What can we do if we agreed to the deed in lieu? 15 Answers as of June 28, 2012

We are upside down on our mortgage and we can no longer afford our payments. Our lender has agreed to a deed in lieu but that would mean we would need to vacate within 60 days. If we chose a foreclosure instead, we would have about a year to vacate and within that year we would be able to pay off almost all of our debt. If we agreed to the deed in lieu, we would not be able to since we would have to try and find a rental asap. We are middle aged and are not planning on purchasing another home, what would be the best choice for us?

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Law Office of Bijal Jani | Bijal Jani
Going through foreclosure and deed in lieu is a process which does not happen instantly. In both instances, there are legal procedures that are followed, which would allow the homeowner some time to make arrangements. Also, you may want to consider bankruptcy protection. The best bet is to retain an attorney to assist you so that all of your legal rights are protected.
Answer Applies to: New York
Replied: 6/28/2012
Connaghan Newberry Law Firm
Connaghan Newberry Law Firm | Tara D. Newberry
If you do nothing and allow the bank to foreclose, you could still be pursued for the difference between what you owe and the foreclosure sale price, also known as the "deficiency balance". You may pay off your current debt, only to incur the new debt of the deficiency. This may be true as well for the deed in lieu unless there is a waiver of deficiency included in the Deed In-lieu itself, or in the approval from the bank. The other issue that may arise, regardless of deficiency balance, is tax liability. There can be tax consequences to "cancelled debt" so even if the bank "forgives" the deficiency balance, you will get a 1099-C for the cancelled debt, and the IRS treats this as income. There is a law in place called the Mortgage and Debt Relief Act, which protects some people from this tax consequence, but the law expires 12/31/12, so if you wait on foreclosure, this law, if it would apply to you, will no longer be available. There may be other provisions within the tax code that would protect you from any tax consequence, but that requires a tax opinion. In sum, you need to meet with an attorney to analyze your situation and explain all of the options and guide you with regard to the legal consequences of your decisions, but, you will also need to consult with your CPA or qualified tax professional about the potential tax consequences of the decision you make. While the short term of living in a property for free may be very attractive at first glance, it may have long term detriments that are significant. Home loans, credit cards and medical bills can often be discharged in a bankruptcy, but tax debt most often cannot be discharged. So it is important that you understand the benefits and detriments of your decision, and make the choice that yields the most protection and long term benefit/solution for your specific set of circumstances.
Answer Applies to: Nevada
Replied: 6/28/2012
Strawder & Loewenstein P.C. | Lance Loewenstein
The answer to your question revolves around whether or not your deed in lieu of foreclosure agreement with the holder of the deed of trust holds you harmless for the deficiency - the amount between what you owe and the amount that the landlord is ultimately able to obtain for the property on resale. In a foreclosure you are typically held responsible for the deficiency, even after you no longer have possession of the home, and it is as collectable as any other judgment - through garnishment, asset seizure, etc. This advice is limited in scope to the facts presented and do not constitute an attorney-client relationship with our firm - you should retain counsel to review the documents related to this issue if you have questions as to what those documents mean.
Answer Applies to: Missouri
Replied: 6/28/2012
Law Office of D.L. Drain, P.A.
Law Office of D.L. Drain, P.A. | Diane L. Drain
It appears that you already analyzed your financial situation and found your best option.
Answer Applies to: Arizona
Replied: 6/28/2012
Gordon F. Gault PC | Gordon F Gault
A deed in lieu of foreclosure eliminates the black mark on your credit for a foreclosure. With good defense counsel you might be able to live in your house for 2 years without paying your mortgage. I would probably go with the mortgage foreclosure process, but you need counsel.
Answer Applies to: Illinois
Replied: 6/28/2012
    J.R. Durant & Associates, PC | James R. Durant
    I do not know "what would be best for you" as I only have limited facts. Under both scenarios you would have a serious credit ding. I have not looked at the deed in lieu but I assume that it has some kind of payment for you to leave and or some type of agreement that they will not come after you for a deficiency. You would be giving up whatever consideration you would be receiving and taking a gamble on your being able to pay off the mortgage within the redemption period which varies in length depending upon the facts.
    Answer Applies to: Michigan
    Replied: 6/28/2012
    James T. Dunn PC | James T. Dunn
    The correct answer all hinges on whether or not there are conditions to the Deed in Lieu. If you give the Deed and they are absolving you of the additional amount you are upside down in the property, the Deed in Lieu is the way to go. If they are not going to absolve you of the balance of the debt, then you have to weigh how much it is. If it is an amount you can tackle if they come after you for a deficiency, then wait it out and live there free until they evict you after the foreclosure.
    Answer Applies to: Utah
    Replied: 6/28/2012
    R. Jason de Groot, P.A
    R. Jason de Groot, P.A | R. Jason de Groot
    It appears that you best choice is not to do the deed in lieu, to let the home be foreclosed. There is not a set amount of time for the foreclosure to be final. I have a few cases going now where the homeowner has not paid the mortgage for over 3 years and the bank is far from getting a foreclosure entered. But each case is different and it could be less than a year before the bank gets title in its name.
    Answer Applies to: Florida
    Replied: 6/28/2012
    Norman Linder Hull, P.A. | Norman L. Hull
    I would suggest taking the alternative that allows you to stay in the home as long as possible. You may still want to file bankruptcy to get rid of any possible deficiency judgment when the foreclosure finally occurs, especially if it occurs after 2012. Consult a bankruptcy attorney to explore all your options. Avoid nonlawyer "petition preparers" and other nonlawyers who advertise help with foreclosures.
    Answer Applies to: Florida
    Replied: 6/28/2012
    The Law Office of Darren Aronow, PC
    The Law Office of Darren Aronow, PC | Darren Aronow
    If you file a bankruptcy then all of your credit card debt will be wiped out and any foreclosure action would stop for the 3 to 4 month duration of a chapter 7 bankruptcy. It is likely that the bank will do a deed in lieu at a later time but even if they did not, after your bankruptcy discharge you are no longer liable for the mortgage debt anyway.
    Answer Applies to: New York
    Replied: 6/28/2012
    The Law Offices of Mark Wm. Hofgard, Esq.
    The Law Offices of Mark Wm. Hofgard, Esq. | Mark Hofgard
    A Deed in Lieu has some advantages. First, there is no foreclosure on your credit report. Second, provided the lender agrees, you can avoid the possibility that there is a deficiency after sale of the home at foreclosure. However, if you wait and allow foreclosure proceedings to continue, you will have to all of the back payments, late charges, interest, attorneys' fees, costs, and public trustee fees by noon prior to the day of the sale. Make sure to file your Intent to Cure with the Public Trustee if this is your route.
    Answer Applies to: Colorado
    Replied: 6/28/2012
    Bruce Plesser | Bruce Plesser
    There is no doubt you are a victim of predatory lending.
    Answer Applies to: Florida
    Replied: 6/28/2012
    Frank Law Group, P.C.
    Frank Law Group, P.C. | David E. Frank
    Foreclosure will take a minimum of 4-5 months, and more often these days it is taking lenders a year or more to complete the foreclosure. Has your lender started the foreclosure? Have you received a formal legal document entitled "Notice of Default and Election to Sell"? That's the first step in the foreclosure process.
    Answer Applies to: California
    Replied: 6/28/2012
    John A. Ferguell P.S. | John Ferguell
    Stay in the home and allow the bank to foreclose. You usually only get a small benefit from the bank like $3,000 for you agreeing to get out within 60 days on the deed in lieu deal. Staying in the home the full time is a much bigger financial advantage and there is no difference to your credit.
    Answer Applies to: Washington
    Replied: 6/28/2012
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