Today’s American homeowners faced with the three “U’s”, underwater mortgage, unpaid mortgage, and unemployment have another option instead of foreclosure. A deed in lieu of foreclosure, also know as a DIL, is when the homeowner voluntarily gives the property back to the lender in exchange for the loan cancellation. However, here are some items you should be aware of before proceeding., under federal law, a creditor is required to file a 1099C whenever it forgives a loan balance greater than $600. This could be considered income for the homeowner which could later create tax problems, so be sure to ask your lender or real estate attorney about this. The Mortgage Forgiveness Debt Relief Act of 2007 is a great resource known to provide some tax relief for loans forgiven.

How do I qualify?: A deed in lieu of foreclosure isn’t for everyone, especially if you want to keep your house. Still, many just want to be rid of the financial burden and stress that comes from a home they can no longer afford. Each lender has different requirements to qualify for a DIL, but some of the more common ones include inability to modify or refinance your mortgage payments, owing more than your home is worth, or facing a long-term financial hardship such as job loss or divorce.

How long does is take?: According to www.hud.gov, a deed in lieu of foreclosure must be completed within 90 days of the initiation process. Lenders who choose to accept a DIL choose to do so because the process is usually faster than going through the long drawn out foreclosure process. The bank typically takes over the property immediately in lieu of allowing the homeowner to live there mortgage free.

Read the fine print: Despite the fact the DIL’s are considered quicker than foreclosures, halt foreclosure proceedings/stop existing proceedings, and are easier for lenders to process there are still some issues to be on the look out for. Homeowners should be aware that the lender may not always agree to forgive any deficiency balance that may result from the sale of the home. According to www.irs.gov

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This is filed under Foreclosures.


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