Illinois Foreclosure Litigation Lawyer

Deed in Lieu of Foreclosure

A deed in lieu of foreclosure (sometimes called a "deed in lieu") can be one of the more straightforward ways to shed your underwater mortgage. As the term implies, you are literally willing to give the actual deed to the lender. This is also known as "handing the keys over to the bank."

A deed in lieu of foreclosure is an written agreement between a borrower and lender, in which the lender agrees to take title to the property from you and release you from all or some of the mortgage debt. The transaction takes place outside of the court system. Deeds in lieu of foreclosure, like short sales, can be difficult to successfully complete.

Possible Benefits of a Deed in Lieu of Foreclosure

There are advantages that can make this method desirable for both the borrower and the lender. For the borrower, if the lender accepts a deed in lieu, the borrower can quickly be released from all (or most) of the mortgage debt. For the lender, a deed in lieu may save it from a costly process of foreclosure. There is also a greatly increased chance that the borrower will continue to maintain the property until it’s time to move.

Why Deed in Lieu can be Difficult

It should be noted that, as is the case with a short sale, having two mortgages or a home equity line of credit (HELOC) on the home make this alternative very difficult. Since you cannot deed the property to multiple lenders, second mortgages and HELOC’s must be paid off or satisfied first before a deed-in-lieu is a realistic possibility.

Deeds in lieu are generally only given when the homeowners can demonstrate financial hardship. To apply for a deed in lieu, you will have to submit an application and provide a detailed financial statement along with pay stubs, banks statements and last year’s tax return. If you can’t show a financial hardship, it is unlikely that your lender will agree to a deed in lieu.

Finally, most lenders require that you list your property for a short sale for at least 90 days before they will consider your application for a deed in lieu. In actual practice, deeds in lieu are the least common method of walking away from an underwater mortgage. They should be considered when thinking about walking away from your mortgage, but are probably not a likely option for most homeowners.

What Is My Next Step?

If you owe more to the bank than your Illinois property is worth, the Law Office of Daniel S. Khwaja help you review your options and decide what solutions may be available to you. Contact the Law Office of Daniel S. Khwaja today for a free, no obligation consultation about your situation. We are here to help.