Most of our South Florida readers are probably familiar with the general process of a foreclosure. This is the process by which a mortgage lender can seize the home of someone who is not keeping up with their monthly mortgage payment and, as a result, the lender makes the determination that it is a better option to take over ownership of the property itself rather than to try to work out an arrangement with the delinquent borrower. However, there is another process that our readers may not be too familiar with: the deed in lieu of foreclosure process.
When the real estate crunch really came to a head in the last few years, borrowers and lenders alike were looking for options besides foreclosure. The deed in lieu of foreclosure process, as a result, became more popular than it has been at almost any other time. The process has, of course, been around forever, but the tough real estate market of recent years made the option more appealing.
In the most general sense, the deed in lieu of foreclosure process has the same end-result: the homeowner no longer owns the home - the lender does. However, the process takes place without the traditional foreclosure process taking place. Basically, the two parties agree that ownership of the home will be handed over to the lender, and the benefit for the borrower is that the outstanding balance of the mortgage is forgiven. In this process, there will be no foreclosure on the borrower's credit history.
Our readers may be thinking, "Why would a lender agree to this arrangement?" Well, it looks better from a public relations standpoint, and the deed in lieu of foreclosure process is usually cheaper and quicker than the traditional foreclosure process.
Source: Forbes, "Deeds in Lieu of Foreclosure: Naughty or Nice?," Daren Blomquist April 23, 2013