One last line of defense to foreclosure is to offer the deed-in-lieu of foreclosure. This is essentially waving the white flag of surrender to your lender.
Due to the complexities of completing this process, it is recommended that you first complete housing counseling from a HUD-approved housing counseling agency prior to choosing this option. Second, an experienced attorney may need to be consulted.
There are some advantages to both the homeowner and the lender by completing this drastic option. You can avoid the embarassment and hassle of a foreclosure by completing a deed-in-lieu (DIL). Also, since foreclosure is second only to bankruptcy in terms of damage to your credit, you could end up with slightly better credit than if you lose your home to foreclosure.
The lender can also save legal costs if you choose DIL instead of foreclosure. For these reasons, a DIL may seem analagous to an amicable divorce. You both agree to part ways and cut your losses. You also may be eligible for a $500 payment from the Department of Housing and Urban Development (HUD), known as borrower’s consideration. Lenders may receive $250 as an incentive.
You normally have up to 6 months from the date of default in order to complete a DIL with your lender. Exceptions may occur if you tried one of the workout agreements available to those who need mortgage assistance.
While there are some benefits to a DIL, it is highly recommended that you complete housing counseling prior to selecting this option. A HUD-approved housing counselor can help you determine your options. Also, you should understand the steps of foreclosure so that you know where you are in the foreclosure process. Knowing your options and timeframe for taking action can give you more time to attempt a workout option or to attempt a sale of your home.