4 Mistakes to Avoid When Considering Deed in Lieu of Foreclosure

Posted on January 15, 2014 by dannlaw — Leave a comment

If you’re the target of a home foreclosure action, and simply want to leave your home without the hassle of the foreclosure process, you may be considering a deed in lieu of foreclosure. This strategy is particularly enticing when the bank promises to leave you alone afterwards.

And while this tactic works for some homeowners, there are 4 key mistakes you want to avoid when considering a deed in lieu of foreclosure:

Make sure the decision is mutual. Simply conveying the deed to your mortgage lender will not necessarily absolve you of your debt. In order for a deed in lieu of foreclosure to remove your obligation on the home loan, the lender must agree in writing to the transaction. To avoid future liability, make sure the release of your liability on the debt is an explicit part of the deed in lieu transaction.
Know the potential tax issues. Every conveyance of property, including a deed in lieu of foreclosure, will involve taxes. In Ohio, the taxes will vary by region, but they tend to be significant regardless of your location. If your lender is willing to pay these transaction taxes, that’s a plus, but if you’ll be on the hook for extra payments, a deed in lieu of foreclosure may be a mistake.
Consider your alternatives. A deed in lieu of foreclosure may sound enticing, but it will still show up on your credit report as a foreclosure, and it will likely kick you out of your home quicker than other alternatives. Other options include fighting the foreclosure, searching for flaws in the lender’s complaint, or agreeing to a short sale.
Protect your future. Make sure that the lender waives any claim to a deficiency judgment.

Accepting a deed in lieu of foreclosure without consulting an Ohio attorney may be a mistake. If you choose to fight the foreclosure in court, you may be able to stay in your home for a significantly longer period of time. During this time, you can save money for your next housing transition.

Alternatively, you could explore a short sale, in which you sell the home on behalf of your lender. With a short sale, you may be able to fetch a price that covers your debt entirely, which reduces the risk that your lender will pursue a deficiency judgment.