Avoid Foreclosure: Ask Your Lender about a Deed in Lieu

By Karen Lawson
Mortgage Credit Problems Columnist

You're unemployed, or are facing a medical crisis. You've exhausted your savings, and have come to the point where you can't make your mortgage payments. Your lender is likely to start foreclosure before you can list and sell your home. Foreclosure is embarrassing and results in bad credit. What can you do?

Approaching Your Mortgage Company

Before calling your mortgage company to ask for help, get your current financial information together. This includes current pay stubs or payroll deposit advices, bank statements, and your household bills including credit cards. Document your hardship--what happened, if or when it will be resolved, and what you plan to do about it.

If you want to keep your home and can send part of what you owe, volunteer to do so. ("I know I owe two payments. I can send one now, and another $ 500 by the end of the month.") This may lead to a repayment plan. If your payments have increased due to the terms of a bad credit mortgage, ask your lender about modifying your mortgage and getting a lower fixed rate. Modifying the terms of your loan only works if you can show that you can make the new payments and that giving you a break isn't just putting off an inevitable foreclosure.

Avoiding Bad Credit: Asking for a Deed in Lieu

A deed in lieu of foreclosure can be preferable to foreclosure for you and your mortgage company. Mortgage companies are not prepared to manage foreclosed properties, and they must also hire third parties such as attorneys or trustee companies to conduct foreclosure proceedings. Depending on where you live, foreclosure can take from a couple of months to a year or more. Foreclosure and its aftermath are costly; it stays on your credit report for up to ten years and is expensive for your lender as well.

If you can't make payments, your lender may accept a deed in lieu of foreclosure to save the cost of a foreclosure. The resolution department will issue a letter of instruction for completing the transfer of title. You will agree to move by a specified date, and to leave the home vacant and clean. The deed in lieu will act as a satisfaction of your mortgage loan, but any missed payments before the deed is accepted may be shown on your credit report.

If you have a bad credit mortgage, it's especially important to work with your lender to avoid foreclosure and further credit problems.

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds an MA degree in English from the University of Nevada, Reno.

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