What To Do If You’re Facing Foreclosure

Past years, I had learned some of my friends and co-workers faced foreclosure due to their inability to pay their monthly mortgage payments. Since then, I had become more aware of the risk of being a homeowner and studied what a foreclosure really is. While it’s sad and devasted to lose your home, you can avoid having a foreclosure on your credit report by taking a single step I’m going to talk about.  I wish I knew about  “A Deed In Lieu of Foreclosure” so I could have discussed this option with my friends who had this financial hardship.

Many homeowners face an inability to continue paying their monthly mortgage payments. They have to choose between foreclosure or just walking away from their home. I am going to explain what a deed in lieu of foreclosure is, how it is often preferable to a foreclosure, the unexpected pitfalls of just walking away from your home, and what you need to do to make sure all financial obligations are resolved.

What to do if you’re facing foreclosure

The recent recession has led to a record number of people losing their homes to foreclosure. Many others are facing the inevitable loss of their homes due to financial hardships and are still in the decision process of just what action to take. When people have come to the conclusion that they just cannot afford to keep paying the mortgage on their home they are often not sure just what to do.

Many homeowners will request a loan modification, only to be turned down by their bank. This can cause considerable distress as people generally do not want a foreclosure on their credit report, but are not sure how to avoid it. Others decide to just abandon the home, expecting that the bank will immediately foreclose, thereby relieving them of their financial responsibilities in regards to the house. This can cause many unexpected financial problems for them in the future.

One option many of these people are unaware of is the deed in lieu of foreclosure.

What is a deed in lieu of foreclosure?

A deed in lieu of foreclosure is a deed instrument where a homeowner who is no longer able to afford the mortgage payments voluntarily conveys all interest in the real property to the mortgage holder, most often a bank. This process has many advantages over a foreclosure, for both the homeowner and the bank. Quite frankly, for the bank, it’s simpler and considerably less expensive than the foreclosure process. Since the property is being returned voluntarily there is no court proceedings involved and a good bit less personnel needed. For the homeowner, the first advantage is that a deed in lieu of foreclosure is less damaging to their credit report than a foreclosure would be. In addition, the deed in lieu is not made public, and often a homeowner, when the whole process is finished, may, in fact, receive some funds from the bank to assist in relocation.

Why not to just let your house undergo foreclosure?

Some homeowners, overwhelmed by financial struggle and frustration, have opted to just abandon their homes, expecting that foreclosure of the home will soon follow. This is often a mistaken belief and can lead to some very unpleasant financial shocks down the road. Whether or not a bank acts quickly to regain ownership of a home varies greatly depending on the bank and the property involved. With so many people having to give up their homes banks can be overwhelmed and many times homes just sit abandoned, sometimes for years, still legally belonging to the homeowners who left it behind.

Many people who have just walked away from a house have been unpleasantly surprised by tax bills and utility fees for a property they have not lived in for months or years, or fines due to the property not being kept up or causing some kind of problem or damage. Until a home’s title is formally and legally transferred to another person or entity, the person on record as the property owner is legally liable for that property. So despite how overwhelming everything can seem when a person comes to the realization that they just cannot afford their home any longer, it is very important that the property be properly and legally disposed of.

What to expect if you choose to do a deed in lieu of foreclosure?

• It is important to keep in mind that a deed in lieu of foreclosure can be a lengthy process, on average around ninety days. It is not just a matter of informing the lender that the homeowner no longer can afford to stay and desires to return it to the bank. There will be a good deal of paperwork and a lot of probing questions by the bank. Often the bank will want very specific financial information in order to make a determination if the property owner qualifies for this processor if he or she could actually continue paying the mortgage.

• The homeowner may be required to submit a hardship statement, and documents to back up that information. There will also be paperwork specifying that this action is, in fact, being chosen voluntarily. Finally, there will be pre-closing documents and possibly other necessary forms, depending on where in the country the deed in lieu is taking place.

•  When all of the paperwork is finished and the bank has finally approved the process, the homeowner vacating the property will be expected to leave it clean and in good condition. This means removal of all personal property and ensuring that everything is in good repair inside and out. The bank will give the occupants a definite move-out date, and everyone and everything must be out of the home by that date. Once the previous occupants have left the property and turned in the keys, more paperwork will be sent by the bank, confirming the conclusion of the process.

• It is very important to make sure that verification of the successful transfer of the property back to the bank has been achieved in order to assure that there is no more legal liability to the previous homeowner. It is also a good idea to make sure that all utility companies and service providers are aware of the change in ownership.

• Sometimes utility companies will not take the previous owner’s name off of the account until the bank verifies the change of ownership with them. It is important to follow up on that in order to ensure the transition is complete and guarantee no unfortunate surprise bills in the future.

While it is never pleasant to have to make the decision to leave one’s home due to circumstances beyond a person’s control, it is very important that the right decision be made in order to spare a homeowner further financial troubles, and a deed in lieu of foreclosure could very well be the best way to achieve that goal.

What would you do if you’re facing foreclosure on your home?