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Posted on August 5, 2008 by Samantha Taylor | Posted under Mortgages
Deed in lieu of foreclosure: Quitclaim to protect second home
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I was in the process of foreclosure and wanted to avoid it. So I tried negotiating with the lender who then suggested a deed-in-lieu a month ago. I didn't understand what it is. Is it similar to quitclaiming my property to the lender? The property has been purchased in 2005. My wife is not on the mortgage for that property. Though I'm only on the loan for this house, I have another house on which both my wife and I are on the mortgage. I'm thinking of signing over the house we'd like to keep to my wife so that it will protect us from a deficiency judgment (as I've heard the lender may file judgment), not clear about it again! The purpose is to prevent the lender from coming after the second home and other assets that we have. My thinking is if I sign over the second house to my wife, the lender cannot come after my current home (the second one I mean) and other assets. Am I on the right track? Solution: Deed in lieu of foreclosure is an option wherein you hand over your property to the lender in order to avoid a foreclosure sale. Though both foreclosure and deed-in-lieu help you get rid of the property, yet the latter is a better option considering that it won't trash your credit as much as the former. The deed in lieu involves quitclaiming/transferring your property to the lender or the mortgage company. But its better that you use a grant deed or a warranty deed to transfer ownership to the lender. This is because the quitclaim deed states that you are conveying your property rights to the lender. But it doesn't guarantee that you are the legal owner of the mortgaged property. This is unlikely with the other deeds which provide the guaranty that the person conveying property has legal ownership rights on it. However, lenders often do not accept a deed in lieu; it depends more upon a borrower's financial hardship and how much he's behind on payment. The reason behind lenders not easily accepting a deed in lieu of foreclosure is that as per laws, once the deed in lieu is declared, the lender should waive his right to any deficiency judgment. The deficiency judgment is a judgment awarded to the lender by the court as per which the former can ask for payment of the deficiency (difference between the mortgage loan balance and the sale price of the home), if any. As because you're into a deed in lieu, the lender won't ask for the deficiency payment and hence he'll hardly ever come after the second or current home and any other asset. Thus, it doesn't make much sense if you quitclaim your current home to the lender. However, when you go for a deed in lieu, your credit score drops by 250-300 points and you lose the chances of buying a home in the next 2 years or more. I mean if you have opted for a deed in lieu or the home is foreclosed, just as in deed in lieu, it's tough to qualify for a purchase mortgage after foreclosure for the next 2-3 years. After this period ends, you can hope to get favorable rate and terms on the mortgage you choose. About The Author: Samantha Taylor is a contributing Financial Writer, Moderator and Community Mentor of MortgageFit(Largest Mortgage Community). She specializes in mortgage and real estate field. |
Tags: QUITCLAIM DEED, DEED IN LIEU OF FORECLOSURE, MORTGAGE LOAN
