What is a deed-in-lieu? – David Reecher

A deed-in-lieu is a deed that transfers ownership of a home from a borrower to the borrower’s lender to avoid foreclosure proceedings. A borrower signs a deed-in-lieu once he is in default. Lenders verify that the borrower can no longer afford his mortgage by investigating his financial situation and job status. If the lender accepts the deed-in-lieu, the former homeowner must move out of the home.

The main advantage of a deed-in-lieu is that it releases the borrower from most or all of the debt associated with his mortgage loan. The disadvantage is that the borrower’s credit score will go down, making it more difficult to get a loan in the future.

Lenders often will not accept deeds-in-lieu, since they may be able to get more money for the home by foreclosing and selling it as an REO (real-estate-owned home). If the lender won’t accept a deed-in-lieu, the homeowner may try to sell the home as a short sale. If that fails, the lender will proceed with the foreclosure process and sell the home at a foreclosure sale.

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