Will a deed in lieu of foreclosure help me? It may help you if you want to walk away from your home and never try to keep your home. If your ultimate goal is not to fight for your home anymore, then you may consider a deed in lieu of foreclosure. Keep in mind that banks normally do not offer this until there is no other solution available.
What is a deed in lieu of foreclosure?
A deed in lieu is where the lender has agreed to accept the keys from the owner due to default of money owed on the mortgage. The deed in lieu of foreclosure is also a legal agreement testifying that the lender will not pursue the owner for any default owed because of the foreclosure and forced resale of the property. In other words, the entire amount owed on the mortgage, late fees, foreclosure fees and the cost of reselling the home is forgiven.
A deed in lieu of foreclosure is a legal document which must be signed in escrow. You will receive documents where you agree to relinquish all rights to your property. You will also receive a document stating that the lender will not pursue you for any deficiency judgment and your debt is paid in full. You can request from the lender to remain in the property until the actual foreclosure date if you use this option.
You will also have to pay a deed tax to convey the property plus income tax.
If you qualify, you will not have to pay income tax under the Mortgage Debt Forgiveness Relief Tax. This tax has been extended to 2012 and comes with some stipulations. You should contact your local CPA for all the details.
Will a deed in lieu of foreclosure help me
First of all, you must define "lieu." Lieu means in exchange. So, you will give the key to the lender and the lender will release you from any obligations, except for taxes owed.
How does this walking away from a debt reflect on you in the future? Future lenders will seriously walk away from you also in regards to giving you another loan. You have showed that you will do nothing to help the lender recoup his money. As far as your credit report is showing, you were relieved of debt only.
It is always better to try and help the lender with things, such as a short sale or modification before you do absolutely nothing. Effort on your part may not help you keep your home. However, it will reflect better on you in the future. In the end, this is your choice.