Over the past decade, millions of homeowners and their families have faced foreclosure of their property. Foreclosure takes place when an individual is unable to keep up with his or her mortgage payments. Following the 2008 recession in the United States, many homeowners started to fall behind on their mortgage payments. At the same time, the value of their homes began to decrease significantly. In some cases, the value of an individual’s home was significantly less than the amount he or she owed on a mortgage.
During a regular foreclosure, a home is sold at auction to cover an individual’s mortgage debt. However, an individual’s debt may exceed the total value of a mortgage. If this happens, the remaining balance on an underwater mortgage may be sent to a collections company. Unless an individual declares Chapter 7 bankruptcy in this situation, a collections agency may attempt to garnish an individual’s wages. If this isn’t successful, a bank may also attempt to levy an individual’s bank account.
Foreclosure is usually a bad choice for an individual and a lender. In many cases, a home that is in foreclosure is sold for significantly less than its actual worth. This often causes problems for both a homeowner and a bank. For a homeowner, the remaining balance of a mortgage is still his or her responsibility.
Deed in Lieu of Foreclosure
With a deed in lieu of foreclosure, a homeowner doesn’t have to go through the nightmare of foreclosure proceedings. Instead of having to deal with an outstanding debt after a home is sold, homeowners going through the deed in lieu of foreclosure process can walk away without any debt at all.
For homeowners, giving up a home’s deed in lieu of foreclosure is sometimes a very good choice. It allows the homeowner to preserve his or her credit rating. If an individual wants to purchase another home at a later date, he or she usually won’t have an issue obtaining a mortgage.
For banks, obtaining a deed in lieu of foreclosure is also a good deal. For many banks, the process of home foreclosure can be very expensive. In some cases, it can cost a bank tens of thousands of dollars in legal fees to sell a home. In addition, banks are still required to submit a remaining balance to collections agencies. Since many individuals declare bankruptcy following a traditional foreclosure, many banks have little to gain in this process.
Things to Consider
That said, there are some downfalls when giving up a deed in lieu of foreclosure. In many cases, a bank will only consider this transaction if a homeowner’s mortgage isn’t severely underwater. If the total debt on a home is more than $50,000 of its current worth, banks will usually go through traditional foreclosure proceedings. However, this can vary significantly based on a wide variety of factors.
A deed in lieu of foreclosure transaction can also work against a homeowner in some situations. If an individual only has a small amount remaining on a mortgage, giving up the deed for the home is usually a very bad idea. If a home sells for more than its mortgage debt, homeowners are entitled to receive the remaining balance. While auction sales usually don’t yield the highest price for foreclosed homes, this is usually a bad deal for the homeowner.
How we can help you
Pursuing a Deed in Lieu of Foreclosure is a great option for those who fit the criteria. It is important to understand the laws and guidelines that determine eligibility for a Deed in Lieu of Foreclosure.
Call Tucker, Nong and Associates for an evaluation of your case. Our experienced real estate lawyers can help guide you towards the decision that fits you best. Call today!