Why is a deed in lieu of foreclosure a good idea?

Though a person cannot save their home (maintain ownership) through the “deed in lieu of foreclosure,” this method is nevertheless becoming a more popular solution by homeowners in order to avoid going through the difficulties and unpleasant business of a foreclosure.  Though the home is not saved, the effects of the “deed in lieu of foreclosure” is generally beneficial to both the debtor and the lender.  The homeowner avoids having his property forcefully sold out from under him at a county sheriff's sale, but the cost to him is to voluntarily surrender the title of his property to the lender.  In addition to still losing the house, the additional down side to “deed in lieu of foreclosure” is that the homeowner's credit will still be adversely affected in a similar manner to being foreclosed upon.  The credit report will display the note that the mortgage loan's status has been closed under a "Deed in Lieu."  Though better than it stating that the loan was closed due to a "foreclosure," it is only slightly better.  There are, however, some indirect positive effects to the homeowner's credit history when the “deed in lieu” is utilized.

The first advantage is that the “deed in lieu” ends the foreclosure process more quickly than if the house has to travel through the court system ending eventually in it being sold at a foreclosure auction.  Though this may not seem extremely important, it has its merits as the owner will have fewer moths of late mortgage payments appearing on his/her credit report.  Though only a small consolation, it is still better to show 6 months of late payments followed by a “deed in lieu” as opposed to 9 months of late payments followed by a foreclosure.  The fewer the late payments the quicker the homeowner's credit report will begin to recover.

There is something to be said for getting some distance from the entire foreclosure process.  The “deed in lieu” brings things to a completion faster, even months sooner. The longer the time is between the “deed in lieu,” and the next time the homeowner tried to get something on credit, the better the chances are that the homeowner will be able to get creditors to loan him/her money.  This includes buying a new house.