made with so much effort.
Not only that, you also feel uneasy about the influence a full foreclosure could have on your credit report. Homeowners that do not see the light at the end of the tunnel would do right to study the possibility of a deed in lieu foreclosure to avoid foreclosure proceedings.
What does a deed in lieu foreclosure entail?
In order for you, the homeowner, to obtain a deed in lieu foreclosure, you and the lender have to agree on the transfer of the title of the deed to the financial lending institution.
To put it shortly, the lending society becomes the owner of the property in question. In return, a homeowner that could not fulfill his or her mortgage obligations is now exempt from repaying back the debt still owed on the property.
An important benefit of a deed in lieu foreclosure signed in agreement with the lender is that the credit rating will not be affected as a complete foreclosure process would. Besides, the original homeowner ceases to have any liabilities regarding the said house.
Deeds in lieu foreclosure are settled out of court. All the same, if you are a homeowner in default that wants to go for a deed in lieu foreclosure to make a foreclosure stop, you must keep in mind that you have to take this path at the start of the foreclosure.
Will your lender accept a deed in lieu foreclosure?
When a bank or other lender concludes that the homeowner is completely unable to pay the mortgage back, they are more willing to accept a deed in lieu foreclosure.
It does not make sense for the lenders to pursue a deficiency judgment, which is a court order to partially recuperate the amount still owed related to the foreclosure. Generally, lending companies complete the actual foreclosure process when the unpaid balance is less than the value of the real estate.
For the lender, the main interest is financial. Indeed, by settling the matter out of court with a deed in lieu foreclosure agreement, the lending company saves many costs in attorney and court fees.
Where does the responsibility for the liens lie?
Before signing the deed in lieu foreclosure, the lending company also ascertains that this agreement does not make them accountable for any mortgage liens on the house. In other words, although the lender now holds the title, it will be a different entity from any liens on the house like a contractor claiming a payment, etc.
The aim of the lending organization is to sell the house and recover as much as possible from the losses. Should there be any liens on the property; the new owners would be then accountable for them.
To recap, the main benefit for the original homeowner is that by signing a deed in lieu foreclosure he or she has avoided a full foreclosure process and the damaging record of a foreclosure on his or her credit report.
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