Re: Foreclosure vs Forfeiture

Does anyone know the difference between the two? I just saw a reference to forfeiture in a book I am reading now.

If by “forfeiture” you mean “Deed in Lieu” then…

Happens when…
Your lender forces a sale of your property to pay off the debt you owe on it.
Deed in Lieu
You submit a “Deed in Lieu” to the lender. You leave your home and send the lender your keys and garage remotes and let them figure it out.

The Process
You first receive a Notice of Default. From there, banks vary as to the time it takes them to process a foreclosure. It can take up to 8 months before you are asked to leave the property.
Deed in Lieu
A Lender will approve a Deed in Lieu with some requirements:

  1. Property must be listed for sale for at least 30 days before a DIL can be approved.
  2. Must be done prior to 60 days from Foreclosure.
  3. There must be NO OTHER LIENS on the property (no 2nd or HELOCS other than the 1st Mortgage.
  4. Property must be vacant
  5. A full interior appraisal must be done. If all these things are done, you notarize a Grand Deed and send that and the keys to the Lender.

How long will it take?
Foreclosures are completed anywhere from 2 to 8 months from the time you first go late on your payments.
Deed in Lieu
Time it takes to vacate property and perform interior appraisal.

Consequences to your credit
Foreclosure stays on your credit as a “collection” and can take as long as 7 years to clear.
Deed in Lieu
Deed in Lieu, although not technically the same as Foreclosure, does stay on your credit as a “collection” or “deficiency” and can take as long as 7 years to clear.

Tax Consequences & ability to buy a home in the future
Same for both Foreclosure and Deed in Lieu
The amount of loss that the bank incurs will be sent to you as a 1099 (misc. income). Usually, this will be added to your adjusted gross income that you will pay taxes on, but for 2007 thru 2009, the IRS will allow you to exclude this type of 1099 income if you get one due to the foreclosure, deed in lieu or short sale of your PRIMARY residence. (See Foreclosure Debt Relief Act of 2007 on In the best case, you will need to wait 2-3 years to get a new home loan again.

What if it is not your primary residence, but you had to move for work reasons and got a bridge loan, but the home hasn’t sold. It was our primary residence, but we moved and we don’t use it as a rental

That’s a very technical question that perhaps a CPA could work out with your particular situation. In general, the IRS sees your primary residence as the one you lived in MOST of the year. However, since you had to move because of work, I think there is a way around that. This tax year will be full of those little what-ifs because of all the foreclosures and moves. I would run through the numbers with a tax preparer or CPA just so you can get a clearer picture of what your taxes will look like in April of next year.