Deed in Lieu of Foreclosure

Explore Alternatives to Foreclosure with LeavenLaw

Basically, Deed in Lieu is similar to a voluntary repossession. You are signing over the deed or "title" to your property and the lender agrees to cancel the mortgage. In other words, the typical deed in lieu of foreclosure is a consensual transaction – you have complied with a long list of requirements placed upon you by the lender, they have evaluated your facts and circumstances and, after great deliberation, a long time and a little bit of luck, they agree to take back the real estate instead of suing you! Typically the lender draws up the Deed in Lieu of Foreclosure Agreement which must be signed by the grantor / homeowner, witnessed by two people and notarized. Upon execution, the deed in lieu must then be delivered to the grantee / lender. The deed is also typically recorded at the local clerk of court in the public records.

The process, however, isn't as always as clean-cut as it may appear. For instance, the lender typically reserves the right to seek a deficiency judgment against you, the borrower / homeowner. Once the lender takes possession, the property (i.e., REO) will be put up for sale. Unless otherwise stipulated in the Deed in Lieu of Foreclosure agreement, the lender may come after you for the unpaid debt.

Specific Requirements for Deed in Lieu

Generally speaking, there are certain guidelines that must be followed before the lender will consider the Deed in Lieu. It should be noted prior to engaging in a consensual deed in lieu that they are not "easy" and as a general rule, fail more times than they succeed.

They are as follows:

  • The borrower must have suffered a hardship such as loss of job, sickness, dissolution of marriage, etc
  • The property is generally an individual's former homestead; the Deed in Lieu is generally not for abandoned or investment properties
  • The borrower must have exhausted other options / financial resources
  • The property must have been on the market between 90 and 180 days
  • There cannot be any other liens on the property
  • The property must be left in clean condition (sometimes the lender requires an inventory & a statement of condition)

Our firm is also able to handle cases involving forced deed in lieu. We can work to secure an outcome in your best interest!

Income Tax Consequences for Deed in Lieu of Foreclosure

There are income tax consequences to consider with the Deed in Lieu of Foreclosure. The IRS often gets involved with Deed in Lieu, because the deficiency that results from the ultimate sale is typically forgiven. In such case, this forgiveness is seen as a relief of debt and may be treated as income. Please consult with your with your accountant or tax advisor for specific details.

NOTE: On December 20, 2007, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which will help Americans avoid foreclosure by protecting families from higher taxes typically assessed from the forgiveness of indebtedness. This Act will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. Under current law, if the value of your house declines, and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as income that can be taxed.

This Act is beneficial, because it increases the incentive for borrowers and lenders to work together to refinance loans and to allow American families to secure lower mortgage payments without facing higher taxes.

Call a St. Petersburg Foreclosure Defense Lawyer Today!

When fighting to protect your home, don't leave any options unexplored. A skilled and experienced St. Petersburg foreclosure lawyer from LeavenLaw can work with you to evaluate alternatives to foreclosure, such as a deed in lieu of foreclosure. Our firm has served Florida since 1972 and is proud of the client-focused legal services we provide in order to help individuals get back on their feet in times of financial difficulty.

We offer free case evaluations, so don't hesitate to contact us!