Homeowners struggling to make ends meet occasionally wind up coping with foreclosure as well. Fortunately, most homeowners have alternatives to actual foreclosure. A deed-in-lieu of foreclosure (DIL), for one, is a means to provide your unaffordable home to a mortgage lender, thus avoiding foreclosure altogether. However, deeds-in-lieu of foreclosure come with a couple potential penalties. A possible disadvantage is a DIL can result in some negative mortgage balance that the lender then attempts to gather.
Negative Balance Issues
Mortgage lenders usually dislike deeds-in-lieu of foreclosure because they need money from their borrowers, not their residences. However, when lenders do accept DILs they may turn around and sell the residences attached to them at a reduction. If you don’t get your bank’s written waiver of negative balance resulting from the DIL, you may be responsible for this balance. Negative balances caused by lender sales of DIL residences can run into the tens of thousands of dollars, too.
Some media outlets have mentioned that deeds-in-lieu of foreclosure influence credit less harshly than do foreclosures. Other media outlets have discovered, however, that there’s little difference in credit effect between tanks and also DILs, with both having a strong negative effect. Either way, a deed-in-lieu of foreclosure is going to affect your credit, especially if a negative mortgage balance success. The credit score penalty attached to DILs can increase your credit costs for many decades afterward.
Home Loss Penalty
Losing your home to your deed-in-lieu of foreclosure may deliver a emotionally telling blow. At minimum, you are uprooting yourself and any family members you’ve as soon as you provide your lender your house’s deed to avoid foreclosure. If you do so you may need to immediately vacate, however some lenders do have “lease for deed’ programs.” Some lenders don’t need DIL homes sitting vacant till they’re sold and may allow you to temporarily rent yours following your DIL.
Federally Sponsored DILs
If you are considering approaching your lender about a deed-in-lieu of foreclosure, determine first who actually owns your mortgage. Approximately 60 percent of mortgages in the USA are possessed by Fannie Mae or Freddie Mac. These two mortgage giants work throughout the government’s Home Affordable Foreclosure Alternatives (HAFA) program to offer eligible homeowners handy DIL solutions. Eligible homeowners utilizing HAFA may receive relocation help from Fannie and Freddie mortgage servicers, including cash payments up to $3,000.