Can someone please tell me when a 'deed in lieu of foreclosure' is practiced?

Foreclosures, Short Sales, Tax Foreclosures
1

I’ve read on the subject, but still don’t understand it.
When is it used? If a borrower is behind payments, can it still be used?

I have a situation where someone is 2 months behind payments and headed toward foreclosure. I’m attempting a shortsale on this property, but I doubt that the bank will give me a good price. Therefore, I’m exploring other options… would a deed in lieu of foreclosure be an option in this case?

Thanks.

2

Deed-in-lieu is an alternative to the foreclosure process. It is a negotiated deal where the borrower deeds the property to the lienholder in-lieu-of going through the foreclosure process. It obviously saves the foreclosing bank all the trouble of attorneys, foreclosure proceedings etc. but it does not wipe out other subordinate lienholders. The borrower loses the property and any equity they might have but you could potentially negotiate with the bank to foregive any unrepaid debt. Just handover the keys and the deed and everybody goes their seperate ways.

3

I have just recently asked our lender to consider this for my home. We waited 6 damn months for a short sale negotiation to be agreed upon, only to end up without a buyer due to the original one walking away because of a terrible market.

Our bank were quite nice and understanding about it, and they’re sending out an appraiser tomorrow for another BPO. (Old one from SS expired.) They said that as long as there are no other liens, we should be okay to do the deed in lieu. I don’t know if there are any tax consequences, though, the guy I spoke to wasn’t sure.

4

This may help regarding tax implications. Note: I am not a Tax professional, please check with an accountant or other licensed professional for tax advice.

http://www.irs.gov/faqs/faq4-4.html

5

NJ: There still may be hope if another BPO is being ordered, and the price is lower. The bank must have priced the 1st BPO too high. That’s the only explanation I see as to why the house didn’t sell in the 1st place. I’m sorry this situation seems to cause a lot of stress.

BTW, you still take a pretty severe hit on your credit with a D-I-L-F instead of a SS.