Deed in Lieu of Foreclosure
Simply put, a deed in lieu of foreclosure (“DIL”) is a foreclosure settlement between the borrower/owner of a property and the lender whereby title is transferred to the lender to avoid foreclosure. Like a short sale, it’s an exit strategy when the borrower prefers to get out of the property and mortgage debt instead of keeping the home. Generally, our firm does not recommend the DIL settlement option until other efforts are exhausted. One reason is that the credit impact to the borrower will be approximately the same as a completed foreclosure and court auction through the legal system. Also, the DIL option will not likely be available if there are other lien-holders such as second mortgage lenders. This is because the first mortgage lender pursuing a foreclosure will need to see the case all the way through to a final judgment and court sale to extinguish those junior lien rights.
It is usually worthwhile to pursue the short sale exit strategy first because of the lesser credit harm and shallower hole to dig out of during the rebuilding phase of credit and finances. A DIL deal should always come with a deficiency waiver from the lender so the borrower doesn’t have to worry about being sued for the lender’s loss later. Otherwise, there is little incentive to agree to a DIL.
Each case is different. Contact Us for a free consultation!