QUESTION: If a person is able to do a "deed in leu of forclosure", what exactly happens? Are you to get out once you give the property back to the bank? Soon to be in forclosure and just want to know some options. Our mortgage is just too high and taking it's toll on us as far as stress. My husband and I are considering letting the house go and getting into a rental home. We even have one lined up. If we do get out, how do we go about giving back our home? Do we just call up the lender and say we've moved out and are letting the house go?

ANSWER :If you are approved for a Deed-in-Lieu, you will deed the property over to your lender in exchange for a release from the obligation to repay your mortgage.  Your lender may also waive their deficiency judgment rights.  If not, you could still owe your lender money after they have "fixed up" and sold your property.

There may be tax consequences of a Deed-in-Lieu transaction.  A qualified tax professional should be consulted to determine the impact this may have in your case.

Lenders will consider accepting a Deed-in-Lieu transaction when other options are not possible.  Generally, lenders expect the following conditions to be met in order to consider offering a homeowner a Deed-in- Lieu solution:

  • You have experienced a long term financial hardship that has not been resolved.
  • Your house has been on the market (at fair market value) for at least 90 days. 
  • There are no additional claims or liens (other than the first mortgage) against the property.
  • The house is broom clean.