Anyone Use the Deed in Lieu of Foreclosure Option?

I am no expert but I've heard that banks will only agree to this when its to their benefit ( home worth more or at least the same as your loan).

If you sell it at a loss your credit will not suffer.. You just end up continuing to pay money on a house you don't own. For only 30k, this is probably your best option to avoid ruining credit. Note I mean selling at a loss where you pay the difference not a short sale that takes years and a bank has to approve/eat the loss. Short sales are fantastic for patient buyers not the seller. I have a friend that bought a short sale for an amazing price.

Finally, you may do well renting it out a few years if you can receive as much in rent as you pay out in mortgage and upkeep. Perhaps after a year or two of renting it will regain its value so you don't have to sell at a loss.

Good luck.

My brother and SIL own a house in Bloomington that they would love to sell and haven't been able to. Because sales are down, their realtor has switched roles and is managing properties as well. For a fee (I want to say the equivalent of 1 months rent) he finds the renter and keeps an eye on the property. He lets them know if there is something that needs to be taken care of. They look forwarding to selling the house one day, but this pays the mortgage!

I'm really surprised you said houses are going for $100,000 in your area. I would have thought they'd be much higher since you're so much closer to Chicago (I'm just outside Springfield). You might be far enough outside the city to not have the same prices as some of the suburbs.

We had my ML do it. It will hurt your credit, like a foreclosure. But, since she's 75 and on a fixed income, so it's not like anyone is going to extend her credit without a co-signer anyway. If it's your only option, then do what ya gotta do, but I do suggest consulting an attorney in your area first.

Perhaps a short sale would be a better option.

I am not familiar with that of which you speak of...just wanted to throw out that there are plenty of rental companies that you can pay to watch over your house and deal with the tenants, I believe they will even find the tenants or you too?

Yes, we did and it worked out very well for us. Here's what we learned through the process:

1. The bank will ONLY agree to it if you have made a legitimate effort to sell your home. We had our home on the market for two consecutive years, at a reasonable price, three price reductions and no offers. We had to show documentation of all of the above. If you have not done this, this will not be an option for you.

2. We had to show "hardship". For us, I accepted a job in Florida (we were living in NY), meaning that we HAD to move very quickly. Cost of living in FL is much much lower, so my salary would be less, meaning that we could not afford to maintain two households. I had to show documentation of my contract (including start date).

3. The bank collects all of the paperwork (it's the same paperwork as a short sale) and reviews it. IF they still "own" your mortgage (and you would not know if they do or don't), then they decide whether or not they will forward your case to their insurance company. If the bank has sold your mortgage, you will be SOL. If they own it and approve it, they will send it on to the insurance company. It is then up to the mortgage insurance company. If they approve it, then your attorney works with their attorney to draw up the paperwork and you essentially sign over your house and hand over your keys.

The financial impact comes at tax time because the "forgiven debt" will show up as income. The "forgiven debt" is based on the difference between what you "owe" and where the home is "appraised" by the bank. You will pay income tax on that amount.

We asked about the hit to our credit and apparently the huge hits come when you miss mortgage payments. Please continue to pay your mortgage until the paperwork is approved and completed. Our loan officer was incredibly helpful throughout this process because we were upfront with her from day 1. We went to her as soon as I had an offer and explained the situation. She suggested the "Deed In Lieu" and walked us through. Her NUMBER ONE suggestion was to continue paying the mortgage until we signed over the house. THAT is the credit killer... missed payments. We did take a minor hit to our credit, but she let us know that one year of timely payments on our other bills would return the credit to it's original "near perfect" level. If our credit had been poor to start out with, we would have been in trouble.

I will repeat this over and over... if you haven't tried to sell your house, they will NOT entertain this. You can't just "walk away" from your home. This option is for people who have actually TRIED to sell their home and have a legitimate need to request the option.

PS: the bank sold our house at "their price" within three weeks of taking it over. They really only do this if they can still "turn a profit", which they did.

Your bank has to agree to a deed in lieu of foreclosure. Do you already know they will agree? Call a realtor in your area and ask about short sale, deed in lieu and foreclosure options. Short sale and deed in lieu will hurt your credit almost as much as a foreclosure.... so it's worth consulting with an expert about how long the process will take for each and which would have the best chance of happening.

You should do a short sale. Your hardship is that you are moving out of state. First meet with a Realtor, one that specializes in short sales and uses a good short sale attorney. You're not too far under water and the bank will pay the Realtors commission.

House prices are going up so it may be worth more than you think