What is a deed in lieu?
A Deed in Lieu of foreclosure (DIL) is an option in which a mortgagor (or a home owner) voluntarily deeds the subject property to the lender in exchange for a release from all obligations under the mortgage. A DIL of foreclosure might not be accepted from mortgagors who can financially make their mortgage payments. Often times, this can be as damaging to your credit as a foreclosure and should be considered a last resort (in most cases)
"there are several disadvantages to a deed in lieu, most importantly, it is almost as bad on your credit as a foreclosure or bankruptcy, a short sale can be viewed as a much better option in terms of your credit
"it is considerably more difficult to qualify for a deed in lieu if you have a 2nd, 3rd..mortgage
What are the benefits of a deed in lieu?
Many believe that a deed in lieu of foreclosure looks better on your credit report than does a foreclosure or bankruptcy. In addition, unlike in the short sale situation, you do not necessarily have to take responsibility for selling your house (you may end up simply handing over title and then letting the lender sell the house).
Are there disadvantages to a deed in lieu?
There are several disadvantages to a deed in lieu. If you have second or third mortgages, home equity loans, or tax liens against your property, you probably cannot qualify for a deed in lieu.
In addition, getting a lender to accept a deed in lieu of foreclosure is difficult in the current market. Banks are not in the real estate business, most lenders want cash, not real estate -- especially if they own hundreds of other foreclosed properties which is a likely scenario these days. On the other hand, the bank might think it better to accept a deed in lieu rather than drag out the lengthy foreclosure process and incur more expenses. Beware of tax consequences; a deed in lieu may generate unwelcome taxable income based on the amount of your "forgiven debt."
