A deed in lieu of foreclosure is an alternative to preventing your home from going to foreclosure. The advantage of a deed in lieu of foreclosure is that it saves you and your lender time and money. It also has less negative effects on your credit than a foreclosure proceeding. The process involves giving back your home to your lender by signing over the deed, delivering the keys and walking away no longer owing any money on your mortgage to your lender. Not all lenders will accept a deed in lieu of foreclosure so you need to check with your lender to determine if you qualify.
Deficiency Judgments
A deed in lieu of foreclosure is considered a pre-foreclosure event. You could be subject to a deficiency judgment. A deficiency judgment is when a lender files a legal proceeding after a foreclosure or pre-foreclosure sale to collect the difference between the sale proceeds of your home and the remaining balance on your mortgage that is owed to your lender. Not all states allow deficiency judgments. If your lender agrees to a deed in lieu of foreclosure, it is recommended that you obtain a statement in writing from them confirming that they will not institute a deficiency judgment against you. You should also consult with your attorney or check your local state foreclosure laws.
Lender and Borrower Incentives Under the New HAFA Program
You may qualify to participate in the government’s new HAFA program which went into effect April 5, 2010, if you were turned down by your lender for a mortgage modification under the HAMP (Home Affordable Modification Program). You should contact your lender to determine if you meet the HAFA requirements to participate in a deed in lieu or short sale transaction. Under the HAFA program, the government will pay your loan servicer /lender a $1,500 incentive to participate in the program and successfully complete a short sale or deed in lieu of foreclosure and will pay the borrower $3,000 for relocation assistance.
Fannie Mae New Guidelines Regarding Waiting Period to Obtain a New Mortgage
Fannie Mae’s new guidelines go into effect July 1, 2010, regarding the waiting period to obtain a new mortgage for borrowers after a pre-foreclosure event (short sale or deed in lieu of foreclosure). The waiting period starts after the pre-foreclosure event has occurred. It may vary on the allowable loan to value ratios (LTV) and occupancy status of the property. The new guidelines will enable borrowers after a pre-foreclosure event to purchase another home much sooner once they have improved their financial situations and their credit scores.
Here are the new guidelines:
- 2 years or longer for 80% maximum LTV ratios with a 20% or more down payment
- 4 years or longer for a 90% maximum LTV ratio with a down payment between 10% and 20%.
- For special circumstances, the waiting period is 2 years from the completion date of the pre-foreclosure event, maximum LTV 90%.
Hiring an Attorney
A foreclosure defense attorney can help you negotiate a deed in lieu of foreclosure or other foreclosure prevention options with your lender to save your home from foreclosure. Since foreclosure laws are complicated, it is recommended that you use an attorney to assist you and represent your interests. Foreclosure defense attorneys are experienced and knowledgeable and can advise you of your legal rights and remedies.
