What Does A Deed In Lieu Of Foreclosure Mean?

When we consider mortgages transactions that take place in the state of Indiana, between lending institutions like banks and individuals, we can talk about two types of foreclosures: the traditional foreclosure and the deed in lieu of foreclosure. Once both sides that sign the contract agree to use the deed in lieu of foreclosure, the title of the property will pass to the borrower.

This is a form of settlement between the owner of the house and the bank. It means that the person that borrowed money for the acquisition of that house passes the rights over the property to the institution that lent the money. As part of the deal, the borrower is freed from certain liabilities, as established in their contract. It means that the house owner will not have a foreclosure on their credit file.

The mechanism of a deed in lieu of foreclosure

When does a deed in lieu of foreclosure work for the borrower? It is easier to say when it does not. For instance, if the value of the house on the market is bigger than the amount of money that was borrowed, it is advisable to sell the house, instead of taking action for a deed in lieu of foreclosure.

Another things that you should know about this procedure is that it does not involve any legal actions, such as a settlement in a court of law. Both parties agree on their contract and how the foreclosure is about to take place outside the legal system.

There is a clear advantage for choosing a deed in lieu of foreclosure as a settlement. The owner of the house will receive the title of the property before the foreclosure procedures end. This means a lot of time saving for the borrower. Also, the bank has something to win, as well. Instead of spending big money on court fees, it settles the deal without the need for any legal action.

Some precautions are to be taken before enter a deed in lieu of foreclosure. The house must not be encumbered and the title of the mortgagors fee simple title will be separate.

Conclusion

First, the lender will be able to save a lot of money if the procedure of a deed in lieu of foreclosure is taken. In case the borrower fails to repay the money they took from the bank, the bank will have no problem taking over the property, selling it to someone else and recover at least a part of the money they borrowed. On the other hand, the borrower will not have to deal with having a foreclosure market on their credit file.

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