South Florida residents who are facing financial challenges will typically explore every option they can to stave off the worst results. For some, this may mean making temporary sacrifices to delay the inevitable – a foreclosure. Despite a slow and steady rebound in the national housing market, there are still plenty of individuals and families who have a tough time making their monthly mortgage payment. And, if they are on the brink of foreclosure, these people are right to consider their options.
One option that some of our readers may not be familiar with is the legal concept of “deed in lieu of foreclosure.” This type of real estate transaction will involve quite a bit of back-and-forth between the borrower and the lender, but the concept is actually quite simple. First, and most importantly, the lender agrees to the borrower’s proposal to accept a voluntary transfer of the property in question to the lender. The lender will then cancel the remaining amount of debt that the borrower owes on the property. In short, the lender gets the property, and the borrower gets out from under the debt burden associated with the property.
For a borrower, getting away from that debt burden may be a relief, but there is a flip-side to the coin: the borrower loses all equity in the property. For the lender, a deed in lieu of foreclosure can be quicker and easier than going through the foreclosure process.
Another aspect of this type of transaction for a borrower to consider is the tax implications. The debt that is forgiven by the lender, whatever the amount, will be subject to tax liability. But, above all else, borrowers get the benefit of keeping a foreclosure off their credit report. Those who have questions about mortgages and mortgage-related issues may want to think about contacting an attorney.
Source: FindLaw, “Walking Away From a Home to Avoid Foreclosure,” accessed Jan. 1, 2016