Deed-in-Lieu of Foreclosure, an alternative for struggling homeowners

As more and more homeowners become delinquent and fall into foreclosure, one option that has gained much attention recently is a “deed in lieu of foreclosure.” As the name suggests, this is the process of “deeding” over the property to the lender as an alternative to the lender going through the formal foreclosure process. It is often challenging to convince a lender to consider a deed in lieu of foreclosure, and even more challenging to negotiate favorable terms, including a waiver of any further claims. However, when set up correctly, a deed in lieu of foreclosure can be of great benefit to all parties involved, the homeowner and lender alike.

Deed in Lieu Process

The deed in lieu of foreclosure process typically entails providing documents to the lender to demonstrate a financial hardship and inability to make mortgage payments. Simply “not wanting” the property anymore is usually not a good enough reason to request a deed in lieu. The lender wants to be convinced you no longer have the income sufficient to make mortgage payments. Therefore, the deed in lieu process usually involves the homeowner providing all sorts of financial documents to the lender such as bank statements, tax returns, paystubs, and income/expense forms.

Tax Considerations

Since 2007 struggling homeowners have had the benefit of the “Mortgage Cancellation Relief Act” to protect them from pay tax on most “discharge of indebtedness” associated with a foreclosure, short sale or deed in lieu. However, the Mortgage Cancellation Relief Act is set to expire in 2012, and with the extreme revenue shortfall in government today, it is quite possible the Act does not get extended. This creates a great amount of pressure for homeowners to resolve their foreclosure issues before the time the Act expires.

What about Loan Modification?

Loan Modification is sometimes a good option, but requires regular payments (although modified). A deed in lieu of foreclosure is something to consider for homeowners who simply do not have the ability to make a mortgage payment. Obviously, this also requires (eventually) giving up possession of the property.

Contact Foreclosure Attorneys

If you are close to losing your home, find out what legal rights you may have, contact our California Foreclosure Attorneys. The attorneys at McFarlin LLP have years of experience in all aspects of foreclosure law and give you a great chance of resolving your foreclosure issues favorably. Deed in lieu of foreclosure may be an option for you, but it must be submitted and negotiated properly. We have the expertise to work with your lender(s) and resolve your foreclosure issues efficiently; call today for a free case evaluation (888) 728 0044. We service clients in California, Utah and Nevada.