Deed-in-Lieu of Bankruptcy
What Happens if I Get a Deed-in-Lieu of Bankruptcy?
Determining if a deed-in-lieu of foreclosure is a good option for you starts with evaluating your current financial situation.
Considerations
Financial Hardship
You’ll want to consider any hardships that have been impacting your ability to make payments on your mortgage.
Inability to Sell
Make note of any instances you have tried selling the property and were unable to do so at the time.
Home Equity
If the equity of your home is less than the mortgage debt you have acquired, a deed-in-lieu might be a good option.
Lender Approval
Your lender must be willing to forgo this option. If not, you will have no other choice but to find a different solution.
Before Reaching Out To Your Lender
Gather financial information
Get professional help
Understand the process
Locate your lender’s relevant department
Write a hardship letter
During the Conversation
Making Your Suggestion
Tell them you are interested in talking about a Deed-in-Lieu of Foreclosure. Present your case as to why it is the best option and a mutually beneficial solution.
Transparency is Key
You have to be truthful about your financial situation. There is no way around it. Plus, your lender will recognize this effort which helps build a trusting relationship.
See if You're Eligible
Ask about the specific eligibility criteria for the lender. This will give you a better understanding of the documents and information needed to apply.
Go Over Terms & Conditions
If your lender wants to move forward with this idea, discuss the potential terms and conditions that will be put in place, like the impact on your credit.
Keep Documents of Everything
Keep records of any communication you have regarding the matter with your lender. This includes names, dates, and details discussed.
Applying & Negotiating
The conversation is only the first step in the process. Now, you must apply for a loss mitigation from your lender. This will formalize the request you made for a deed-in-lieu while giving your lender all the necessary information required. After this, the negotiations will begin.
Most times, the lender will want to get the property appraised to determine market value. This is an important piece that is used in the negotiation process. If your lender approves, you will then sign the deed over to your lender, officially transferring ownership.
Credit Implications
- Your credit score will decrease
- The transaction will be noted on your credit report
- It will stay on your credit report for seven years
- Your chances of obtaining new credit will diminish
While a Deed-in-Lieu of Foreclosure will have a negative impact regardless of the circumstances, it’s still possible to rebuild your credit. Consult with a credit counseling agency or a financial advisor for personalized guidance. You can also find educational resources provided by credit bureaus, banks, credit unions, and certain government agencies online.