What Is a Deed In Lieu?
This phrase (short for Deed in Lieu of Foreclosure) refers to the situation where the borrower places the keys on the kitchen table and walks out the door (or in the days of the drive through teller, hands the keys to the teller at the lending institution and drives away).
Why Would a Lender Accept a Deed in Lieu?
When the value of the home is about equal to what is owed, a lender may agree to accept the deed in lieu of foreclosing. This saves the lender the cost of foreclosing and evicting the borrower. However, the lender must still pay to maintain the property during marketing and sale, and pay a commission to a real estate broker to sell the property. Thus, if the equity in the property has not dropped too far below the amount owed, a lender may accept a deed in lieu. That said, the current mortgage crisis has not left many homes with enough equity to make a deed in lieu attractive to lenders. Lenders see no advantage in allowing a borrower to just walk away. In the climate of mortgage meltdowns, lenders are not usually willing to accept a deed in lieu.
Will a Deed In Lieu Damage My Credit Score?
The damage to the borrower's credit scores is about the same as that from a short sale. |
