Deed in Lieu

If you have substantial equity in your home, you may be able to avoid the short sale process and instead opt for a deed in lieu arrangement. A deed in lieu of foreclosure is an arrangement in which your mortgage lender agrees to accept the deed to your home, rather than pursue a foreclosure. Any outstanding balance on the mortgage is forgiven, and you are freed of the financial obligation. While you will still need to relinquish ownership of your home, a deed in lieu agreement will prevent foreclosure, and will put you in a better position to obtain new housing arrangements as necessary.

A deed in lieu arrangement may be best suited to those who have a sizeable amount of equity in the home, and for those whose home value has fallen recently. You will be responsible for handling the paperwork required to confer property to another entity - a process that can take some time, and have a substantial cost. However, once the mortgage lender takes control of the property, you will no longer be financially responsible for the remainder of the mortgage balance. This can have some benefits if you are looking to find a new home right away, as the debt will not be a part of your debt to income ratio. Additionally, you may be able to negotiate a turn-over date with your lender that will give you significant time to find new living arrangements.

However, just like with other forms of debt forgiveness, you will most likely have to pay taxes on any balance that the mortgage lender forgives in conjunction with your deed in lieu arrangement. And because the IRS treats these types of forgiven debt as income, you may find that you are pushed into a higher tax bracket because of your deed in lieu of foreclosure agreement. This increased tax obligation may cause additional difficulties, if you do not have the funds available to pay.

If you want to avoid having a foreclosure listed on your credit report, the deed in lieu arrangement may be an acceptable solution, however, it is no the only solution available. Many people who think they cannot afford to remain in their homes are pleasantly surprised when they discover the additional loan modifications and other adjustments that a  Chapter 13 bankruptcy can provide. Speak with one of our reputable  Orange County bankruptcy attorneys today about your case. We offer a  free initial case evaluation that can help you to decide if a deed in lieu of foreclosure is the best option, or whether there are other solutions that may work better in your case.