With the recent downturn in the economy and the loss of property value in many areas across the United States, many individuals are facing the uncertain prospect of foreclosure. If you fall behind on your mortgage payments and are unable to work out a deal with your mortgage company, you may find that they will initiate foreclosure proceedings which can cause you to lose your house. Another option exists; however, one which has become more prevalent as many more individuals fall behind and are faced with the hard choice of how to avoid foreclosure while also getting out of a house that they may owe more than the value of in mortgage payments. This option is called a deed in lieu of foreclosure.
Understanding a Deed in Lieu of Foreclosure
The deed lieu of foreclosure option essentially means that you, as the homeowner, provide the mortgage company with the deed to the property, thus conveying ownership of the property back to the lender, in exchange for not having to make any more mortgage payments on the property. This process has become known as “sending back the keys” in the media today, as many individuals have begun to adopt this method. Once you have given the mortgage company the deed in lieu of foreclosure, the mortgage company will attempt to sell the house to recover the money that is owed on the property.
This process is not without legal headaches, however:
- You must file all of the correct legal documents in order to proceed with a deed in lieu of foreclosure proceeding.
- You must sign away your rights to the property through a quit-claim deed, as well as sign documents which transfer your ownership right back to the mortgage company.
- In return, the mortgage company will mark your debt as canceled, and will waive any right to come after you to attempt to recover any unpaid debt that may result if the sale of the house does not fully cover the original amount which was owed. A lawyer can help you properly draft and handle these documents so that you do not find yourself in an indefensible legal position.
Once you have handed back your right to ownership in the property, you will still be liable for certain financial repercussions. One such repercussion is that you must pay state deed taxes on the transfer, which vary from state to state, similar to the taxes you paid when you purchased the home initially. A second consideration, (one which is currently not a problem because of a 2009 law exempting mortgage debts) is that you must pay federal income taxes on the amount of the unpaid mortgage which was forgiven by the deed in lieu process.
Getting Help
If you are facing foreclosure, speaking to a foreclosure attorney can help. He can provide you with information on all of your options, including a deed in lieu of foreclosure, and help you to decide which option is best for you.
