What is deed in lieu of foreclosure? Is it better than a short sale?

Asked by Sam Calderone, Mobile, AL Mon Feb 14, 2011

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Bob Movin-On, , Hartford, CT
Tue Feb 15, 2011
They are equal as far as how it will affect ones future. (see below)

Deed-in-lieu-of is a negotiation between the defaulted borrower and the bank.

A short sale is a negotiation between the defaulted borrower, their agent, potential buys, their agents, the bank and the attorneys of both the buy and seller, so you tell me what is better. Not to mention the fact the defaulted borrower is now advertising they are in trouble, so you tell me what is better. It is bad enough the defaulted borrower feel like sh** that they are in trouble now add multiple parties to the mix no wonder defaulted buyers clam up and go into hibernation.

I deal with people that have been through all forms of foreclosure,YES short sale and deed-in-lieu-of are forms of foreclosure, and short sale clients feel they were miss lead, abused and would have never considered short sale had they known about deed-in-lieu-of and that it would net the same end result.

Ramifications of Foreclosure, Short Sale or Deed-in-lieu-of Foreclosure

Here are some of the ramifications of foreclosure, short sale or deed-in-lieu-of-foreclosure, there are many more like; insurance rates, your job (yes employers are checking credit records these days).

Your credit score will be reduced by 200-400 points, short sale and deed-in-lieu-of a little less 100-200 points.

All forms of foreclosure stay on your credit report for 10 years.

After you have gone through foreclosure, short sale or deed-in-lieu-of-foreclosure there will be what is known as the "waiting period", this period of time varies for each and can be reduced if you had some type of extenuating circumstances that caused the foreclosure:
Waiting Periods to Buy After Foreclosure – “YES” Short Sale and Deed-in-lieu-of are forms of foreclosure
• Buying after a Walk Away Foreclosure
The waiting period is 7 years
• Buying after a Foreclosure
The waiting period is 5 years with 20% deposit up to 7 years.
• Buying after a Foreclosure with Extenuating Circumstances
The waiting period is 3 years with 10% deposit up to 7 years.
• Buying after a Deed-in-Lieu-of Foreclosure
The waiting period is 2 years with 20% deposit, 4 years with 10% deposit up to 7 years.
• Buying after a Deed-in-Lieu-of Foreclosure with Extenuating Circumstances
The waiting period is 2 years with 10% deposit.
• Buying after a Short Sale
The waiting period is 2 years with 20% deposit, 4 years with 10% deposit up to 7 years.
• Buying after a Short Sale with Extenuating Circumstances
The waiting period is 2 years with 10% deposit.

In addition to the waiting period and minimum down payment, you will be required to have a minimum FICO score and the home purchase must also be the principal place of residence, not a rental nor a vacation home.

Lastly, most loan applications will ask the dreaded question "Have you ever been foreclosed on?" this stays with you for life, many think that because it will not show up on the credit report after 10 years they can answer "no", well lying on a loan application is a felony that carries a major jail term, so be aware.

Bob Patrick
Buy a home after foreclosure, short sale or deed-in-lieu-of expert
Movin-On LLC
Helping families/people that have lost their homes get back into another in as little as 6 months
1 vote
I WISH I had all this explained to me BEFORE my deed in lieu. I could not afford an attorney and the so called help I received from a non profit consisted of filling out paperwork I already filled out. It was a joke. I can fillout a stupid form I needed guidance.
Flag Wed Aug 31, 2016
Helen Chong, Agent, San Jose, CA
Tue Feb 15, 2011
Deed in lieu means you voluntarily give the deed back to the bank. It is still a form of foreclosure and it has a big impact on one's credit score. The credit hit would be much more detrimental than doing a short sale. Lenders can file for deficiency judgment from either deed in lieu or short sale and they both may generate taxable income from the unforgiven debt. You can read more in detail about the differences here: http://www.nolo.com/legal-encyclopedia/short-sales-deeds-lie…
Hope this helps!
1 vote
Scott Godzyk, Agent, Manchester, NH
Tue Feb 15, 2011
Sam a short sale is better than a deed in lieu, for both you want to make sure you negiotiate what will become of teh deficiency or balance left from what one owed to what they sold the house for.

please see my blog with tips and advice on gettiing a short sale approved.
0 votes
Alma Kee, Agent, Tampa, FL
Tue Feb 15, 2011
Hi Sam,

It's usually best for a borrower to do a Short Sale verus a DIL. Also if the property is the primary residence and owner-occupied the seller may qualify for the HAFA Short Sale program and actually get a check for $3k at closing, too!

http://www.MakingHomeAffordable.com

All my best,
Alma
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