Can I do a deed in lieu on my home?

A deed in lieu of foreclosure (DIL) is a legal procedure in which a homeowner willingly transfers the title of his property to the lender and in return the latter agrees to release the borrower from all obligations in the mortgage loan. This is advantageous for the borrower because it has a less detrimental effect on his credit score and he is assured that the lender will not come after him for any outstanding amount in the loan after the lender has sold the property. On the other hand, the DIL is also beneficial for the lender because it avoids the costs and effort required for a foreclosure sale.

Whether a person can do a DIL on his home would depend on his situation and on the lender. Negotiations for a DIL can begin after the homeowner has been late in his payments. The borrower or his representative can approach the lender even if foreclosure proceedings have not yet been initiated. While this appears to be simple and uncomplicated, there are certain issues to be resolved.

There are certain rules that each lender has established for such situations and must be followed. That is why the question on whether a homeowner can do a DIL on his home is difficult to answer because it would depend on the lender and the financial situation of the borrower. Also, it is normally required that the home should have been made available for a short sale before the lender would agree to a deed in lieu.  Many lenders require that a borrower attempt a short sale for a minimum of 90 days before a deed in lieu would be considered.

Some lenders may not be amenable to a DIL because they believe that they will have a better title after the standard foreclosure sale. This is because a trustee’s deed of sale after a foreclosure effectively erases any judgment liens, and second and third mortgages.

Thus, it would depend on the borrower’s lender whether to accept a deed in lieu or not. It would be advisable to consult with a real estate lawyer to determine your options. Real estate agents who are not well-versed in the legal aspects of the deed in lieu may destroy a person’s chances of getting it and they only make commissions if they sell your home. So, some agents may push a short sale.