What Happens in a Deed of Lieu of Foreclosure?
- Lenders do not want to offer foreclosure alternatives to homeowners who are financially capable of making their loan payments but simply want out of their home quickly. Because of this, your lender will likely request that you provide proof that your loan payments no longer fit comfortably within your budget and you lack other assets that would allow you to continue making mortgage payments.
- Provided your home loan does not exceed your home's value, the bank may request that you put your home on the market and spend a specific amount of time trying to sell the property before it will participate in a deed in lieu of foreclosure agreement. If you are successful, you still get to walk away from the property and the bank does not have to spend time and resources selling your former home after you leave.
- If you cannot sell your home and your lender agrees, you must sign documents turning over the property and any equity you previously built in the home to your lender. After the deed in lieu of foreclosure process is complete, you must move out of the home within a certain time period. This time period may vary depending on your lender.
- The bank reports the fact that you walked away from your mortgage via a deed in lieu of foreclosure to the credit reporting agencies. A deed in lieu of foreclosure on your credit report is derogatory, but less so than a foreclosure. In general, you can attempt to buy another home two years after signing your previous home over to the bank.
You cannot immediately purchase a new home after losing your old one via a deed in lieu of foreclosure agreement. Because of the damage to your credit, however, you may also find it difficult to locate rental housing since landlords often rely on credit reports and scores when evaluating rental applications.
