Deed in Lieu of Foreclosure Explained
Foreclosure. That is such a dreaded word that any homeowner or lender do not want to hear. For the lender, this means that they cannot receive payments for up to a year and more costs for the foreclosure procedures involving legal fees and everything associated with it. For the borrower, it means that the security of a home is removed and fear of losing the home is emotionally and physically stressful.
Fortunately, there are solutions that could prevent foreclosures. There are quite a few in fact, and one of them is the Deed in Lieu of Foreclosure. This is an option for a lender or a mortgagor to prevent or avoid the foreclosure on their homes. Here, the mortgagor will deed the collateral party which is the home, back to the lender or the mortgagee. This is in exchange for getting released from any or all obligations as specified in the contract of mortgage. Both the mortgagor and the mortgagee must enter into this contract of agreement on their own free will and in good faith.
The Deed in Lieu of Foreclosure is highly advantageous for both the lender and the borrower for it can avoid the foreclosure itself as well as the costs associated with the procedure. Also, the homeowner will not get publicly labelled by the foreclosure which could ruin his or her credit rating. This will also allow the property to get leased back from the lender itself.
However, before going into this solution, the lender will have to reassess the whole situation, reassess the borrower’s capacity to pay, and last, reassess the worth of the property. If the property is no longer worth the market value, then there would be difficulty in the proceedings. Only properties which have been maintained well can be assessed as a good risk by the lender.