This question should be asked to a legal expert before you take any action. Some of your options are Deed-in Lieu, as well as possible short sale and the last resort is foreclosure by the bank. I try and explain the difference between the three like the different degrees of a burn. No burn is good, but First Degree is better then Second Degree Burns, and Second is better then Third.
So the worst thing for you credit is a foreclosure so that would be like Third Dregee Burn that are deep burns with charing and could lead to loss of life. So that why I say that Foreclosure is a last resort.
Deed-in Lieu is more like a Second Degree Burn , lees chance of loss of life but still serious. The deed-in-Lieu will effect your credit but not as bad as a foreclosure. It shows that you were willing to work with the bank and turned things over to the bank in good condition, and the bank had lees expense in not having to foreclosure.
The Short Sale option is the best for everyone in that you work with the bank to sell the property and assit the bank in getting new owners. You may or may not get a charge off list on your credit. This offer will get the highest value in a sale, also meaning more paid off what is owed.
The last thing I want to mention is you said two houses, only one can be your homestead or primary residence. The second property will be looked at as Investment and could incur serious Tax Issues, and should speak with a tax professional before any action is taken.... more