Instead of facing a foreclosure, a lender may allow a homeowner to convey the property back to it without the need for a foreclosure. Each lender has different requirements for when a Deed in Lieu of Foreclosure will be accepted. Some lenders will not entertain a Deed in Lieu of Foreclosure unless the property has been listed for at least 30 days. In this case, the lender wants to ensure that the homeowner has taken his best efforts to sell the property to a third party.
A Deed in Lieu of Foreclosure may not be an option if there are multiple liens attached to the property. Essentially, if the lender accepts a Deed in Lieu of Foreclosure with liens, then, when the property is conveyed to the Lender, the liens will follow. In this case, the lender may make a decision to foreclose because this action may actually wipe out some or all of the liens, thus the lender takes the property without the liens attached.
Not all lenders offer a Deed in Lieu of Foreclosure because they do not want to own real property as they are concerned with the cost in doing so. This includes items like carrying costs to maintain the property (e.g., property taxes, insurance, maintenance, rehabilitation, transfer taxes, and agent fees) and to list the property.
A Deed in Lieu of Foreclosure will require the homeowner to execute a Deed in Favor of the Lender. It is important to note that along with the Deed comes forgiveness of the debt.
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