Are you behind on your house payments and facing the threat of foreclosure? To protect your property from being taken back by the lender, consider a deed in lieu of foreclosure.
OK, so please explain deed in lieu of foreclosure.
A deed in lieu of foreclosure, sometimes referred to as a voluntary foreclosure, is a process whereby the borrower, having failed to satisfy his loan obligation, voluntarily hands over the property to the lender.
The lender then sells the property in an attempt to recover some or all of the amount owed on the loan.
So what is the actual process? The process involves the execution of legal documents, including an Agreement in Lieu of Foreclosure and either a Quit Claim Deed, a Warranty Deed, or a Grant Deed.
The Agreement lays out all of the terms and conditions of the deed in lieu of foreclosure, and must be signed by both the borrower and the lender.
The deed conveys legal ownership of the property to the lender.
The lender will then mark the borrower's note as being "paid" and then provides the borrower with two documents - one stating that the debt is canceled and the other referring to the waiver of the lender's right to a deficiency judgment (the lender's right to seek, in court, payment of any difference between the balance owed on the loan and the amount recovered from the property sale).
The Agreement in Lieu of Foreclosure is executed through an escrow company which receives all documents in the transaction, including the borrower's note (marked as "paid") from the lender.
The escrow company then records the deed to transfer legal ownership of the mortgaged property and sends the note to the borrower.
The borrower is thus released from any further liability for the mortgage payments.
Is the deed in lieu of foreclosure a taxable event? Under the Mortgage Debt Forgiveness Tax Relief Act, which is in effect until the end of 2009, the borrower need not pay tax on the canceled debt (any unpaid loan balance which was forgiven by the lender) resulting from a deed in lieu of foreclosure.
Not every state goes along with this tax exemption, though.
One interesting point to note is, even though the lender may not collect a deficiency, the borrower, at his option, may pay towards the unpaid debt in order to avoid a negative impact on his credit report.
These extra payments serve to reduce the amount of unpaid debt, that is, the canceled debt which is the basis of the tax liability.
While every effort has been made here to explain deed in lieu of foreclosure, this article is no substitute for competent legal advice.
OK, so please explain deed in lieu of foreclosure.
A deed in lieu of foreclosure, sometimes referred to as a voluntary foreclosure, is a process whereby the borrower, having failed to satisfy his loan obligation, voluntarily hands over the property to the lender.
The lender then sells the property in an attempt to recover some or all of the amount owed on the loan.
So what is the actual process? The process involves the execution of legal documents, including an Agreement in Lieu of Foreclosure and either a Quit Claim Deed, a Warranty Deed, or a Grant Deed.
The Agreement lays out all of the terms and conditions of the deed in lieu of foreclosure, and must be signed by both the borrower and the lender.
The deed conveys legal ownership of the property to the lender.
The lender will then mark the borrower's note as being "paid" and then provides the borrower with two documents - one stating that the debt is canceled and the other referring to the waiver of the lender's right to a deficiency judgment (the lender's right to seek, in court, payment of any difference between the balance owed on the loan and the amount recovered from the property sale).
The Agreement in Lieu of Foreclosure is executed through an escrow company which receives all documents in the transaction, including the borrower's note (marked as "paid") from the lender.
The escrow company then records the deed to transfer legal ownership of the mortgaged property and sends the note to the borrower.
The borrower is thus released from any further liability for the mortgage payments.
Is the deed in lieu of foreclosure a taxable event? Under the Mortgage Debt Forgiveness Tax Relief Act, which is in effect until the end of 2009, the borrower need not pay tax on the canceled debt (any unpaid loan balance which was forgiven by the lender) resulting from a deed in lieu of foreclosure.
Not every state goes along with this tax exemption, though.
One interesting point to note is, even though the lender may not collect a deficiency, the borrower, at his option, may pay towards the unpaid debt in order to avoid a negative impact on his credit report.
These extra payments serve to reduce the amount of unpaid debt, that is, the canceled debt which is the basis of the tax liability.
While every effort has been made here to explain deed in lieu of foreclosure, this article is no substitute for competent legal advice.
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