For homeowners in the state of Illinois considering deed in lieu of foreclosure, understanding the process and outcome of the process is important. In a typical deed in lieu of foreclosure deal, a lender will agree to accept the title or deed to a homeowner’s home, in exchange for cancelling debt based on the fair market value of the home, while most likely also agreeing to forgive any debt amount deficient following this exchange. However, several inherent problems in the deed in lieu process exist for homeowners, which are explained below.
Gaining Lender Approval for Deed in Lieu in Illinois
Any deed in lieu transaction must be done on a voluntary basis, or in practice, the homeowner must formally request from their lender the ability to do a deed in lieu transaction. Normally, this request is submitted in the form of a hardship letter and processed by your lender’s loss mitigation department. The hard part, from the perspective of homeowners, will be obtaining lender approval to do a deed in lieu deal with their lender. Typically, a lender will not consider deed in lieu if a homeowner’s property has other encumbrances attached, if other foreclosure alternatives are available, or if a homeowner has not had their home on the market for a period of three months, in an attempt to sell and possibly do a short sale deal.
Proceeding with Lender Approval for Deed in Lieu in Illinois
If a lender is seriously considering a homeowner as a viable candidate for deed in lieu, they will often contact the homeowner to negotiate terms of the transaction. In most cases, having legal counsel representing your interests at this point will prove beneficial. Typically, the main consideration a homeowner should make concerning any proposed deed in lieu deal, assuming it is financially beneficial for them to do so and they have garnered lender approval, will be concerning deficient amounts. The state of Illinois, per Illinois Compiled Statutes Chapter 735 5/Article XV and XII, does allow deficiency judgments for outstanding debts unpaid by the fair market value of a home in a deed in lieu exchange. In most cases, a homeowner is able to negotiate a “no deficiency” clause into their deed in lieu agreement, which will effectively preempt any deficiency collection action possible be lenders, and in turn, federal legislation protects homeowners from tax liability on forgiven home loan debts until the year 2012.
After a Deed in Lieu of Foreclosure Deal in Illinois
Once a deed in lieu deal is completed, the homeowner will no longer retain the rights to a given property, and in turn, must vacate the residence, if they have not already done so. While the ex-homeowner no longer has their home, they also are not subject to any debt obligations related to that property any longer. However, one major drawback concerning deed in lieu versus foreclosure itself is that while a homeowner may have been proactive and done what they could to prevent foreclosure, credit reporting companies often view deed in lieu as disdainfully as foreclosure. Individuals should expect their credit scores and other financial risk assessments to take a hit.
Getting Legal Help with Deed in Lieu in Illinois
Deed in lieu of foreclosure is one of many foreclosure prevention options any struggling homeowner has at their disposal. By consulting with an attorney, a homeowner can ascertain specifically what legal rights they have, as well as what their potential foreclosure prevention options are, which may include deed in lieu.
