A deed in lieu of foreclosure is a method that some people use to avoid foreclosure. Though it can be used successfully and has its advantages, there are also a number of drawbacks that you’ll want to take into account before you move forward with a deed in lieu. In this week’s blog, we’ll talk about what exactly a deed in lieu is, and the pros and cons of using this strategy to stop foreclosure.
Should you consider a deed in lieu of foreclosure?
Deed In Lieu of Foreclosure
What is it?
A deed in lieu of foreclosure is where you give your lender the deed to your home in exchange for them ceasing the foreclosure.
Pros and Cons
Pros
There are several pros to going the deed in lieu route.
- If you choose this route, you could be eligible for up to $3,000 in relocation assistance, as part of the Home Affordable Foreclosure Alternatives Program.
- You may be eligible to qualify for a new mortgage in a slightly shorter time frame than you would after a foreclosure (2 years vs. 3+ years).
- It takes less time than a foreclosure or short sale.
Cons
However, choosing the deed in lieu is not without its drawbacks.
- Let’s say your house is worth $100,000 and you owe $110,000. If the lender forgives this $10,000, the IRS will treat it as income, which means you’ll have to pay taxes on it. You can qualify for an exception under the Mortgage debt Forgiveness Relief Act of 2007. But as House Logic states, “Note that full relief is available only if the amount of forgiven debt does not exceed the debt that was used to acquire, construct, or rehabilitate a principal residence.” Consult with your tax adviser for more information.
- The lender could also not forgive that $10,000. In many states, they would be allowed to do this, and you would have to pay.
- It’s just as bad for your credit score as a foreclosure.
- It can be difficult to qualify for eligibility to seek a deed in lieu. If you have another lien on your home, you won’t qualify. You need to prove financial hardship. Your lender has to participate in the foreclosure alternatives program. And you need to make a good-faith effort to sell your home before you try to get a deed in lieu.
How can Grays Home Solutions help you Stop Foreclosure?
Looking for an alternative method that will help you stop foreclosure? Sell your home with Grays Home Solutions. We’re a home buyer working in Frederick and throughout Maryland and the Tri-state area. What are some good things about working with us?
- We’ll make an offer no matter where your home is, what condition it’s in, or how much you owe.
- We buy within 7 days once you accept our offer. So even if your foreclosure date is coming up fast, you can still use us as a solution.
- You won’t need to do any repairs on your home.
- We may be able to pay you in cash.
Interested in learning more? Use our fast response contact form or call us at 240-347-3141. We’re a free service and we’re here to help.