What Is The Difference Between Deed in Lieu and Foreclosure

The Difference Between Deed in Lieu and Foreclosure. That is a great questions and many homeowners in foreclosure or behind on their payments may not realize they can perhaps avoid having a foreclosure on their credit by asking their lender to take back their home with a deed in lieu of foreclosure.

First let's define what is a deed in lieu. According to Wikipedia, it is an deed instrument which a borrow or home owner (mortgagor) give up all rights to property to the lender (mortgagee). That simply means you give up all rights and entitlement to the property. Handing the deed back to the lender and saying "I'm done the property is now your". By doing this you are avoiding costly foreclosure proceedures and avoiding a foreclosure proceeding which can be frustrating and nerve racking.

Returning the property to the bank has many advantages to a home owner.

• Immediatly release of debt associated with mortgage loan
• Avoid public notice of a foreclosure in the paper and county records
• May give a home owner more favorable terms than a full blow foreclosure
• Prevents the borrow from having a foreclosure on their credit

So how does this differe from a foreclsure. Well let us briefly examine what is a foreclosure, well it is a legal preceedure in which the lender or lein holder gets court order to terminate the home owners equitable right of redemation. The reason bank wants to terminate your equitable right of redemtion is because under the law there is a redemtion period where they home owner has a certain amount of time after foreclosure to redeem their home back.

When a home owner goes defalut on a loan it is considered a default in payment of promossery note which secured by a lein on the property. When the process is complete the lender can sell the property to pay off its mortgage and any other fees incurred in the foreclosure procedure.

If a borrow has a promissory note that has a recourse clause the bank can come after for anythink that has not been satisifed when the lender sells the property. They can file a deficiency judgement against the borrower, although with the new bill in place lenders are working with homeowners to lessons the burden of deficiency fees. Consult with your real estate attorney or mortgage lender about recourse clauase in your note.

Refernece:

http://en.wikipedia.org/wiki/Deed_in_lieu_of_foreclosure

http://en.wikipedia.org/wiki/Foreclosure