Mortgage Foreclosure & Refinance Resource

A Deed in Lieu of a Foreclosure (DIL) is a option in which a the borrower voluntarily hands over the collateral property in exchange to satisfy a loan that is in default and avoid foreclosure proceedings. A DIL of foreclosure may not be accepted from borrowers who can financially make their mortgage payments.

The deed in lieu of foreclosure offers several advantages to borrower and the lender. The borrower is immediately released from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he would in a formal foreclosure. Advantages to a lender include a reduction in the time and cost of a repossession, and additional advantages if the borrower subsequently files for bankruptcy. Generally, the lender will not proceed with a deed in lieu of foreclosure if the current fair market value of the property exceeds the outstanding indebtedness of the borrower.

There are some strict rules associated with A Deed in Lieu of a foreclosure

• Both sides must enter into the transaction voluntarily and in good faith.
• The borrower must be 31 or more days delinquent
• The property must be owner-occupied, no “walk-a ways” or investment properties. Exceptions: when it is verifiable that the need to vacate was related to the cause of default (job loss, transfer, divorce, death), and the subject property was not purchased as a rental investment, or used as a rental for more than 12 months.
• A DIL of foreclosure must be completed within 90 days of initiation of the process.

Neither the borrower nor the lender is obliged to proceed with the deed in lieu of foreclosure until a final agreement is reached. If you are considering applying for a DIL, consider asking the lender to accept a short sale which will not tarnish your credit history.