By Donna Allison on March 5, 2010
.jpg.aspx?width=75&height=75) Are you having trouble stopping foreclosure on your home? Can’t keep up with monthly payments on your mortgage, but are unable to sell your home at market value? If so, a deed in lieu may be the answer.
Deed in lieu of foreclosure is a process in which you give away your property to the lender because you aren’t able to pay any more. The lender sells off the property in order to retrieve a part or whole of the loan balance you owe. When you go for a deed in lieu to stop foreclosure, you need to sign legal documents such as the Agreement in Lieu of Foreclosure and a Warranty deed, quit claim deed or a grant deed. The first document reveals the terms and conditions of the deed-in-lieu, and is signed by both the lender and borrower. The deed is the second document, and legally transfers the ownership of the property to the lender.
First, the lender marks the borrower's note as "paid;" then gives two forms to the borrower. One verifies that the debt is canceled. The other states the conditions regarding the lender's right to ask for the unpaid debt amount, if it is not completely recovered by the property sale.
An escrow company executes the deed in lieu of foreclosure, and receives the borrower's “paid” note from the lender. This company then records the deed used for transferring legal ownership of the mortgaged property, and sends the note to the borrower. The borrower is no longer liable for the mortgage payments.
If you choose deed in lieu, you may have to pay two types of taxes. One of them is the state deed tax owed by the borrower. It may vary from one county to another. The second is the income tax on your canceled debt. According to the Mortgage Debt Forgiveness Tax Relief Act (which applies until the end of 2009), you do not need to pay tax on the canceled debt resulting from deed in lieu. However, a borrower needs to satisfy certain conditions for mortgage tax relief.
Although it will appear as a negative on your credit rating, deed-in-lieu is an important process to consider. It is less harmful to your credit than a mortgage foreclosure.
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